Toronto home sales fall 22% in May as buyers await rate cuts

Would-be Toronto home buyers continue to hold out for lower mortgage rates, according to the May crop of real estate data.

The latest numbers released by the Toronto Regional Real Estate Board (TRREB) show home sales fell -21.7% compared to last May, and eased a further -1.4% from April activity – not exactly the seasonally typical spring rush, and a stark contrast to the short-lived pickup that occurred in the market this time last year.

New listings, however, continue to flood the market; a total of 18,612 homes were listed, up 21.1% year over year. Active listings – which reflects the total amount of real estate inventory available for sale – currently sits a whopping 83.3% higher than it did during the same time period in 2023.

All that’s led to a market saturated with supply, as buyers show little urgency. As a result, the average home price in the Greater Toronto Area (GTA) dipped by -2.5% year over year, to $1,195,409. The Home Price Index Composite, which reflects the most typical type of home sold with the extremes stripped out, also dropped -3.5% on a monthly basis. Prices were down across every home type.

Toronto Regional Real Estate Board

Buyers holding out for rate relief

That’s not to say there’s a lack of buyers, points out TRREB – they’re simply sitting on the sidelines in wait of anticipated rate cuts later this year (the May Toronto data does not capture the effect of the Bank of Canada rate cut implemented on June 6, 2024).

As well, the fact that new listings continue to come to market is proof that sellers expect activity to pick up once borrowing costs lower, the board says.

“Home buyers are still waiting for relief on the mortgage rate front. Existing homeowners are anticipating an uptick in demand, as evidenced by a year-over-year increase in new listings,” states TRREB’s release. “With more choice compared to a year ago, buyers benefitted from more negotiating room on prices.”

TRREB President Jennifer Pearce adds that recent polling conducted by the board shows buyers are indeed waiting for “clear signs of declining mortgage rates.”

“As borrowing costs decrease over the next 18 months, more buyers are expected to enter the market, including many first-time buyers. This will open up much needed space in a relatively tight rental market," she stated.

Those who did participate in the market enjoyed slightly lower home prices and a calmer buying environment – but don’t expect such relaxed conditions to last, says TRREB Chief Market Analyst Jason Mercer.

“While interest rates remained high in May, home buyers did continue to benefit from slightly lower selling prices compared to last year. We have seen selling prices adjust to mitigate the impact of higher mortgage rates. Affordability is expected to improve further as borrowing costs trend lower. However, as demand picks up, we will likely see renewed upward pressure on home prices as competition between buyers increases,” he said.

Multiple rate cuts may be needed to move the market

On June 5, the first of that downward pressure materialized when the Bank of Canada cut its key interest rate – which sets the pricing for Canada’s Prime rate and variable mortgage rates – by 0.25%. As a result, the benchmark cost of borrowing now sits at 4.75% and the prime rate has been lowered to 6.95%.

However, it may take several rate cuts before home buyers actually benefit from lower rates. Given borrowing costs remain historically high – and buyer affordability is at an all-time low – a quarter-point decrease won’t provide significant relief. 

However, that’s not to count out the psychological effect entering a lower-rate environment can have on home buyers; as seen in rate-cut eras past, dropping mortgage rates tend to put a boil under home prices, as buyers feel pressed to enter the market before 'it’s too late'.

“It will be interesting to see if this first 25 basis point rate cut is enough to stoke demand and cause FOMO to return in the housing market or if buyers will wait to see further rate relief,” says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.

Sales and prices fell the most in 905 markets

Toronto Regional Real Estate Board

Sales and home prices, while down across the GTA, held somewhat firmer within the City of Toronto than in the surrounding “905-area” markets. Within Toronto, a total of 2,701 homes sold, marking a -17.3% decline from last May. New listings rose by 28.1%, with 7,360 homes brought to market, but that did little to pull down home prices; they stayed roughly flat on an annual basis at $1,193,202 (-0.1%).

Sales declines were more pronounced within the 905, down 24.2% with a total of 4,312 transactions. New listings rose by 16.9% with 11,252 properties, while home prices fell -3.9% year over year, to an average of $1,148,458.

Also read:

• Bank of Canada cuts target interest rate by 0.25% in June announcement
• How much does it cost to own a home in Toronto?
• 81% of mortgage borrowers are impacted by rising rates
• National home sales fell in April as buyers stick to sidelines
• It became tougher to buy a home in April despite lower mortgage rates