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A sold sign posted on a real estate sign outside a home in the East end of Toronto near Woodbine and Danforth Avenue on Jan. 23, 2020.Deborah Baic/The Globe and Mail

With a severe contraction in the number of houses for sale in Toronto and surrounding cities, anxious buyers have been lobbing money at the few properties that do arrive on the market.

In Oshawa, Ont., and other parts of Durham Region, Shawn Lackie, a real estate agent with Coldwell Banker R.M.R. Real Estate, says buyers have been paying eye-popping premiums even for modest houses.

“These places that are selling are little shacks,” he says.

Mr. Lackie sees worrying signs in the bedroom communities east of Toronto: Even during the frothy days of 2016, buyers typically only entered competition for the most desirable houses, he points out.

“They were bidding on properties that were worthy of insanity,” Mr. Lackie says. Now, “it’s right across all areas and all sizes. We’re back to full-on madness.”

He points to one recent example on Olive Street in Oshawa where a 1,100-square-foot house was listed with an asking price of $650,000 and sold for $802,000 after five bullies submitted bids ahead of the date scheduled for reviewing offers.

Mr. Lackie notes the house last changed hands in 2018 for $200,000.

Another bungalow of about the same size was listed with an asking price of $499,000 and sold for $713,000 in Oshawa.

In the small town of Orono a little farther east, a house listed with an asking price of $499,000 sold for $731,000.

In Mr. Lackie’s opinion, the growth in prices is not sustainable.

When he works with buyers, Mr. Lackie advises them to think about their exit strategy before they purchase a property. Buyers need to think about how long they want to live in the property and whether the amount they’re paying represents good value if they sell after a number of years.

He fears that people who are paying amounts far above recent sales in the area are getting way ahead of the market.

“If you’re paying $800,000, how long do you have to live there until the market comes up to the home? People are throwing money around like drunken sailors. I’m not really a fan of this.”

Mr. Lackie says the combination of a lack of supply and rock-bottom interest rates is driving the run-up.

He adds that some of the purchasers appear to be first-time buyers who want to get into the market at any cost. Others are homeowners from Toronto who are flush with cash from selling a property in the city.

If homeowners sell their house in Willowdale for $1.6-million, for example, they don’t have a problem offering $800,000 or $900,000 in a small town because they still have $700,000 left over.

The inflation is leading to mounting frustration for local people who have been saving up for a house over time, he adds.

“They’re getting blown out of the water,” he says. “They can’t compete with that.”

Mr. Lackie worked with one young Toronto couple who were renting a 740-square-foot townhouse in Liberty Village, he says, and wanted a backyard for themselves and their large dog.

Mr. Lackie says the couple looked at townhouses in Whitby and other parts of Durham, but they found the properties that fit within their budget small and uninspiring.

When they extended their search north and east to Port Perry, they found a vacant bungalow listed with an asking price of $750,000. They first submitted an offer of $695,000 and, after some back-and-forth, signed a deal for $715,000.

The couple was nervous at the time, Mr. Lackie says, but other bungalows nearby have since sold for $775,000 and $760,000.

Looking ahead, Mr. Lackie expects the runaway price growth to slow at some point.

“This is accelerated. They’ve got their foot on the gas pedal and I don’t know how long this can go.”

The Canadian Real Estate Association reports that the number of listings across Canada stood at fewer than 100,000 on New Year’s Day, which marks the lowest tally recorded in data going back three decades.

Sales were up by more than new supply in December, CREA senior economist Shaun Cathcart says. The national sales-to-new-listing ratio tightened to 77.4 per cent – among the highest levels on record for the measure. The long-term average for the national sales-to-new-listings ratio is 54.2 per cent, Mr. Cathcart says.

Elise Stern, a broker with Harvey Kalles Real Estate Ltd., says buyers in Toronto grappling with the low supply are using tactics such as bully offers to get ahead of the competition.

Her clients recently tried to submit a bully offer for a four-bedroom house in Thornhill Woods with an asking price of $1.699-million. The sellers declined to look at the offer, so Ms. Stern’s clients showed up on the scheduled night with a bid of $1.761-million, which the homeowners accepted.

The house on a quiet cul-de-sac was previously listed in December, 2019, with an asking price of $1.588-million, but at that time it failed to find a buyer after 50 days on the market.

Ms. Stern says one reason for the low supply in the city is that some sellers prefer to sell quietly without launching their home on the Multiple Listing Service of the Toronto Regional Real Estate Board. The homeowners are reluctant to have numerous people through the property and they also don’t want to undertake the decluttering, painting and staging that helps to make a home appealing to a wider pool of buyers.

Ms. Stern has recently sold two properties on an exclusive basis.

In such deals, sellers are saying “this is the number that I’d be prepared to sell it at today,” and Ms. Stern puts the word out to fellow agents and her own list of buyers to see if there are any takers.

“The exclusive network is up-and-running.”

Ms. Stern expects the intense bidding to continue because buyers have preapproved mortgages with low rates lined up, and they become anxious when they miss out on properties that sell to competing buyers. If they sit on the sidelines, they see prices rapidly escalate.

“If a house sells for a lot of money, that becomes the new benchmark,” she says.

Ms. Stern advises clients to visit a mortgage broker and become educated about the market action in advance so that they can feel confident when the time comes to make an offer.

“I try to keep them level-headed,” she says. “I don’t ever want them to overextend themselves financially.”

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