8 Sandpiper Court in Toronto.The Print Market
The reality of a swift and dramatic change in the Toronto-area real estate market is sinking in for sellers and buyers.
“It’s crazy how different it has become in only a matter of months,” says Pritesh Parekh, a real estate agent with Century 21 Legacy in Toronto. “The February peak is a conversation topic now. In February, it was just another month of ridiculous prices.”
Most of the chatter these days revolves around interest rates, he adds.
“Everyone you talk to is an economist.”
Properties in the Greater Toronto Area are still selling but potential buyers are more circumspect.
“The prevailing sentiment is that prices have cooled off. ‘If I wait until September, they will cool off even more.’”
Mr. Parekh notes that there is one cohort of buyers eager to sign a deal: people armed with a pre-approved mortgage that they negotiated in the spring at a lower interest rate than rates currently on offer.
With its latest hike on June 1, the Bank of Canada has lifted its benchmark rate by 125 basis points in the past four months. Fixed mortgage rates have been steadily climbing. As a result, Mr. Parekh believes the market downturn will likely steepen.
“I think we’re going to need a few more months. We haven’t seen the full force of interest rates,” he says.
The home was listed in May with an asking price of $3,199,888.The Print Market
Farah Omran, economist at Bank of Nova Scotia, reports the Toronto market remained in “buyers’ territory” for the second month in a row in May. While the number of new listings has dropped in the past three months compared with the same period last year, sales have dropped by a much larger amount over the same stretch.
On a national basis, sales fell for the third consecutive month in May, pushing many markets into balanced territory, Ms. Omran points out.
“The rate hikes were meant to remove some of the exuberance from the market, which they are doing – admittedly, however, they are doing so at a much faster pace than previously anticipated,” the economist says in a note to clients.
While Canadian households increased their net wealth to record high levels during the pandemic, they have also increased their liabilities, with mortgages taking up a larger share of these liabilities, she adds.
Ms. Omran says the sense of urgency that is dissipating in buyers may be creeping up on homeowners who purchased another home before selling their existing property. People who bought when the market was at a fever pitch would not have had the chance to make the purchase conditional on the sale of their current home. They may now be rushing to sell and feeling pressured to accept bids below asking.
Andre Kutyan, broker with Harvey Kalles Real Estate Ltd., says the number of properties sitting on the market has swelled in some family-friendly neighourhoods in Toronto as agents try to find an asking price that will entice buyers.
In areas such as Bedford Park and Ledbury Park near Avenue Road and Lawrence Avenue West, Mr. Kutyan sees some houses listed with an attention-getting asking price and an offer date. Often the strategy fails. Many have been listed multiple times at various prices, he says.
It has 4,752 square feet of living space on a cul-de-sac in the Donalda neighbourhood.The Print Market
“When you don’t know how to price it, that’s how you get into trouble out of the gate. They go up and down like a yo-yo.”
Inventory has typically been so tight in Ledbury Park in the past that houses were often snapped up with bully offers before the offer date. As of mid-June, 18 properties were listed for sale on the Multiple Listing Service in the range between $2.5-million and $4.5-million. About 25 were listed in a similar price segment in nearby Bedford Park.
Many sellers still have their heads stuck in the first quarter, says Mr. Kutyan, and failed offer nights make buyers even more hesitant.
“It further pushes the perception that the market is falling.”
Mr. Kutyan stills sets an “aggressive” price, meaning he hopes for more on offer night, but he has noticed a change in the tactics of buyers. In June, he listed a four-bedroom house with 3,800 square feet of living space and a swimming pool on a pie-shaped lot with an asking price of $2.295-million. After seven days the house at 12 Paris Court in North York sold with seven offers for $2.757-million.
In late May, he listed a three-bedroom house at 8 Sandpiper Court with an asking price of $3,199,888. The home, with 4,752 square feet of living space on a cul-de-sac in the Donalda neighbourhood, had been renovated by a prominent Toronto-based architectural firm. It sold for $3,952,000.
While the properties sold at hefty premiums, Mr. Kutyan notes buyers are not as resolute as they were earlier this year. In some cases, the offers were nearly identical, so Mr. Kutyan gave the frontrunners an opportunity to increase their bids. He found many had a substantial sum tucked in their back pockets.
“In the past they would put their best foot forward out of fear of not getting it, or not getting a second chance. Now they’re fearful of spending too much.”
The home sold for $3,952,000.The Print Market
For those who have an existing property, Mr. Kutyan is recommending that they sell before buying the next one.
“I haven’t advised this in a very long time,” he says.
Looking ahead to the fall, industry watchers are waiting to see if listings swell. Homeowners have so far not been rushing to sell, says Mr. Parekh of Century 21, but more economic pain or fears of falling prices might prompt some to list.
Meanwhile, agents are reporting that some buyers who signed a sales agreement at the market peak are asking for an abatement in the price from sellers. Some deals fall apart all together and appraisals are falling short as prices slide.
“There are some messy situations out there,” Mr. Parekh says.
He has heard of scenarios where a property sold at a rich price in February, only to have the bank’s appraiser value it for less than that amount at closing two or three months later.
The buyer is then on the hook to make up the difference.
“The bank has the advantage of saying ‘we no longer want to take the risk of that February price’ – and they have the power,” he says. “Nobody thought about that when prices were going up, up, up.”
There are also buyers who are straining to pay their mortgages with the recent run-up in inflation. He recently heard from one young man who received cash from his family for a down payment and purchased a $600,000 condo unit with his girlfriend in 2021. But they are talking to Mr. Parekh about selling because they feel weighed down by the cost of the mortgage, taxes and monthly maintenance fees. Now, they’re paying more for food, gas and other living expenses.
“It’s been less than a year,” Mr. Parekh says. “Now they’re really struggling.”
The couple has a mortgage with a five-year term, he adds, and there are often costly penalties that come with getting out of such a loan.
“It’s not child’s play,” Mr. Parekh says. “It’s so expensive to break a five-year fixed.”
The Print Market
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Carolyn Ireland