Week 141: Interest Rates & Unemployment to Ravage Toronto’s Economy in 2023

Toronto and most of Canada are in for a bumpy ride as we head into 2023.

Don’t worry; you’re still on the right side of the internet. I haven’t turned into some sort of alarmist real estate bear. I”m still the scrappy Real Estate Raccoon you’re used to.

But it’s important to know what lies ahead.

The saying I hate the most is when agents say, “well, we don’t have a crystal ball,”

Imagine you went to the Doctor, and they said, “well, here’s what you have, but we don’t have a crystal ball, so we can’t tell you what you’re up against.”

Nobody is asking you to predict the future of the entire economy for the next five years, but it’s pretty clear how the next few months and perhaps the next year will unfold.

Urban Markets: Downtown & Surrounding Areas
House Average Price: $1,580,784
House Median Price: $1,460,000
501 Active Listings
46 Firm Sales This Week
Months of Inventory (MoI) ~ 1.78 (up from 1.72 last month)
Average Days on Market ~ 17.96

Condo Average Price: $906,000
Condo Median Price: $695,000
1583 Active Listings
82 Firm Sales This Week
MoI ~ 2.25 (up from 2.15 last month)
Average Days on Market (DOM) ~ 23.07

Those of us in the weeds everyday learning and understanding, not just the data but human behaviour sure do have a crystal ball.

A crystal ball that can see into the near future anyway.

And that’s all we should be striving for. To develop the intuition, knowledge, and understanding of human behaviour enough to give a window into the next couple of quarters up to a year. That’s how we train the agents here on The Spring Team.

Sure, during the heat of the market, we had some blinders. Correction, I had some blinders on. I didn’t consider upcoming inflation numbers a major player in how things would play out.

I was focused on unemployment, which was strong; I was focused on what makes Toronto such an attractive city to live, work, and play in. I focused on people’s general optimism around the market and got a little high off of their high vibes.

Urban North: Rosedale, Deer Park, Moore Park, Forest Hill, & Lawrence Park
House Average Price: $2,856,000
House Median Price: $2,100,000
144 Active Listings
5 Firm Sales This Week
MoI ~ 2.78 (up from 2.49 last month)
Average Days on Market ~ 14.4

Condo Average Price: $1,748,125
Condo Median Price: $1,245,000
218 Active Listings
8 Firm Sales This Week
MoI ~ 3.04 (up from 2.47 last month)
Average Days on Market ~ 17.13

I treated the upcoming slowdown as a typical one we would have seen before. I expected the newly set high prices to hold for much longer than they did. I expected a 5% pullback in our urban communities (today, we’ve seen 9-12% in some areas and much more in rural communities.)

I expected rates to rise much slower. I’m sure some Twitter users I debated with are quietly laughing at my past comments. But I’m laughing at their idea that all of Toronto’s real estate would be at a 30-40% discount when this happened. Not a likely scenario.

But then supply chains didn’t sort themselves out as everyone hoped.

The cost of food and gas kept going up. Despite some positive news this July, inflation has been a much bigger problem and definitely not as transitory as I initially thought.

I suspect we’ll have some positive inflation numbers coming out soon but then will be overshadowed by dreary unemployment numbers as major players like Meta, Amazon, and the like announce significant cuts. Not just in the states but in Canadian markets too. These are not the same jobs that were being lost during covid. These are high-paying jobs that will affect the real estate market.

Leaside, Davisville, Yonge & Eglinton
House Average Price: $1,783,800
House Median Price: $1,780,000
50 Active Listings
5 Firm Sales This Week
MoI ~ 1.70 (up from 1.35)
Average Days on Market ~13.4

Condo Average Price: $825,500
Condo Median Price: $752,250
159 Active Listings
4 Firm Sales This Week
MoI ~ 2.49 (down from 2.61 last mth)
Average Days on Market ~ 35.5

But all of this should begin settling as rates come down deeper into 2023. As soon as the Bank of Canada announces a halt, buyer sentiment will immediately improve. You want to have bought by then if you’re a buyer.

