A For Sale sign outside a home in Toronto on Dec. 13, 2021.CARLOS OSORIO/Reuters
Ontario’s real estate market is beginning the New Year with buyers and sellers in a stalemate. Many industry watchers are cautiously optimistic that both sides will find some common ground in early 2024.
John Lusink, president of Right at Home Realty and Property.ca says the two camps have conflicting interpretations of the market statistics.
Buyers pointed to low sales volumes as grounds for negotiating a reduced price; sellers pointed to flat year-over-year prices as a reason to hold firm.
“The market is stuck,” he says.
Mr. Lusink says inventory has risen substantially from the very low levels of the two previous years.
Listings at his company sat 40-per-cent higher in December compared with the same month last year and 100-per-cent higher compared with December, 2021.
Even when sellers are willing to budge, buyers have a tough time qualifying for financing with interest rates so high.
Mr. Lusink’s company has branches in many cities around Ontario. He says many of the sellers today are baby boomers who have decided that the time is right to downsize. But those homeowners are in no rush. If they don’t fetch the price they are hoping for, they will wait.
Another cohort of homeowners rushed to buy while ultralow rates were on offer during the first years of the COVID-19 pandemic. Many have seen their mortgage payments soar and some are now deciding to sell – but not in a panic, says Mr. Lusink.
The sellers saying ‘get it sold’ are typically investors who need to cash out, he says.
Mr. Lusink is looking toward the second half of February for an improvement in sales. That’s traditionally when the spring market kicks off, and some economists have mused that the Bank of Canada may lower its benchmark interest rate in March, he points out.
Meanwhile the rate for a mortgage with a five-year term dipped below 5 per cent in December.
Even the first whispers of rate cuts appeared to bring some buyers off the sidelines as properties that were lingering for months suddenly sold in the final days of the year.
Mr. Lusink says homeowners who have been trying unsuccessfully to sell might be better off making a fresh start as interest rates ease.
“It could be a good strategy to take it off the market now and bring it back in the spring.”
He cautions, however, that some companies have been laying off workers and the employment picture could deteriorate.
Maria Solovieva, economist at Toronto-Dominion Bank, predicts that elevated mortgage payments will create an enduring drag on consumer spending and broader economic growth.
The Bank of Canada’s estimates, roughly 50 per cent of mortgages that were initiated before interest rate hikes began will face higher rates by the end of this year.
Over the past decade, Canadian households have borrowed at a faster pace than their incomes have grown, Ms. Solovieva points out.
Still, without an unexpected economic downturn, the mortgage renewal cycle is unlikely to trigger an economic crisis, she says.
She expects any slowdown in employment will not be as severe as in past economic downturns. This relative stability should place a floor under incomes to manage the increase in debt servicing costs.
Pritesh Parekh, a real estate agent with Century 21 Legacy Ltd., is bemused that the Bank of Canada’s next move has become dinner party conversation for many people.
“No matter which table I’m at, people are talking about interest rates. Who would have thought people would care to talk about interest rates?”
Many buyers on the sidelines are waiting for the first sign that rates will drop before they make a move, he says. Others have already struck a deal in recent weeks as they try to time the bottom.
“People are hoping to catch that exact moment when rates start to go down but just before prices start to go back up,” Mr. Parekh says.
Still, even aspiring buyers who have decided to make a move in 2024 will remain cautious, he senses.
He expects the first couple of months to remain fairly flat as consumers keep an eye on the economic picture.
Mr. Parekh has some clients who are already primed to move up at some point in the coming year. One couple plans to go from a condo to a single-family home, while another is planning to trade their small house for a larger one.
As people in similar circumstances list their existing properties, more supply will arrive on the market.
Another development that Mr. Parekh will be watching for in 2024 is the reaction of sellers to new rules around bidding wars.
The Government of Ontario’s Trust in Real Estate Services Act, which ushered in new policies in December, allows sellers who draw competing bids to disclose the amount of each offer to other bidders.
The legislation aims to make the sales process more transparent for consumers.
In December, multiple offers were rare, and Mr. Parekh expects that to remain the case for some time to come. But if bidding heats up again in the spring, strategies may shift, he says.
Mr. Parekh says many sellers may decide to keep the bids under wraps, and the long-time practice of blind bidding will continue. But he can also foresee a scenario in which a seller may prefer to reveal the winning hand.
“The very interesting thing is, the seller can change their mind at any time in the process.”
Mr. Parekh says a seller who received 10 offers, for example, can wait until they have all been submitted, then decide at that time to reveal the amounts.
He points to the example of a homeowner who discloses that the top bid stands at $1.2-million. The next in line, with a bid of $1.199-million, suddenly realizes how close they are.
Mr. Parekh says bidders who know the number to beat may be tempted to increase their offer in a second round. In that way the new rules could actually spark a run-up in prices, he says.
Still, given the current restraint in the market, he doesn’t expect frenzied bidding right out of the gate in 2024. He will be watching with interest to see how buyers and sellers respond when the changes are put into practice.
“I think we have a little bit of time to figure that out.”