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People walk past real estate signs in Toronto on May, 20, 2020.

Christopher Katsarov

A measure of stability has returned to the Toronto-area real estate market as buyers return from the sidelines to find a drastic reduction in listings. But as late spring turns to summer, industry watchers warn of choppiness ahead.

Jeffrey Wagman of Forest Hill Real Estate Inc. says the shutdown of the Canadian economy in the midst of the novel coronavirus pandemic shocked the entire industry.

“It’s like running around a blind corner and someone hitting you in the face with a sledge hammer.”

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Slowly buyers and sellers who needed to strike a deal figured out a way to do so, Mr. Wagman says. He believes there is a foundation under prices at the moment, but it’s impossible to predict how long the stability will remain as people assess their finances.

“I don’t know what the market’s going to be like in six months,” Mr. Wagman says. “There are going to be some peaks and valleys over the next while.”

Some properties are drawing multiple offers and selling at a premium to the asking price. Others are sitting longer or selling below asking – even in sought-after neighbourhoods such as High Park and Riverdale.

Mr. Wagman says there’s no rhyme or reason to those varied outcomes. He is hearing from some potential buyers who say they intend to wait for a while. They figure some homeowners may end up in financial distress and under pressure to sell.

They also hope there will be more listings to choose from if they wait.

But there’s another cohort of people who prefer to jump if they see the right house rather than risk losing the opportunity.

“That’s your buyer you really want to target,” he says. “The people who are in the market now really want to buy. It’s a smaller buyer pool, but they’re really, really motivated.”

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Sellers, meanwhile, may become frustrated if their house doesn’t sell in less than one week. Agents have to become accustomed to assuaging the fears of those sellers.

“We’ve become so spoiled with these overnight sales,” he says. “Not every house has 10 or five people running at it right now.”

Mr. Wagman is also advising less experienced agents to make sure that the sellers understand the asking price needs to be realistic and not inflated.

“There’s no game in overpricing a house – especially right now. The buyers are there and they know what the price should be.”

Mr. Wagman says he has seen the downside of overpricing many times: Homeowners insist on building some negotiation room into the asking price. They figure they can accept a lower offer and still end up with a sale price they’re happy with.

Mr. Wagman says many of those homeowners end up selling for even less than the lower end of their range because buyers start to question whether there’s something wrong with the property as “days on market” tick up. When sellers eventually cut the asking price, buyers want a discount from that reduced price.

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“The damage was done already.”

At National Bank of Canada, deputy chief economist Matthieu Arseneau says that the wide range of forecasts is a reflection of high uncertainty.

Earlier this month, Evan Siddall, chief executive officer of Canada Mortgage and Housing Corp., rattled some market watchers when he told the federal standing committee on finance that prices may slide between 9 per cent and 18 per cent over the next 12 months.

Mr. Arseneau is predicting that economic forces will cause the Teranet-National Bank Composite House Price Index to slide 9.8 per cent from the 2020 peak to the 2021 trough, on a quarterly basis.

Mr. Arseneau says the drop will be steeper in some cities than the national average: the Toronto house price index is likely to be hardest hit, with a 13-per-cent decline. The Vancouver index will drop 12 per cent, Calgary 10 per cent, and Montreal 7 per cent, according to the National Bank forecast.

One reason for some of the more dire predictions on Bay Street is that job layoffs and reductions in income have been so harsh as a result of the lockdown.

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Mr. Arseneau says that more than one-fifth of Canadian jobs are in sectors likely to struggle in the coming months, including retail stores, hotels, restaurants, and arts and entertainment. But while many jobs will be at risk, Mr. Arseneau points out that the rate of home ownership is also lower for workers employed in those industries than many others.

Mr. Arseneau is more concerned about the lack of manouevres left to central banks given that interest rates have been so low for so long.

“In past recessions, substantial declines in interest rates have favoured stabilization of the housing market but this time the effect of monetary policy could be much smaller,” he says.

Another outcome that Mr. Arseneau is watching is the state of the tourism industry. Travellers may stay home for some time to come and that may leave a number of short-term rental properties vacant.

The owners could decide to sell when rental revenue stops flowing, which would boost the inventory of properties on the market. If 25 per cent of short-term rental properties hit the market, listings in the Toronto market will swell by 34 per cent, he estimates.

National Bank doesn’t expect the kind of housing market meltdown that afflicted the United States after the 2008 financial crisis. But Mr. Arseneau does flag some downside risks to his forecast.

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The economic contraction could be worse than expected, he cautions. Also, immigration has steadily supported the housing market in recent years.

“In each of the past three recessions, immigration declined in the face of a tough labour market.”

Mr. Arseneau says that CMHC has floated the idea of raising minimum down payments to limit possible losses on its mortgage insurance. Mr. Arseneau believes such a move could amplify the risk of a sharper home price decline – especially since potential home buyers saving up for a down payment may have watched their portfolios decline in volatile financial markets.

A better move, in his opinion, would be to relax the more stringent measures imposed in recent years in order to keep prices from taking a nosedive.

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