Real estate agent Andre Kutyan of Harvey Kalles Real Estate Ltd. delivered some blunt news to a Toronto couple recently.
The pair had beat out a host of rivals to purchase a three-bedroom detached house near Yonge Street and Lawrence Avenue for $1.815-million at the market’s pinnacle in April, 2017.
“I told them today I wouldn’t be able to get $1.750-million for it,” Mr. Kutyan says.
The couple recently had a change in circumstances that allowed them to purchase a larger $4.8-million home in the prestigious Cricket Club area. They weren’t in dire straits, but they weren’t keen to lose money on the 2017 purchase either.
In addition to the estimated $65,000 drop in value, Mr. Kutyan says, they would have had to shell out for real estate commissions and legal fees.
The couple decided to offer the smaller home at 33 McNairn Ave. for lease. Mr. Kutyan listed the home for rent at $3,800 a month. Within 24 hours, he had eight showings and two offers.
The agent says this is just one in a recent surge in requests from homeowners who are opting to become landlords instead of sellers.
According to the latest data from the Canadian Real Estate Association, real estate prices in the Greater Toronto Area dropped 4.8 per cent in June from the same month last year. Many potential sellers are holding onto their properties rather than selling into a sagging market.
The other homes Mr. Kutyan has leased have been in similarly desirable areas, with monthly rents ranging between $5,000 and $8,000.
He figures that more prospective buyers are willing to rent for a time after policy changes and a string of interest rate increases made it harder for some potential buyers to purchase a home.
The Government of Ontario introduced measures – including a 15-per-cent foreign-buyers tax – aimed at cooling the market in April, 2017. In January, the federal banking regulator introduced a more stringent “stress test” for purchasers seeking an uninsured mortgage. Over that time, the Bank of Canada has lifted its benchmark interest rate four times.
Mr. Kutyan had more grim advice for the owners of a house at 209 Raglan Ave. The 4,400-square-foot, newly built home near Bathurst Street and St. Clair Avenue West languished on the market when it was listed with another agent for $3.495-million.
When Mr. Kutyan took on the listing, he insisted that the asking price stay below $3-million.
He persuaded the sellers to go with an asking price of $2.995-million and a buyer stepped up within the first week with a conditional offer of $2.950-million.
But that deal hit a snag when the bank’s appraiser came back with a value of $2.7-million – or $200,000 less than the agreed price – and the buyer walked away.
Mr. Kutyan listed the house again at $2.598-million and the sellers recently accepted a conditional offer.
“It takes time for a seller to realize what the house is worth,” Mr. Kutyan says of the lengthy process.
Many builders are unwavering because they are trying to make a profit on their investment, he says. He point s to one pocket around Avenue Road and Lawrence Avenue West where there are currently 17 newly built homes for sale with asking prices between $2.249-million and $2.999-million.
“Most of them are sitting on the market for months and months at a time,” he says. “The buyers have the pick of the crop of that sort of thing.”
Some sellers are slow to adjust to the reality of a more balanced market.
“These sellers are not in tune with what market value is,” he says. “Their head is still stuck in the first quarter of 2017.”
The average price of a detached house in the GTA fell 14.5 per cent to $1,030,103 in April from $1,205,262 a year earlier.
Meanwhile, potential buyers are constantly lobbing lowball offers, he says, but sellers typically won’t take a big cut from the asking price unless the house has been sitting for a long time.
“There are buyers out there right now who are bottom-feeders,” Mr. Kutyan says.
With all of those factors weighing on the resale market, Mr. Kutyan doesn’t see an upswing any time soon. Listings will likely remain scarce and buyers cautious, in his opinion.
“I don’t think we’re going to see a surge in the fall.”
National Bank of Canada senior economist Marc Pinsonneault says he believes resale prices in Toronto have stabilized after making up some of the ground lost in 2017. But he doesn’t expect a return to the frenzy of recent years.
Shawn Lackie, a real estate agent with Coldwell Banker R.M.R. Real Estate, is also having forthright conversations with potential sellers. He specializes in the Durham Region, east of Toronto.
The owner of a townhouse in Bowmanville recently asked him to evaluate the property that he purchased for $445,000 in December, 2016.
“You’re going to hate me,” Mr. Lackie told him. “You grossly overpaid for this product.”
Mr. Lackie says if he were to list the townhouse today, an asking price of $419,000 would be optimistic.
Mr. Lackie says the owner will likely hold onto it with the hope the market will rebound.
After years of runaway growth in real estate prices in the Greater Golden Horseshoe Area surrounding Toronto, many people have come to expect that property values will double or triple in a matter of years, he adds.
“That’s the mindset that has to be overcome.”
Buyers are still circulating, he says, but they are not in any rush. The panicked buying that characterized early 2017 has been replaced by fear of paying too much.
“People are being a lot more cautious. With fear of missing out comes fear of overpaying. There’s no appetite for that now. Zero.”
Young couples are still looking for a first-time purchase, he says. Generally, the people who show up at open houses are serious about buying. In some cases, Toronto condo-dwellers are trading their units for a house in Durham communities such as Ajax, Whitby and Pickering.
Another common trade is the sale of a baby boomer couple’s home in the city and cottage up north. The couple will then buy a four-season home on the waterfront in Port Perry, he says.
Mr. Lackie tells sellers who are stubborn about setting a high asking price that they are better off not to list at all.
He also sees the current calm conditions continuing into the fall market. He believes that scenario is good for both sides of a deal.
“I don’t see any crazy stuff happening,” Mr. Lackie says. “I prefer a balanced marketplace because that way we can control what expectations are.”