Buyers in Toronto might rush to close deals before the new ‘stress test’ rules, which came in to effect on Oct. 17, run down the clock on their mortgage preapproval.Fred Lum/The Globe and Mail
Toronto's intensely competitive real estate market could see an even more frantic burst of activity in the coming weeks.
Many potential buyers worried about the federal government's more stringent rules surrounding mortgage insurance rushed to secure approvals for financing before the new "stress test" came into effect on Oct. 17th.
Real estate agent Geoffrey Grace of ReMax Hallmark Realty Ltd. says some of those house hunters may push to get a deal signed before the clock runs out. Lenders who provide preapproval for a mortgage typically keep the offer open for 90 or 120 days.
Mr. Grace figures that people who fear they will be affected by the changes are going to have an incentive to pay a little more for a house now rather than risk having a smaller sum to spend if they have to return to the bank or non-bank lender for another round of approvals.
"I think we're going to see a lot of people running around with very strong offers."
Meanwhile, agents are hoping that more homeowners will come forward to list their places for sale. Listings are still extremely tight, they say, and buyers are bidding up prices as a result.
Mr. Grace thinks that warm tempuratures in September and early October may have delayed some listings because homeowners were out enjoying the weather instead of staying in to clean the basement and ready their houses for listing.
"I think people's summer mode just kept going through September."
Another factor, he believes, is the dizzying rise in prices in the past year. If homeowners see that prices have jumped 20 per cent or so since the same time last year, they feel encouraged to hang on for more gains.
"Why sell now if I can make more money waiting?," he points out.
A homeowner with a house that would sell for $1.5-million or $2-million, for example, could pocket another $300,000 or $400,000.
Mr. Grace says this dilemma is especially common for people in their 60s. Often, they would like to downsize but they don't have a mortgage and they can easily afford to pay their property taxes. They're not in a hurry to move so they figure they might as well hold on for some extra funds to spend in retirement.
Meanwhile, when they look at purchasing a condo, they find that the profit from the house sale doesn't go as far as expected.
"I show them an $800,000 condo and they can't believe it's a shoebox."
Mr. Grace points out that some economists are predicting that price growth is likely to slow. If gains to retreat to a pace of 3 per cent to 5 per cent a year, more owners may be willing to put their homes on the market, he believes.
"That's no enough to make me put my life on hold for a year."
Mr. Grace would like to see that relative equilibrium in supply and demand.
"Slow supply with more moderate demand will be healthy for the market," he says. "That will get people off the fence to downsize. That's just a healthy market."
The new rules introduced by the federal governmern are designed to ensure that buyers who qualify for Canada Mortgage and Housing Corp. insurance would be able to handle a rise in interest rates.
Those most likely to be affected by the changes are first-time buyers with a downpayment of less than 20 per cent in pricey markets such as Toronto.
As of Oct. 17th, all borrowers who have insured mortgages will have to qualify at the most common rate posted by the Bank of Canada, which is now about 2 percentage points higher than the discounted mortgage rates offered by most lenders.
Capital Economics economist Paul Ashworth figures the Bank of Canada is still betting on a soft landing for the country's housing market. Earlier this month, the central bank kept its key lending rate unchanged, but Governor Stephen Poloz presented a fairly gloomy view of the economy.
Mr. Ashworth is forecasting another rate cut by the central bank in the first half of 2017. He also warns that, in his opinion, it's too optimistic to believe that existing home sales will sale on serenely at close to a record high. After a lengthy period of sales volume far above the long-run average, he wouldn't be surprised to see that followed by a period of below-average sales volume.
Ira Jelinek of Harvey Kalles Real Estate Ltd. says more listings are coming out in the next few weeks but buyers still seem to heavily outnumber sellers.
He recently launched a search for clients who are looking to make the move from a condo to a house. Last week, the couple entered the competition for a four-bedroom semi on Sherwood Avenue, near Mount Pleasant and Eglinton Avenues. The couple submitted an offer of $1.318-million, or $268,000 above the asking price of $1.050-million.
By the end of the night, 12 other bidders had joined the competition and the house sold for $1.510-million, or $460,000 above asking.
Mr. Jelinek says the race illustrates how slim the supply of listings is when 13 bidders are competing in the same neighbourhood in the same price range.
But Mr. Jelinek says his clients are not feeling deflated. The race was the first they entered and they are prepared to spend some time. In his opinion, the house was not worth more than the amount they offered.
"They were happy that I gave them a conservative number," he says. "I could have got them to spend more. You know when there are 12 other offers, things are going to get crazy."
Carolyn Ireland