Waning housing market dims asking-price expectation for sellers

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As the buying frenzy in Toronto-area real estate settles down, sellers need to navigate the market with a little more finesse these days.

Andre Kutyan, a real estate agent with Harvey Kalles Real Estate Ltd., says much of his job this summer revolves around managing homeowners’ expectations. “Some sellers are in a different stratosphere as to what they think their home is worth.”

The slide in sales since March does not mean the Toronto market is cool, he stresses – it’s just cooler than it was during the hottest month on record. He believes the more stringent mortgage stress test may also be weighing on first-time buyers in the condo market.

Farah Omran, economist at Bank of Nova Scotia, also observes that the market has softened across the country since its record-breaking levels in March.

Sales fell 8.4 per cent on a seasonally adjusted basis in June from May, while listings slipped 0.7 per cent in the same period, Ms. Omran notes, but inventory is still tight. The national sales-to-new-listings ratio stood at 69.2 per cent last month, which is a drop from its peak of 91 per cent in January but still far above the long-term average of 54.5 per cent. But despite a retreat, sales still set a record for the month of June, she points out.

Meanwhile, the growth in the national average price continues to decelerate. At the end of June, the national average price stood at just over $679,000, according to the Canadian Real Estate Association. But that still marks a 25.9-per-cent jump from June, 2020.

Mr. Kutyan adds that many properties are still listed with a relatively low asking price and an offer date, which sets up a bidding contest between potential buyers.

And homeowners who don’t get the lights-out offer they were hoping for sometimes turn away all bids – even when they come in above the asking price. According to Mr. Kutyan, sellers are often motivated by their personal circumstances: People who have already purchased their next place or are going through a divorce, for example, are often in the mood to negotiate. Those who are testing the waters may hold out for a certain price.

In the popular $2.5-million range, most of the house hunters are move-up buyers.

“It’s more about seller expectations,” in that price range, he says. “They think ‘the market’s on fire, I can ask anything I want’.”

Homeowners also have a subjective view because they know how much time and money they have sunk into renovations, he notes. Many see inflated dollar figures after all of the decluttering and staging made the home appear at its most polished.

“They want to increase their price when they see how great their house can look,” he says.

On Mona Drive in the upscale neighbourhood of Lytton Park, Mr. Kutyan estimated the renovated, four-bedroom Tudor-style house would fetch $2.6-million or slightly above.

In order to spark competition, he listed the house with an asking price $2.249-million. After five days, the home drew six offers and sold for $2.607-million. While the homeowner was hoping to break through $2.7-million, he was able to show them that dozens of potential buyers had booked appointments to tour the home. “It’s a clear message to the seller that we’ve exhausted the activity and the market is telling us what the house is worth.”

The pace was even slower at 1178 Glencairn Ave., where a small two-bedroom bungalow had been on-and-off the market at various prices around the $900,000 mark starting in 2019.

When it didn’t sell on those occasions, the owners renovated the basement, which improved the bedrooms on that level. In the spring, they listed it with an asking price of $1,198,000, but the property lingered on the market with only two showings. The owners then cancelled the listing and called in Mr. Kutyan, who estimated it was worth approximately $1-million.

“You’ve already over-exposed it for weeks and weeks at $1.2-million,” he says. “I need a new batch of buyers.”

Mr. Kutyan adjusted the listing to a low asking price of $795,000 because any buyers searching in that range would not have seen it at the higher price. Potential buyers booked 42 showings before the offer date one week later, and four offers landed, with the highest being $951,000.

But the sellers rejected all of them, he says, because they hadn’t purchased another house yet and they wanted a bigger cushion in order to move up. “What they kept looking at was the delta between that and what they could buy in their next house.”

Mr. Kutyan then listed it again at $1.049-million and welcomed offers at any time. It sat on the market for 22 days, then two offers came in. The highest bidder on offer night – who refused to budge at the time – had returned to meet the higher asking price.

“They got lucky – they got their full asking price,” he says. “It’s a calculated risk.”

Mr. Kutyan adds that sometimes just having one or two extra properties listed at the same time in the same neighbourhood will scatter the competition or lessen the sense of urgency. He says some buyers can use that scenario to gain a bit of leverage, but it depends on the motivation of the seller. “Sometimes you may snag a deal, sometimes you’re going to butt heads until the seller gets their price.”

Meanwhile, in the condo market, units in the $550,000 to $650,000 range are sometimes selling for less than similar units sold for in the same building in the spring, Mr. Kutyan says.

He sold a one-bedroom unit with parking at 230 Queen’s Quay West for $640,500 in June, after comparable units sold for as much as $666,000 between March and May. The seller was disappointed not to break above $650,000, but he pointed out that units in that price tier attract first-time buyers who may be hampered by the more stringent stress test rules that came into effect June 1.

Those who are willing to bid generally have a maximum budget and they’ve scraped together a down payment. Under the new rules, they have to qualify at a slightly higher benchmark, which often means they can afford less.

“The seller was cognizant of the market,” he says. “Ultimately the longer it sits, the less it’s going to sell for.”

Looking ahead, Ms. Omran at Scotiabank predicts sales data will resemble the June numbers for the rest of the summer. But once school returns, the recovery in jobs continues and population growth picks up, conditions will support housing sales and prices, she says.

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