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A man walks by real estate signage on a recently sold house in Toronto on June 15, 2020.Cole Burston/The Globe and Mail

First-time buyers in the Toronto-area real estate market are anxiously vying for properties in July after the average selling price hit a record peak in June.

“It’s kind of bonkers,” says real estate broker Farrell Macdonald of Royal LePage Terrequity Realty. “I’m more than a little perplexed by the price activity.”

Mr. Macdonald says rapid price gains in the first three months of the year reminded him very much of the euphoria that suffused the market in early 2017. The market abruptly seized up in March as government and health officials asked people to stay home in an effort to halt the spread of the novel coronavirus.

Now the third quarter is as high-octane as the first.

“We seem to be right back there – it’s quite bizarre in some respects.”

In June, the Toronto Regional Real Estate Board reported that the average price in the Greater Toronto Area sailed to a record high of $930,869. That milestone marks an 11.9-per-cent jump from June, 2019, and surpasses February’s average selling price of $910,290.

The previous record was set in April, 2017, when the average price came in at $920,791 and the Ontario government brought in a slate of measures designed to cool the overheated market.

“It’s a sense of panic,” says Mr. Macdonald, who believes first-time buyers are succumbing to a “fear of missing out” if they don’t get into the market now.

The light supply of listings is one reason that buyers are pushing prices higher. Sales were down 1.4 per cent compared with the same month last year, but active listings in June were 29-per-cent below active listings in the same month last year.

Mr. Macdonald worked with one young couple who were looking for a single-family home with a budget topping out at $1-million. Mr. Macdonald says the segment is ultra-competitive right now.

The listing agents for most houses in that price range in Toronto set an offer date as a strategy for encouraging buyers to compete. They set an eye-catching asking price, then hope that bidders will pay a hefty premium.

“They were just getting blown away,” Mr. Macdonald says of the contests the couple kept losing to rival buyers.

After losing a few skirmishes, the couple was fortunate to find a house that didn’t draw competitors, he says.

Mr. Macdonald says the mood in July marks a dramatic departure from the mindset of buyers in May, when many were still hoping sellers would be desperate to strike a deal after sales plummeted in April as businesses went into lockdown.

Mr. Macdonald fears the frothiness comes in part from policy measures designed to bolster Canada’s economy during the pandemic.

“Government assistance has created a false sense of security,” he says.

When the federal government announced this month that it will extend the Canada Emergency Wage Subsidy, some buyers may have seen the support as a reason for optimism, but Mr. Macdonald’s reading is more ominous.

“The fact that the government extended the wage subsidy to December told me they’re not seeing the rebound we expected.”

Mr. Macdonald, a former accountant, is advising the buyers he works with to proceed with caution.

He points to the record levels of consumer debt and the current high rate of unemployment. Some employees may not return to work at all, he says, while some may see their salaries reduced.

He’s hoping the market won’t see distress sales but even a shift towards more listings combined with a slight pullback in buyers would change the market dynamics.

Mr. Macdonald says some properties that sold three years ago are selling for less today.

“It’s really hard to lose money in Toronto real estate but it happens.”

Mr. Macdonald is recommending that his clients make a 10-year plan, if they can look that far ahead. He points out that continued high unemployment and an end to government support, among other hazards, could lead to volatility in the market.

Clients can decide for themselves if they’re comfortable, he says, adding that a long time horizon helps to mitigate risk.

“I’m not scaring people out of the market, but I’m telling people to be very mindful.”

Broker Elise Kalles of Harvey Kalles Real Estate Ltd. says scarce inventory in the upper echelons of the market is also thwarting prospective buyers who think they will land a bargain in neighbourhoods such as Forest Hill and Rosedale.

“They say, ‘We’ll send in a low-ball [offer] and we’ll get it’. Then they realize they can’t because very few people are putting their house on the market.”

Ms. Kalles recently received three offers for a historic stone mansion at 2 Forest Hill Rd. with an asking price of $14.8-million.

Luxury condos are also trading hands as buyers look for a change in lifestyle.

“Buyers want a nicer environment to work in,” she says. “And they want terraces.”

Ms. Kalles says selling condos in buildings such as the Four Seasons in Yorkville and the Chedington in the Bridle Path has been challenging because showings have been curtailed or banned all together during the pandemic. Buyers and sellers must also follow strict health protocols.

“What is amazing is that we’re selling in this market,” Ms. Kalles says.

Marc Desormeaux, senior economist at Bank of Nova Scotia, says the strength of the housing market’s recovery in Canada has been surprising thus far.

Looking ahead, Mr. Desormeaux expects sales to follow the course of the virus.

If the labour market recovers and regions are able to open their economies successfully, he expects transactions will align with those economic fundamentals. “A second wave of COVID-19 and any related containment measures would undermine that trajectory,” he warns in a note to clients.

Another risk Mr. Desormeaux will be watching for is weakness in population growth because of such factors as travel restrictions and a shift to online learning.

The economist also notes that mortgage payment deferrals and other measures are cushioning the housing market against economic fallout. If those supports unwind before the labour market fully recovers, Mr. Desormeaux says, an uptick in mortgage arrears and defaults can reasonably be expected.

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