Farah Omran, economist at Bank of Nova Scotia, still sees room for prices to fall in 2023, but by how much and for how long varies significantly across cities, she says.Evan Buhler/The Canadian Press
One dilemma confronting people who are considering trading properties in Canada’s lackluster real estate market is the question of whether to buy first or sell.
Real estate agent Raymond Chin recently had the daunting task of helping a couple with three small children quickly sell their existing four-bedroom house in suburban Ottawa after the couple purchased a larger house.
In November, Mr. Chin of Coldwell Banker First Ottawa Realty helped the buyers find a house that backs onto parkland with skating rinks and hiking trails in the suburb of Gloucester.
The couple purchased the detached, four-bedroom house at 526 Antique Court for the full asking price of $1.1-million, and also agreed to the sellers’ request for a June closing – seven months away.
But the pair then faced selling their existing detached, four-bedroom home in the depths of the Ottawa winter.
Mr. Chin was confident the house in the Half Moon Bay area would sell but the couple needed to fetch a strong price in order to be able to move up to the next property.
“It was stressful. We had to sell this home,” he says. “The longer it sits on market, the less we get on price.”
To add to the challenge, Mr. Chin says, there were 15 other houses in the neighbourhood on the market at the same time – most at lower prices.
The couple waited until January, then moved the entire family out of the house at 365 River Landing Ave., and had it prepped to show as well as possible.
“They knew that the first week would be the most critical week because that’s when the most motivated buyers come out,” Mr. Chin says.
Within 24 hours the sellers received an offer, but it was a long way from the asking price of $923,900.
The sellers fretted about the low bid and wondered if they should wait until the weekend open house. But the buyers were willing to negotiate, and the two sides eventually struck a deal for 922,000. The buyers also agreed to the seven-month closing that the sellers needed.
Two nearby houses with identical floor plans were on the market at the time at higher prices and they still haven’t sold, Mr. Chin adds. In the first week of February, one listed for $50,000 more had been on the market for 64 days and the other, listed for $25,000 more, had been sitting for 76 days.
Looking ahead to the spring market, Mr. Chin believes more homeowners burdened by the rise in interest rates will sell their properties.
During the pandemic, Ottawa residents streamed out of the city to purchase houses with large lots in small towns such as Arnprior, Almonte and Embrun, he says. Now many civil servants are returning to their offices in Ottawa and supply is rising in the outlying areas as a result, Mr. Chin says.
Another trend during the pandemic period of record-low interest rates was for buyers to purchase preconstruction houses with small deposits of only 5 or 10 per cent, Mr. Chin says.
Now those buildings are being completed after massive delays due to supply shortages and other problems. The buyers are having a hard time qualifying for financing with the current higher interest rates and stress test.
“We’ll see more desperate sellers,” Mr. Chin says. “People should have known [low rates] wouldn’t last forever but no one expected such a rapid increase.”
In a government town, he points out, most employees have a steady income and they don’t rake in the bonuses that Toronto’s Bay Street mavens do.
“The money is different,” he says. “I don’t see Lamborghinis on the road at all in Ottawa.”
Another distinction between the two cities he has taken note of is the attitude of real estate agents. Some Toronto agents who represent clients purchasing Ottawa properties become pugilistic in a manner that almost borders on harassment, he says.
Mr. Chin has received take-it-or-leave-it offers good for only a couple of hours, for example, and agents sometimes viciously talk down the property.
“Your over-aggressive tactics won’t do you any good here,” he warns them, adding that sellers refuse to sell to them. “They actually ruin it for their client.”
Farah Omran, economist at Bank of Nova Scotia, still sees room for prices to fall in 2023, but by how much and for how long varies significantly across cities, she says. So far the biggest price adjustments have come in the cities where prices climbed more during the pandemic, while in some areas prices have barely fallen.
Immigration and movement between provinces is helping to cushion against declines in some places, she says.
In Calgary, for example, prices were higher at the end of December than in February, 2022 as Alberta’s population swelled. Atlantic Canada has seen a rising share of new international immigrants settling in that region, she adds, which is likely the reason prices in Moncton have declined very little despite an 80-per-cent run-up during the pandemic.
Durham Region, east of Toronto, is one of the areas that saw a surge in sales and prices during the pandemic as many first-time buyers jumped into the market and city dwellers fled Toronto. Now communities such as Oshawa, Bowmanville, Ajax and Pickering have seen a sharp drop in prices.
Shawn Lackie of Coldwell Banker R.M.R. says activity has picked up recently now that prospective buyers see more certainty surrounding interest rates.
Bank of Canada governor Tiff Macklem has been signaling the end of monetary policy tightening following the central bank’s latest increase in January.
Mr. Lackie says the average sale price in Durham has dropped approximately $342,000 to $886,000 from $1.228-million at the peak in February, 2022.
Many buyers are assuming that rates will come down by 2025 or so, he says. They figure that puts them in a better position than people who purchased at the peak.
“If you’re paying $1-million for a house that you should have only paid $750,000 for, the price of the house is forever,” he points out.
A modest bungalow in Durham, for example, might be listed with an asking price of $699,000 and sell for $725,000 or $750,000 or so instead of a price above $900,000.
Mr. Lackie says some buyers who got caught up in “fear of missing out” during the pandemic run-up are now feeling remorse.
A common scenario is that buyers in suburbs and rural areas a long way from Toronto are finding tenants for those properties so they do not have to sell at a loss. They are then renting an apartment in the city.
The problem now is that the rental market has become saturated in those areas.
As for sellers, some are trying the tactic of listing at a low asking price, then see what bidders are willing to pay.
Mr. Lackie believes it’s not a bad strategy during a time of uncertainty.
The strategy means bidding wars have sprung up again, but sellers can quickly obtain a true sense of what their house is worth, he says.
After a wave of buyers attempted to back out of deals last year as prices tumbled, Mr. Lackie advises sellers who receive multiple offers to look past the highest offer to the most solid bidder.
He points to one recent deal where the seller received 17 offers for a house in the $700,000 range. The homeowner accepted the fourth-highest bid.
“If you’re a seller, the biggest number you’re looking at is not the purchase price, it’s the deposit,” Mr. Lackie says. “A buyer will absolutely tell you how serious they are about buying your house by showing you how much they’re willing to lose.”
Still, Mr. Lackie warns, buyers are mistaken if they believe they can just forfeit a deposit and walk away. An agreement of purchase and sale is legally binding and many sellers will pursue legal action.