A ‘weird’ March shows real estate market still off balance

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If you ask realtors and economists, they’ll tell you the spring real estate market has been surprisingly robust compared to expectations. It’s only when you zoom in on submarkets that the more troubling trends appear.

For example, the Toronto Regional Real Estate Board (TRREB) reported just 647 detached home sales in the city of Toronto in March, 2024 – that’s the lowest number of detached home sales in any March in at least 25 years; lower than any March on TRREB’s publicly available MarketWatch archive, which only goes back to 1996.

Despite that, the prices of those homes hit an average of $1,708,437, up slightly from the year before (0.4 per cent) and there were more sales of all types in March than in February.

The overall picture has economists reaching for intangibles as a way to explain it. At least, that’s what TD Bank economist Rishi Sondhi appeared to do in his April 8, housing report that noted “favourable weather conditions” were among the factors for why the first quarter of 2024 has been stronger than the bank’s December forecast. Mr. Sondhi also said a release of pent-up demand helped explain why B.C. and Ontario saw sales increase so far in 2024 (the caveat that the overall transactions in the provinces are still 20 to 30 per cent below the long-term trend) even while prices fell or stayed flat in those regions.

“March was a weird month,” said Andre Kutyan, broker with Harvey Kalles Real Estate Ltd. He notes March break and then Easter late in the month ate into the number of days available for showings, though activity sprang back starting April 2. “In the last couple weeks, I listed 11 properties and sold eight, many in multiples, and for stuff listing from $675,000 up to $5.5-million, which was not set up for multiples.”

The return of bidding wars appears to have taken some buyers by surprise.

“Fundamentally, buyers do get frustrated when they have to compete,” said Cailey Heaps, broker of record for the Royal LePage Real Estate Services Heaps Estrin Team. She said it appears that sellers have realized they may have to let go of their hopes for a repeat of 2022′s out of control prices. At the same time, buyers are realizing they may have to make more than a rock-bottom offer. “Buyers really felt they were in the driver’s seat. Now, I’d say their mindsets are aligning a little more,” she said.

The return of bidding wars is spread all over the Greater Toronto Area (GTA), according to data released by real estate app Wahi.

In March, 43 per cent of the 400 neighbourhoods Wahi monitors in the GTA were in “overbidding” territory, up from 25 per cent in February. Wahi’s metrics are based on median prices (so outlier bidding wars don’t skew the numbers) and anything 1 per cent above asking is an “overbid” with vice versa for underbid. The amount in balance is in the single digits, so the remaining 51 per cent of Wahi neighbourhoods underbid.

“The price point where there is overbidding has moved upwards, in the last four or five months,” said Wahi CEO Benjy Katchen. “It was a common theme in the neighbourhoods that had the cheapest price points … it was right around a million and a million-five,” he said. In 2024, the overbid price began to move north of $2-million, with a lot of activity in the 905 suburbs of Toronto. “These are all detached home neighbourhoods in the suburbs – Markham and Richmond Hill – locating near excellent schools is the common theme.”

One category not in overbid territory is condos. Only 14 per cent of neighbourhoods saw condos achieve a median overbid.

That’s not surprising when the glut of inventory is taken into account. TRREB’s data shows 4,460 condo apartments and townhouses were actively listed for sale in March, (a thousand-plus more than in 2023) which is the highest level of resale inventory since 2015. That doesn’t even account for thousands of new-build condos coming to market as many are struggling to find buyers. The assignment segment – where investors buy preconstruction condos intending to sell them before the building is completed – is particularly fraught.

“There’s a pretty vast assignment market right now,” said Robert Van Rhijn, broker of record for Strata.ca. “Often the assignors are struggling on the profit end, some of them are even underwater. Our buyers are getting great deals, they are certainly buying at market per square foot, or below market.”

Mr. Van Rhijn isn’t an active agent any more, but his team of realtors tell him anecdotally there’s about a third of condo resale listings in a very similar position.

“About 30 per cent are consistently the same story: an investor that owns multiple units and they are cash flow negative on the rent. Each month bleeding $300 to $500 and they see the stock market is doing well, so they are losing interest,” he said. “They are not being terribly realistic on price, and the market is not responding with an offer, so a number of these sellers have pulled their listings.”

Where he sees condo bidding wars is in unique properties, loft spaces or other buildings that eschew the cookie cutter of newer-build high-rises.

The combination of these threads makes for a somewhat confused picture where some buyers are finding deals and some sellers are cashing out over asking, depending on what’s for sale and where.

“I think Toronto is a bunch of micro markets, they act all very differently,” said Mr. Kutyan.

If there is one unifying theme for buyers it’s a slight uptick in tolerance for higher mortgage rates, with house hunters plunging in with the expectation that better times surely have to be ahead.

“Some of our clients are going variable with the expectation rates will drop within a year,” said Ms. Heaps.

Indeed, TD’s Mr. Sondhi said “We think the Bank [of Canada] will begin cutting their policy rate in July,” but where he differs from the realtors is his expectations that prices will automatically begin to upward climb once that happens. While TD expects the Prairies, Quebec and the Atlantic provinces will see continued price growth “a brutal affordability backdrop should restrain price growth to the slowest in the country” in Ontario and B.C. That price condition does help explain the historic dearth of detached home sales in Toronto, given the average prices remain historically, perhaps brutally, high.