Toronto home sellers learning a hard truth: the market has turned

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The sputtering Toronto-area fall real estate market is seeing a steady rise in inventory as October begins but skittish potential buyers are looking for more clarity in the outlook for the Canadian economy.

James Warren, a real estate agent with Chestnut Park Real Estate, expects more listings in the coming weeks in many neighbourhoods and price segments.

As buyers take their time, sellers need to be extremely rational in setting an asking price, he says.

“If you don’t have your listings well-priced, you’re going to be in for a bumpy ride.”

In the upscale enclave of Rosedale, where Mr. Warren does much of his business, there were 36 listings for sale at the end of September. That compares with a more typical inventory of 24 to 26 listings in the fall market, he says.

Some carriage trade properties have traded hands privately in Toronto recently, he says, adding that people purchasing in the upper echelons tend to be less swayed by interest rates.

Sellers have had the upper hand for many years, he says, and some still float the idea of setting an offer date in the hope of fielding multiple bids. It’s not a strategy he recommends in the current market, he says.

“It’s called patience,” he quips. “It’s the latest thing that people are doing.”

Farah Omran, senior economist at Bank of Nova Scotia, says buyers are in wait-and-see mode as they await more information on the future path of interest rates, inflation and economic activity.

She says concern surrounding the Bank of Canada’s actions is the most likely factor in the slowdown in real estate activity.

The central bank held its benchmark interest rate steady at 5 per cent in September following hikes in June and July.

National sales retrenched and listings maintained their gains in August, Ms. Omran adds.

The sales-to-new-listings ratio has eased from its recent peak in April at 68.3 per cent to 56.2 per cent in August. That’s in line with the long-term average of 55.2 per cent, she says, and indicates a balanced national market compared with historical averages.

Potential buyers now have many questions, such as whether more rate hikes are on the horizon, or if cuts are coming sooner than expected. People also wonder if their jobs are safe and if house prices will follow sales lower.

“These are amongst the many uncertainties currently keeping potential purchases on hold,” she says.

Daren King, economist at National Bank of Canada, cautions that recent strength in Canadian home prices is likely to be short-lived.

The seasonally adjusted Teranet-National Bank composite national house price index rose 1.6 per cent in August from July.

Mr. King warns that the slowdown in the resale market in recent months, along with a less favourable economic backdrop, will likely lead to price declines in the coming months. Decreases will likely be limited, however, by population growth and lack of housing supply, he adds.

Mr. Warren says that many empty nesters have decided that this fall is the right time for them to sell.

Mr. Warren has an upcoming listing in midtown Toronto that was listed previously for $7.4-million and $6.8-million without finding a buyer. The homeowner then approached Mr. Warren.

“We’ve just banged it down to under six,” he says. “I don’t want to take overpriced listings.”

With resistant homeowners, Mr. Warren tells them frankly, “you’re being used to sell other houses.”

That’s what he calls the “light bulb moment” for many sellers who are holding fast to a higher price, he says.

Agents with competing listings will point to the high-priced listing to show that the house they are selling offers better value, he says.

Competing overpriced houses that are also less desirable don’t even get showings, he says, because buyers are searching for the greatest value they can find for the amount they have to spend.

Mr. Warren says his talk with sellers includes explaining to them that a listing priced too high will be used by other agents to sell competing listings.

Currently he is not seeing an influx of distressed sellers.

A few sellers are financially strained or unable to refinance with interest rates at their current level, he adds, but numbers are low.

Mr. Warren says many first-time buyers were able to obtain fixed-term mortgages when rates were at historically low levels and therefore they’re not facing higher payments today.

Some homeowners who are stretched are deciding to rent out part of their homes to supplement their income, he adds.

While buyers were able to pass a mortgage “stress test” when they purchased, they now face soaring expenses in other areas of their lives.

“What the stress test didn’t take into consideration was the inflation rate.”

When interest rates were low, buyers were more willing to throw money around, he adds.

“I think people are now beginning to understand the value of a dollar.”

Mr. Warren says the Toronto market faces another headwind in the form of higher taxes on transactions.

In September, Toronto’s city council approved an increase to municipal land transfer tax rates for homes valued at $3-million and above.

The new graduated rate, which will be applied at closing starting Jan. 1, 2024, presents another worry for buyers, he says.

Mr. Warren says taxes don’t usually stop buyers from purchasing but they do weigh on affordability.

Buyers are extremely well-armed with knowledge about the market, he says. When he posts new listings at an attractive price, his phone sometimes starts ringing within 20 minutes.

“If you’re overpriced, the market will tell you very quickly, within a week. If you’re underpriced, the market will find you very quickly.”