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63 Old Forest Hill Road, with 7,000 square feet of living space and a lot of more than one-half acre, drew two offers and sold after four days on the market.Handout

The first wave of summer warmth, rising interest rates and the Ontario provincial election are contributing to subdued activity in the Toronto-area real estate market as June arrives.

Patrick Rocca, broker with Bosley Real Estate Ltd., says prices are holding up for properties in the core 416 area code, but he is seeing a drop-off in showings and fewer bids when an offer deadline arrives.

“Activity was down dramatically,” Mr. Rocca says of the week leading up to the anticipated rate hike from the Bank of Canada on June 1 and the June 2 election.

The weekend preceding those events also brought heat and sunshine, which may have led to more people taking a break from house hunting in the Leaside and Davisville neighbourhoods where he does much of his business.

A few days before the central bank confab, a semi-detached house in East York that Mr. Rocca listed with an asking price of $1.429-million had received no offers by the deadline for accepting bids.

As a result, Mr. Rocca is changing some of his own strategies. He sold one house recently to a “bully” who refused to wait until the scheduled date before lobbing an offer.

Until recently, Mr. Rocca made it clear in his listings that sellers would not review bully bids. But with the market shifting, he is now advising sellers to be open to such pre-emptive offers.

“The buyer pool has really thinned out,” he says.

Mr. Rocca keeps an eye on listings throughout midtown. These days he is more frequently seeing offer dates come and go without a sale. Often the property is quickly relisted at a higher price after an attention-grabbing below-market price fails to spark a bidding war.

In one case, a midtown house listed with an asking price of $4.2-million was recently relisted with an asking price of $4.5-million.

Mr. Rocca notes that one of his listings launched last week had only 10 appointments booked.

He compares the recent level of buyer interest with February, when one semi-detached house he listed had 97 showings within a week and sold for a record price. In March, a similar property had 51 showings and still achieved a new milestone on price.

A few weeks ago, a third comparable property had 31 showings. Similarly, the number of bidders at the table often reached double digits at the beginning of the year but those participants have dwindled.

Mr. Rocca says the decrease in the number of bidders hasn’t worried him so far because the remaining buyers appear to be more serious.

Jimmy Molloy, real estate agent with Chestnut Park Real Estate Ltd., says a combination of strong demand and tight supply in the core 416 area code continues to buoy prices.

In Mr. Molloy’s opinion, the market was overheated earlier in February and it’s now settling down to more normal activity. Against that backdrop, some properties are still selling quickly.

Mr. Molloy and Justine Deluce of Chestnut Park recently sold a circa 1934 mansion at 63 Old Forest Hill Rd. for the full asking price of $17.198-million.

Mr. Molloy says the landmark house, with 7,000 square feet of living space and a lot of more than one-half acre, drew two offers and sold after four days on the market.

While first-time and some move-up buyers purchase a home out of necessity, Mr. Molloy says, luxury buyers typically don’t buy for a reason as practical as gaining an additional bedroom.

“They’re buying from a different perspective. They’re buying out of desire. They’re looking at something that’s very specific and they will wait to get that specific thing.”

And while most consumers are sensitive to rising interest rates, first-time buyers typically feel a greater impact, he says.

Manic demand and paltry supply at the beginning of 2022 pushed the average price in the Greater Toronto Area to $1,344,544 in February, according to the Toronto Regional Real Estate Board. In April, the average price in the GTA had slipped to $1,254,436.

Mr. Molloy believes federal and provincial rule changes contributed to the decline: The Trudeau government announced a ban on foreign buyers purchasing residential real estate for two years in its 2022 federal budget, while the Government of Ontario raised the foreign buyer’s tax to 20 per cent from 15 per cent.

Two rate hikes by the Bank of Canada also made buyers more hesitant, he adds.

The average price of a detached house in the 416 area code stood at $1,947,975 in April compared with $2,073,989 in February. The average price of a detached house in the 905 dipped to $1,526,791 in April from $1,727,963 at the February peak, according to TRREB.

Across Canada, a 12.6-per-cent (seasonally adjusted) decline in sales in April from March bucked the seasonal trend, notes Farah Omran, economist at Bank of Nova Scotia.

Many sales were likely pulled forward as consumers braced for rising interest rates, she adds, while expectations of even more hikes to come appear to be accelerating their effectiveness.

“The low-for-long rate environment that far preceded the pandemic contributed to some Canadians’ long-founded belief that rates will never go up,” she says in a note to clients.

Bay Street is now pricing in more hikes from the central bank and a strong increase in long-term rates, she says. This dynamic is causing a rapid adjustment to fixed mortgage rates, which are influenced by government bond yields. Variable rates are on the rise as well, in line with the central bank’s trend setting rate.

Ms. Omran notes that sellers are sometimes forced to accept offers below what the past two years led them to expect, as well as offers with conditions attached.

The economist adds that, with the GTA leading the declines in national sales and prices, data from TRREB shows that the fall in the 905 is more pronounced. Suburban detached homes and townhouses, which saw prices inflate the most throughout the pandemic, are now hardest hit, she points out.

Ms. Omran says this turnabout likely signals a rebound in the downtown core as many companies return to work in the office and as rising gas prices make commuting less affordable – in addition to those outer regions losing their affordability advantage.

Looking ahead, Mr. Rocca expects the summer to remain fairly slow as people get back to travelling now that pandemic-related restrictions have loosened.

But he is more concerned about the outlook after Labour Day if the central bank moves forcefully again this summer.

If prices erode, sentiment can swing sharply: buyers on the sidelines are more likely to think they will get a better deal later on if they wait, Mr. Rocca points out.

“The big question is the fall,” he says.

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