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A light rail transit car passes through downtown Kitchener on Sept. 1, 2021.Glenn Lowson/The Globe and Mail

A drought in real estate listings in Ontario this spring is leading to firmer prices – and emerging competition – in smaller cities and towns beyond the Toronto area.

In Kitchener-Waterloo and nearby Cambridge, Ont., the spring has been busy so far with buyers migrating from the Greater Toronto Area and other points east, says Faisal Susiwala, broker at Re/Max Twin City.

The same dynamic that is driving the action in many markets across Canada is also playing out in Kitchener-Waterloo: inventory is sparse, buyers are jumping into competition and prices are edging up.

Mr. Susiwala estimates that 85 per cent of his listings receive an offer from a GTA buyer or agent.

Nationally, the number of newly listed homes dropped 5.8 per cent in March from February in contrast to the traditional seasonal trend, according to the Canadian Real Estate Association.

New listings are at a 20-year low, says Shaun Cathcart, senior economist for CREA.

Mr. Susiwala is seeing increasing numbers of young buyers and renters moving from Toronto as they are priced out of the core.

Another influx of residents is coming from immigration, he says, as people move west from the more expensive locations of Toronto, Brampton, Mississauga, Milton and Oakville.

The Kitchener-Waterloo area is attractive to the South Asian community, for example, with temples, mosques and gurdwaras already established, Mr. Susiwala says. Many immigrant parents want to be close to good schools and universities such as the University of Waterloo and Wilfrid Laurier University.

“Toronto is where their community is based,” he says. “They draw a circle and look to see what is within an hour away.

For those who choose to bring parents and grandparents along, the area already has homes that are suited to multigenerational living. An earlier wave of immigrants from Portugal and Italy also brought multiple generations along, he says, and many added in-law suites and additions to their homes.

Sales in the area dropped 38.4 per cent in March from the same month last year, according to the Waterloo Region Association of Realtors (WRAR). New listings fell 44.1 per cent in the same period.

The average price for all residential properties in March was $779,017, which marks an 18.6-per-cent decrease from March, 2022, according to WRAR, The average price last month rose 2.4 per cent from February.

Alexis Victor, real estate agent with Royal LePage Signature Realty, says the gulf between buyers and sellers has shrunk in areas north of Toronto such as Orillia, Washago and Beaverton.

Those areas saw a huge influx of buyers during the pandemic as urbanites looked for cottages and four-season houses closer to nature.

Prices soared, then cooled dramatically last year as interest rates rose. Sales are picking up again, says Ms. Victor, but bidding wars have yet to make a comeback.

“It’s nothing compared to the COVID days,” she says of the action. “You couldn’t find a place – that was nuts.”

This spring, the pace is more measure. People who aspire to buy near Lake Simcoe and Lake Couchiching include retirees, downsizers and young people leaving the city, and folks looking for a vacation property, Ms. Victor says.

In the cottage market, she is hearing from some potential buyers looking to purchase a cottage that they can put on the rental market.

“Some people are just in it for pure investment – they have it to rent and run it like a business.”

Buyers waiting for a drastic crash in cottage market prices are looking at properties again now that prices appear to be stabilizing. And sellers are realistic about not attaining 2021 and early 2022 prices.

“Last year the seller expectations were so high. A lot of things sat last year.”

Ms. Victor points to one property that was listed with an asking price of $1.9-million last year, then taken off the market when it failed to sell. More recently it was relisted with an asking price of $1.5-million.

“People have realistic expectations and they are putting their properties on the market because they want to sell them, whereas before they just wanted to see what they could get.”

During the fall and winter, many buyers were submitting lowball offers at prices as much as $200,000 below the asking price, she says.

“Now people are a little bit more reasonable.”

The mix of people looking is also changing; buyers continue to leave bigger cities to retire on the edge of a river or lake, she says.

Orillia has traditionally been a summer destination because of its location on Lake Couchiching, she says, but more recently buyers are moving to existing condo buildings or purchasing units at an upcoming development of townhouses on the waterfront.

“Young people are coming into the area and starting small businesses,” she says.

Ms. Victor says inventory is tight as sellers remain nervous about the price their property will fetch. Some are calling her to evaluate properties as interest rates remain elevated.

Some homeowners became panicked when the Bank of Canada moved last year to aggressively lift its key interest rate, she says, but lenders have been working with some people to help them stay in their properties, she says.

The recent decision by the central bank to hold rates steady will help to boost the confidence of homeowners and aspiring buyers, she believes.

Ms. Victor expects activity to pick up after the Victoria Day weekend in May as buyers visit cottages and explore the area. Sellers also tend to list after the customary kick-off to cottage season.

She adds that some homeowners may be forced to sell if the Bank of Canada raises rates in the coming months.

“Some people are hanging on by a thread.”

Looking ahead, Mr. Susiwala sees a possible shift in the market later this year.

“Inventory is at a low level. I expect that to change drastically coming into the fall. We feel it at ground level.”

So far, homeowners are holding on in the face of higher rates by “robbing Peter to pay Paul”, he says.

Buyers who purchased in the spring and early summer of 2018 and took out a five-year fixed-rate mortgage will see those agreements coming up for renewal in August and September, he says.

He sees potential for trouble for some of those folks who took out a home equity line of credit (HELOC) in 2020 and 2021 when interest rates were as low as 1.5 per cent. Many people decided to take advantage of the low borrowing costs to put in a backyard pool or build an addition, he says.

Now the variable rate on a HELOC is around 7.2 per cent, he points out.

Many homeowners are not prepared to see their monthly mortgage payment jump significantly when the time comes to renew in the fall.

He is advising buyers frustrated by the lack of listings this spring to move ahead only if they see a good opportunity. Otherwise, he urges buyers to remain patient and hold off on chasing properties aggressively.

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