I mean, had there not been the Russian invasion of Ukraine disrupting shipping routes and skyrocketing the cost of grains and oil and massive continued lockdowns and threats of war and occupation in Taiwan and China, essentially halting the production of chips necessary to produce vehicles and other electronics, perhaps things would have been more transitory?

Read more about what’s happening in Taiwan here.

Who knows.

All we know now is that there are a lot of things happening in the World outside of Canada’s control that is affecting our economy.

As long as Russia makes things difficult for Ukraine, the rest of the world will likely see high prices and supply issues from wheat to oil to fertilizer to steel and aluminum products.

Far from transitory.

So what’s the solution to all of this? Continue to increase rates till you kill the demand for any extra spending?

At what cost?

Birch Cliff
House Average Price: $1,183,667
House Median Price: $1,091,000
17 Active Listings
3 Firm Sales This Week
Months of Inventory (MoI) ~ 0.93 (down from 1.36)
Average Days on Market ~ 9

We already know that Torontonians, and Canadians in general) aren’t panic sellers and will do whatever they can to keep the homes they’ve worked so hard for. That’s not debatable.

If you look at the supply numbers, we pulled back this week in every community and property type. If that doesn’t give you a boost of confidence, I don’t know what will.

Our team was involved in three multiple-offer citations this week, and more are on the horizon this week.

That doesn’t mean the market is all hunky dory, far from it. But buyers are out there, and luckily they’re out there more than they were last week.

Impressed to see both condo and house sales jump double digits week over week in our urban markets.

But how much more tightening can we take? I don’t think Toronto can handle a full year of increases. We’re almost at the point where you can see luxury items selling at massive discounts from last year. High-end watches, cottages, and recreational products like boats are all on the decline.

Kingston Rd Corridor to Highland Creek
House Average Price: $1,135,523
House Median Price: $1,060,000
65 Active Listings
9 Firm Sales This Week
Months of Inventory (MoI) ~ 1.45 (down from 1.56)
Average Days on Market ~ 13.11

Condo Average Price: $564,667
Condo Median Price: $525,000
71 Active Listings
3 Firm Sales This Week
MoI ~ 2.81 (up from 2.72)
Average Days on Market ~ 56.67

Houses are last. Toronto will be fine at the end of the day. No doubt. All of these big companies that are laying off thousands of employees aren’t going anywhere. They’ve all doubled down on their Toronto HQs and will be hiring again.

Like a real estate investment, these huge companies have long-term plans and visions. They need people to execute these plans. They’ll hire again.

Developers aren’t going to fire sale their properties. They’ll stop building for a while and build/sell again when the market is ready. But that’s going to create another issue.

The supply of new housing will suffer; it will create the perfect storm for another pop. I’ll buy everything I can until that happens, and so should you.

So to summarize, the year ahead is going to be slow. People will be spending less money after the Holiday season as their jobs may not feel as secure as they hoped. Rates will come up a couple more times, but I suspect a halt to the cycle in Q1 or Q2 of 2023. The sooner, the better. Real Estate will not fall off a cliff. Toronto’s real estate may see many more months of extremely slow sales, but prices should remain stable from here on out.

But remember, Toronto’s real estate market reacts very differently depending on where you are, what street, what housing type etc..… We’ve repeatedly learned that our market cannot be painted with one big brush.

But no matter what you do to rates, it won’t change the fact that things like cars, food, and gas will continue to be very expensive.

So tighten the ship, cut unnecessary expenses and keep an eye out for exceptional real estate deals. They exist, and you’ll be glad you took the risk when you are ready to retire.

Any questions? The entire team and I are here to help. Email/comment/text/smoke signal, and we’ll get back to you.

Have a wonderful day, and I’ll see you next week. Don’t forget to subscribe to the blog so you get this in your inbox asap, and we’ll see you on Youtube!

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