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A person walks by a row of houses in Toronto on July 12.COLE BURSTON/The Canadian Press

Crumbling consumer confidence is dampening hopes for a rebound in Canada’s real estate market as economic signposts point to more strife ahead.

One industry executive who holds that view oversees a network of agents at 14 offices across Ontario.

John Lusink, president of Right at Home Realty and, dives into statistics and forecasts, but he also relies on one proprietary yardstick: his firm’s trust account.

“That’s always a fantastic predictor,” he says. “Over 17 years, it has never let us down.”

When buyers have an offer accepted by the sellers, the buyers provide a deposit, which is held in trust by the real estate brokerage until the deal closes.

At the beginning of October, the amount held in trust by the firm had plunged 38 per cent from this time last year.

The sharp decline in funds held in trust is an accurate measure, Mr. Lusink says, and he sees no signs of a turnaround.

At Toronto-Dominion Bank, economist Rishi Sondhi raised his forecast for the Bank of Canada’s benchmark interest rate and downgraded his projections for Canadian home sales at the same time.

Mr. Sondhi predicts the central bank will lift interest rates by another 75 basis points to bring the policy rate to 4 per cent by the end of the year. That revised forecast comes with upside risk, given that inflation is still high, he warns.

Higher borrowing costs will further erode housing affordability and weigh on overall economic growth, according to Mr. Sondhi, which in turn will drag down demand for real estate. He believes sales will bottom out at about 20-per-cent below their pre-pandemic levels in the early part of 2023 and remain subdued.

Economist Carrie Freestone, who tracks consumer spending at Royal Bank of Canada, reports that home-related spending is trending lower as the housing market cools. Purchases of essential and discretionary items levelled off into the fall, with discretionary spending settling below post-lockdown highs, Ms. Freestone notes.

The most recent data from Statistics Canada on retail sales shows that consumers spent less than expected in July. The numbers indicate households are trimming spending in the face of high inflation and rising interest rates.

Mr. Lusink also points to the tally of rental agreements at Right at Home, which have swelled to 45 per cent of incoming transactions from the more typical level of 35 per cent at the start of the fall market.

The shift to renting comes as more buyers are priced out of owning, he believes.

Mr. Lusink recently met with one heavyweight developer that is taking steps to mitigate its own risk by ensuring that agents and financial institutions are educating prospective buyers about the amount of financing they can realistically obtain from a lender.

“They want people knowing from the get-go what they’re getting into,” he says. “They would rather know they’re working with qualified, approved buyers.”

Mr. Lusink notes that readings of consumer confidence have also been shaky as people worry about inflation, rising interest rates and the risk of recession, but he views sentiment as a lagging indicator.

He expects sales and listings this fall to remain depressed. Some homeowners who are in a position to trade up are deciding to stay where they are because there are few good listings to choose from. In turn, that prevents them from adding to the supply by listing their current home.

“The continuing decline in transactions is going to continue into the fall,” he says. “Based on the data, it’s going to be challenging for the next eight months.”

Across Ontario, some of the hottest markets in 2021 are now cooling rapidly: Prices soared in Barrie, Ottawa and Burlington during the pandemic but they are quickly adjusting now. The established markets of Moore Park and Rosedale in Toronto, for example, remain more resilient.

Mr. Lusink acknowledges that some of the firm’s own agents would prefer that he keep his pessimistic forecast quiet. But he adds there is no value in obfuscating the facts. Instead, he advises the managers and agents in the network to analyze and really understand the data.

“At the end of the day that’s what the customer wants us to help them interpret. Sometimes it comes down to what’s happening on that street as opposed to what’s going on around the corner.”

Having a strong grasp of the numbers will help with accurate pricing for sellers and accurate expectations for buyers, who need to understand what they can afford, he says.

“We end up in a lot less trouble.”

Mr. Lusink is referring to the potential for deals to fall apart if buyers stretch too far. Some have buyer’s remorse and try to walk, others have appraisals fall short of the sale price, and some run into problems with financing.

Mr. Lusink says agreements faltered when the market drastically shifted in the spring and prices began to slide. Some market participants were caught off guard.

Now buyers and sellers have mostly adjusted to the transition.

“If anything we’ve seen a slight decrease in transactions that didn’t close. It’s been less worrying than we thought.”

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