Buyer activity declines in Toronto-area real estate market
The first wave of summer heat, rising interest rates and the Ontario provincial election are contributing to moderating activity in the Toronto area real estate market as June approaches.
Patrick Rocca, broker at Bosley Real Estate Ltd., says prices are holding up for properties in the main 416 area code, but he’s seeing lower viewing and fewer offers when an offer deadline arrives.
“Activity fell dramatically,” Rocca said of the week ahead of the Bank of Canada’s scheduled June 1 rate hike and the June 2 election.
The weekend before these events also brought warmth and sunshine, which may have caused more people to take a break from house hunting in the Leaside and Davisville neighborhoods where there is a much of his business.
Days before the central bank conference, a semi-detached house in East York that Mr. Rocca listed with an asking price of $1.429 million had not received any offers by the deadline for accepting offers.
As a result, Mr. Rocca is changing some of his own strategies. He recently sold a house to a “bully” who refused to wait until the due date before making an offer.
Until recently, Mr. Rocca made it clear in his ads that sellers would not consider intimidating offers. But with the changing market, he now advises sellers to be open to such pre-emptive offers.
“The pool of buyers has really thinned out,” he says.
Mr. Rocca monitors registrations throughout downtown. These days, he’s more frequently seeing deal dates come and go with no sale. Often the property is quickly relisted for a higher price after an eye-catching below-market price fails to spark a bidding war.
In one case, a downtown home listed with an asking price of $4.2 million was recently relisted with an asking price of $4.5 million.
Rocca notes that one of his listings launched last week only had 10 appointments booked.
He compares the recent level of buyer interest with February, when a semi-detached home he listed had 97 viewings in one week and sold for a record price. In March, a similar property had 51 viewings and still hit another price milestone.
A few weeks ago, a third comparable property had 31 visits. Similarly, the number of bidders at the table often hit double digits at the start of the year, but those participants have dwindled.
Mr Rocca says the dwindling number of bidders hasn’t worried him so far as the remaining buyers appear to be more serious.
Jimmy Molloy, a real estate agent with Chestnut Park Real Estate Ltd., says a combination of strong demand and tight supply in the 416 area code continues to drive prices up.
In Molloy’s view, the market was overheated earlier in February and is now returning to more normal activity. In this context, some properties are still selling quickly.
Mr. Molloy and Justine Deluce of Chestnut Park recently sold a circa 1934 mansion at 63 Old Forest Hill Rd. for the full asking price of $17.198 million.
Mr Molloy says the historic home, with 7,000 square feet of living space and more than half an acre of land, had two offers and sold after four days on the market .
While first-time buyers and some first-time buyers buy homes out of necessity, Molloy says, luxury buyers typically don’t buy for a reason as practical as getting an extra bedroom.
“They buy from a different point of view. They buy out of desire. They’re looking at something very specific and they’ll be waiting to get that specific thing.
And while most consumers are sensitive to rising interest rates, first-time buyers generally feel a bigger impact, he says.
Rampant demand and paltry supply at the start of 2022 pushed the average price in the Greater Toronto Area to $1,344,544 in February, according to the Toronto Regional Real Estate Board. By April, the average price in the GTA had slipped to $1,254,436.
Molloy believes changes to federal and provincial rules have contributed to the decline: The Trudeau government announced a ban on foreign buyers buying residential real estate for two years in its 2022 federal budget, while the Ontario government has increased the tax on foreign buyers to 20%. from 15 percent.
Two rate hikes by the Bank of Canada have also made buyers more hesitant, he adds.
The average price for a single-detached home in the 416 area code was $1,947,975 in April compared to $2,073,989 in February. The average price for a single-detached home in 905 fell to $1,526,791 in April from $1,727,963 at February’s peak, according to TRREB.
Across Canada, a 12.6% (seasonally adjusted) drop in sales in April compared to March bucked the seasonal trend, notes Bank of Nova Scotia economist Farah Omran.
Many sales were likely pulled forward as consumers braced for higher interest rates, she adds, while expectations of even more hikes to come appear to be accelerating their effectiveness.
“The long-low rate environment that long preceded the pandemic contributed to some Canadians’ long-held belief that rates will never rise,” she says in a note to clients.
Bay Street is now forecasting more central bank hikes and a big hike in long-term rates, she says. This dynamic leads to a rapid adjustment of fixed mortgage rates, which are influenced by government bond yields. Variable rates are also up, in line with the central bank’s trend rate.
Ms. Omran notes that sellers are sometimes forced to accept offers that are lower than what the past two years have led them to expect, as well as offers that come with conditions.
The economist adds that, with the GTA leading the declines in national sales and prices, the TRREB data shows that the fall in 905 is more pronounced. Single-family homes and suburban townhouses, which have seen prices inflate the most throughout the pandemic, are now the hardest hit, she points out.
Ms Omran says the turnaround likely signals a rebound in the city center as many businesses return to work in the office and rising petrol prices make commuting less affordable – on top of the loss of the advantage of affordability in these outlying areas.
Looking ahead, Rocca expects the summer to remain fairly slow as people start to travel again now that pandemic-related restrictions have eased.
But he is more concerned about the outlook after Labor Day if the central bank reacts forcefully this summer.
If prices erode, sentiment can swing sharply: buyers on the sidelines are more likely to think they’ll get a better deal later if they wait, Rocca points out.
“The big question is the fall,” he says.
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