A west-end Toronto home for sale in July 2023.Graeme Roy/The Canadian Press
The long-delayed spring real estate market in Toronto saw sparks of life in late May as some buyers attempted to get in ahead of a potential summer revival.
Pritesh Parekh, real estate agent with Century 21 Legacy Ltd., says the largest cadre of buyers remained in wait-and-see mode leading up to the Bank of Canada’s policy meeting this week.
He saw traffic slowing down on his listings as the rate announcement drew closer.
But a small cohort decided to take advantage of swelling supply and a lack of rival buyers to lock in a deal. Mr. Parekh kept track of properties that were listed for sale with a date set for reviewing offers. Typically those homes have an eye-catching asking price that the listing agent hopes will spur buyers into competition.
“We saw many, many houses that were set up for an offer date and just not selling,” he says.
He targeted such homes for one couple with a modest budget who had lost out in a few bidding contests during the spring.
In May he found an older house in Toronto listed around the $850,000 mark. The house failed to sell on the offer night and came back on the market a few days later at the same price.
“I saw that as a huge opportunity,” says Mr. Parekh, who adds that sellers often relist at a higher price in line with what they were hoping to achieve in a bidding war.
The couple was able to negotiate a deal below the asking price because they were the only buyers to put an offer on paper. In the end, they spent less than their top budget and got everything they wanted, he says.
But Mr. Parekh cautions that not all sellers are motivated to wrangle on price. Many hold out for a predetermined number that they won’t go below.
“That’s not realistic,” he says, under current market conditions, but some wait for an improvement. “They will sit on it until that happens.”
Elli Davis, real estate agent with Sotheby’s International Realty Canada, works with many downsizers who are selling or considering selling larger homes. With a higher level of inventory, she says, buyers are feeling less urgency.
Many are willing to move forward, she says, but not if they believe the price is inflated.
“The owners have to face reality that the prices might not be what they thought they were,” says Ms. Davis. Usually price is the answer.”
John Lusink, president of Right at Home Realty and Property.ca, is closely watching the balance between supply and demand.
At his firm, with branches in many Ontario cities, listings in the final week of May stood 67-per-cent higher than in May of 2022 and 50-per-cent higher than the same month last year.
“There’s no arguing that we’ve seen a dramatic increase in supply,” he says.
Sales, meanwhile, are down sharply from this time last year when the spring rally reached its peak.
Demand remains muted as a large group of potential buyers waits for a drop in mortgage rates, he says.
He notes that rates for fixed-term mortgages, which are determined by the bond market, do not move with a change in the Bank of Canada’s policy rate.
“A lot of people forget that.”
And while potential buyers have been waiting on the sidelines for a sign from the Bank of Canada that interest rates are on the decline, many have also been hoping that surging inventory will push prices down.
That hasn’t happened so far, Mr. Lusink points out, with prices remaining fairly steady compared with this time last year in most segments.
More areas are in balanced territory than in the past, but that tension between supply and demand varies from one neighbourhood to the next, he says.
The pace in Leaside is different from Bloor West Village, for example, with different dynamics rippling out to Mississauga and Newmarket and beyond.
Overall, buyers betting that prices would fall as supply rose haven’t seen a significant drop.
“It isn’t having the effect people were hoping for.”
Mr. Lusink sees a few factors providing a buffer against sliding prices: building permits for new single-family homes continue to drop, which means supply from that portion of the industry hasn’t been keeping up.
The population is growing, he adds, as international students and new immigrants continue to arrive. New government policies aimed at restricting some immigration won’t lead to a notable decline in growth until 2026 or 2027, according to his projections.
Prices have tumbled farther in the smaller markets that saw a strong run-up during the low-interest era of the pandemic.
Cobourg, Port Hope, Cambridge and Peterborough are among the Ontario towns and cities that have seen average prices tumble from their peak in the first quarter of 2022.
“They’re just coming back to reality,” Mr. Lusink says.
Looking ahead to the summer months, Mr. Lusink expects the market to remain fairly flat.
In his opinion, worrying trends are likely to continue as businesses struggle and confidence remains low.
“People are concerned,” he says.
Against that backdrop, real estate lawyers report that it’s tougher to close deals and banks are more conservative in their mortgage lending.
Still, a Bank of Canada rate trim could be a harbinger of more optimistic days for real estate ahead.
“It will be more of a psychological boost than anything.”
Olivia Cross, North America economist at Capital Economics, notes that recent data shows continued strength in household consumption in the first quarter, which was a surprise given weaker retail sales numbers, in her opinion.
Statistics Canada reported last week that real gross domestic product rose at an annualized rate of 1.7 per cent in the first quarter.
“The strength of consumption suggests that interest rates are not taking quite as heavy a toll on households as we previously thought, and the economy appears to have carried more momentum into the second quarter than either we or the Bank expected,” Ms. Cross says in a note to clients.