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Elli Davis, an agent with Sotheby's International Realty Canada, recently launched five new listings, among them this detached house in Forest Hill, Ont.

Sotheby’s International Realty Canada

The pace of the Toronto-area real estate market has dropped a gear after a highly charged start to the year.

Bidding wars are less heated, some properties are sitting longer and some homeowners have delayed their plans to list.

Elli Davis, a real estate agent with Sotheby’s International Realty Canada, does not see a dramatic slowdown coming, however, because sellers who put their plans on hold during Ontario’s COVID-19 stay-at-home order are now planning to launch their properties as restrictions ease.

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“Every day I’m getting two to three appraisal calls,” she says. “I think it’s going to be a very busy summer.”

Buyers are still circulating, but many who planned to purchase this spring did so in the early months of the year.

Ms. Davis says many buyers who are still in the hunt have become tired of scheduled bidding nights so she welcomed offers any time when she listed a house at 412 Glenayr Rd. in Toronto’s Forest Hill neighbourhood in late May.

But competition sometimes springs up organically. When one offer landed for the traditional, five-bedroom detached with an asking price of $3.795-million, two more quickly followed and the property sold for the full asking price.

Ms. Davis keeps in touch with agents who have shown the property so that they know when a buyer has submitted a bid.

Ms. Davis says some sellers and buyers moved to the sidelines when coronavirus case numbers were climbing. Now that more people are becoming vaccinated against the virus, she senses optimism.

“People won’t be as held back by COVID – even though we were deemed to be essential from the beginning, there definitely were people who were held back.”

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She recently launched five new listings, including a condo townhouse at 25 Elkhorn Dr. in the Bayview Village area with an asking price of $1.59-million and a detached house at 78 Burton Rd. in Forest Hill with an asking price of $2.795-million.

The Toronto Regional Real Estate Board (TRREB) reported 11,951 sales in the Greater Toronto Area in May, to mark a 160-per-cent jump from May of last year when pandemic-related restrictions weighed on the market.

The May tally fell short of the 13,663 deals signed in April and the 15,646 in March.

In many years, May is the month when sales hit their peak, TRREB says, but the pattern this spring has varied from the norm.

New listings dipped to 18,586 in May from 20,825 in April, according to TRREB.

Robert Hogue, senior economist at Royal Bank of Canada, says market watchers should not mistake the sales decrease for a sign of rapidly-cooling demand because activity is still far above pre-pandemic levels.

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The even sharper drop in new listings likely accounts for much of the moderation, he says.

Mr. Hogue notes that bidding wars may involve fewer participants but they are still rampant, keeping sellers in a very strong bargaining position.

That dynamic pushed the average price to a record $1,108,453 to mark a 28.4-per-cent jump from May, 2020.

Jimmy Molloy, an agent with Chestnut Park Real Estate Ltd., says sales were front-loaded this year as low interest rates and optimism about the economy encouraged buyers to jump in early.

“We’ve used up in four months what we would use up in six months,” he says of the volume of transactions in a normal year. “We need to replenish the buyer pool as well.”

Mr. Molloy believes the market will strengthen when immigration resumes.

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“That’s going to be so positive as we get out of this,” he says.

Mr. Molloy says the impact of a more stringent “stress test” introduced on June 1 will be interesting to watch.

The Office of the Superintendent of Financial Institutions, which regulates the banking industry, now requires lenders to stress test borrowers at 5.25 per cent or two percentage points above their contracted rate – whichever is higher. That’s a slight increase from the previous benchmark rate of 4.79 per cent.

Most market watchers believe the change will not have a significant cooling effect on the market, but it may diminish the spending power of first-time buyers.

The lack of affordability in the real estate market is a problem for young people, Mr. Molloy says, and baby boomer parents are increasingly feeling the need to help out their offspring. The trend has only intensified during the pandemic, he says.

“If you are fortunate enough to be able to help your children, you’re going to.”

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Stephen Brown, senior Canada economist at Capital Economics, points out that the latest data suggest residential investment, which rose to more than 10 per cent of gross domestic product in the first quarter, has already peaked.

Residential investment is made up of new construction, sales of existing homes and renovations. In a striking development, Mr. Brown notes, this component of GDP has become larger than business investment.

But weaker sales of homes and building materials – along with slower building starts – suggest residential investment will decline this quarter and contribute to a slowdown in overall GDP growth, Mr. Brown cautions.

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