New-Home Sales in GTA Threatened by June Interest Rate Hike, Causing Market Fragility

According to a report from the Building Industry and Land Development Association, the recent interest rate hike in June has posed a threat to the sales momentum observed in May for new-build homes across the Greater Toronto Area (GTA).

Dave Wilkes, President and CEO of BILD, expressed his concerns about the impact of the interest rate hike on the market’s fragility. He noted that the numbers from May reflected the industry’s response to market forces, with demand returning as interest rates paused. However, he emphasized that the market is incredibly fragile, and the interest rate hike in June has created challenges for families in the GTA and Canada who are aspiring to become new home buyers.

In May, there was a year-over-year increase in new home sales, reaching 3,109 units, a 22 percent rise compared to the previous year. However, this figure still fell 10 percent below the 10-year average. Single-family home sales accounted for 1,133 units, a substantial increase of 123 percent from the previous May but slightly below the 10-year average by three percent.

Conversely, sales of condos, stacked townhouses, and lofts amounted to 1,976 units, reflecting a three percent decrease from May 2022 and a 14 percent decline from the 10-year average.

Regarding inventory, the industry has seen a resurgence in levels, particularly for high-rise buildings. Dave Wilkes stated that the inventory is now at a healthy level, with a total of 15,346 new home units in May, including completed, pre-construction, and under-construction properties, equating to approximately 13 months’ worth of inventory.

Benchmark prices for new condo apartments and single-family homes experienced a slight year-over-year decrease, settling at $1,097,747 and $1,736,348, respectively.

The upcoming June figures will determine the market’s direction, but Wilkes expressed his worries about a market that is highly sensitive to changes in monetary policy. According to builders, there has been a significant slowdown in activity since the June interest rate hike.

Given the precarious state of the market, especially if rates increase further, Wilkes believes that the Bank of Canada and the federal government should utilize other tools, such as modifying the stress test, to mitigate the impact of higher interest rates. He cautioned that the Bank of Canada and federal monetary policy might be at risk of overshooting their targets and exacerbating the affordability challenges in the GTA market.

With further interest rate hikes, the fragility of the market becomes increasingly evident and exposed.