A house in Guelph that was recently listed by agent Aimee Puthon of Coldwell Banker Neumann Real Estate.Coldwell Banker Neumann Real Estate
The spring buying spurt in Canada’s real estate market has likely run its course but sellers continue to hold sway in many cities.
Robert Hogue, assistant chief economist at Royal Bank of Canada, believes the slower pace of sales growth in recent weeks marks a shift in the Canadian housing market’s recovery.
National sales edged up 1.5 per cent in June from May, while Ontario diverged from the trend with a 1.3-per-cent dip in the same period.
Mr. Hogue points to the Bank of Canada’s resumption of its rate hike campaign and the unexpectedly solid price gains in some markets in the spring as two reasons for diminished buyers’ enthusiasm.
In June, new listings grew faster than sales for the second straight month in Canada, but much more supply is needed to bulk up historically low inventories, he adds.
“Buyers still face a scarcity of options in the majority of markets, tilting the scale in favour of sellers,” Mr. Hogue says in a note to clients.
For now, prices continue to appreciate at a rapid clip, Mr. Hogue says, pointing to the 2-per-cent jump in the aggregate composite MLS home price index in June from May. He expects that pace to moderate through the remainder of 2023 as higher interest rates trim the purchasing budget of many buyers.
Faisal Susiwala, broker at Re/Max Twin City, says buyers in the Ontario cities of Kitchener-Waterloo and Cambridge are hesitant.
“Right now people have retracted. They’re on the sidelines waiting to see what happens.”
In addition to the uncertainty surrounding rate hikes, the market typically becomes somnolent in July, he adds.
“These two weeks of July are virtually non-existent when it comes to sales.”
Even in a slow market, some sellers are continuing to receive multiple offers, but the ferocity of the bidding has calmed down since April and May.
Mr. Susiwala says sellers are disappointed when showings and sales slow to a trickle but he advises against signalling desperation by cutting the price after two weeks.
The asking price for 24 Winston Cres. is $1,150,000.Coldwell Banker Neumann Real Estate
The area west of Toronto saw new listings increase in June from May, while sales remained at about the same level.
In Guelph, Ont., the action feels less chaotic as supply rises and days on market stretch out, says Aimee Puthon, real estate agent with Coldwell Banker Neumann Real Estate.
“It feels like people have taken their foot off the gas and they’re sitting in their Muskoka chairs.”
She is seeing more conditional offers, including some buyers making the deal conditional on the sale of their existing property.
Ms. Puthon is urging sellers to remain patient.
“When a property doesn’t sell in three days with five offers, people tend to freak out a bit,” she says. But Ms. Puthon reminds homeowners that midsummer is typically a quiet time.
She has heard from a few homeowners planning to list after Labour Day but she says it’s too soon to tell how the supply will compare with previous years.
“People who really had to sell or wanted to sell came on in the spring.”
Mr. Susiwala is seeing homeowners increasingly stretched by the higher rates and strongly advises people who are struggling to pay their mortgage to work with the lender before the sheriff arrives and locks are changed.
Lenders send many letters and try to work out a plan with homeowners before they force a sale, he notes, but borrowers need to face the problem head on.
“Ultimately they show up and you’re out.”
Mr. Susiwa has sold three properties under power of sale in the past four months.
“We’ve seen some really nasty things happening.”
The problem stems from the fact that homeowners who purchased in the spring of 2018 have been seeing their mortgages come up for renewal if they signed up for a five-year term, he explains.
Rates at the time were between 2.8 and 3.2 per cent, he says, but today those homeowners will be facing a rate of around 6.25 per cent.
The homeowners who paid down the mortgage each month are not likely to be in trouble, he says.
The crisis he sees today is among those homeowners who took out a home equity line of credit (HELOC) in 2021, after their property value had soared, to pay for expensive items such as renovations, swimming pools and cars.
Mr. Susiwala is seeing distressed homeowners now that the interest rate on a HELOC is 7.5 per cent instead of the 1.25 to 1.5 per cent they were paying in 2021.
If they need to renew or refinance, they grapple with mortgage rates around 6 per cent today and may not be financially stable enough to pass the stress test at a rate 2-per-cent higher.
Mr. Susiwala expects to see more such cases and an increase in listings as a result.
“That is the sad reality of what we are going to face going into September.”
An added pressure is that people who have no choice but to sell are moving to the rental market and sending prices higher in that segment.
Mr. Susiwala urges homeowners to try to weather the storm if they can, including borrowing money from family members if possible.
“This is not a time to panic and sell at a loss,” he says.