Quarterly Update - 2023 - Q1
Q1 Report for 2023
The sales activity in 2023 has been a topic of concern for many, as it has slowed down by 43 per cent compared to last year's all-time record-high performance in the first quarter. This decline was anticipated, given the surge in sales last year, as purchasers were eager to enter the market ahead of expected rate gains. While no further rate gains have occurred so far this year, the higher lending rates and limited supply choice are contributing to some of the pullbacks in sales. Nevertheless, sales activity has remained well above pre-pandemic levels, thanks to recent gains in migration coupled with a stronger employment market.
Factors Contributing to the Decline in Sales
Limited Supply Choice
The most notable challenge in the market has been related to supply levels. New listings were expected to ease as higher lending rates would make it more difficult for the move-up buyer. However, the pace of decline in new listings has exceeded expectations. New listings in the first quarter declined by 40 per cent, preventing any significant shift in the supply levels given the relatively strong sales. Inventory levels in the city averaged 2,814 units in the first quarter, 21 per cent lower than last year's levels and over 42 per cent below long-term trends for the first quarter. With a sales-to-new-listings ratio of 71 per cent and a months of supply of under two months in the first quarter, conditions continue to favour the seller.
Higher Lending Rates
Higher lending rates are also contributing to the decline in sales. Buyers are finding it more challenging to afford a home due to the increase in mortgage rates. However, no further rate gains have occurred so far this year, which could be a good sign for buyers.
Trends in Sales Activity
Despite the decline, sales activity has remained well above pre-pandemic levels thanks to recent gains in migration coupled with a stronger employment market. This is an encouraging sign for the real estate market, as it indicates a strong demand for housing.
Steeper Decline in Q1
The steeper decline in the first quarter was expected, given the surge in sales last year. However, the decline was more significant than anticipated, indicating that the market is still adjusting to the higher lending rates and limited supply choice.
Price Fluctuations
Some of the fluctuations in price were expected this year, given what happened last year. However, price growth to date has been stronger than expected. Given the limited supply currently on the market, we could expect to see some stronger price growth through spring, potentially supporting a modest annual gain in 2023.
Conclusion
Overall, the sales activity in 2023 has been slower than expected, but it remains well above pre-pandemic levels. The limited supply choice and higher lending rates are contributing to the decline in sales, but recent gains in migration coupled with a stronger employment market are offsetting some of these effects. The market is still adjusting to the changes, and we could expect to see some fluctuations in prices, but the outlook for the real estate market remains positive.
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