The slowdown in the Toronto area housing market continues as buyers and sellers come to terms with the Bank of Canada’s recent rate hike.
“I hear a lot of wait and see,” says real estate agent Manu Singh of Right at Home Realty Inc. “You feel a little paralyzed.”
Amid the confusion, some properties are seeing sluggish activity while some spikes are causing excitement.
“Every week it feels like it’s different with the market.”
Mr. Singh works with clients who competed for a four bedroom single family home in the Baby Point neighborhood of Toronto’s West End.
The home was listed at a below-market price around the $2.8 million mark and Mr Singh estimated it would sell for $3.2 million or possibly $3.3 million.
“We had expected six to eight offers,” he says.
He was shocked when 16 bidders entered the fray and the home sold for $3.975 million.
The home has been renovated in the last two or three years, he says, and it sits on a deep lot in a desirable school district. The supply of houses of this type is still very limited, he says.
“You don’t know when the next one will come.”
Buyers know they’re paying premium prices in the current market, he says. Many bypass homes with a Reno that is more than five years old.
Not far away in the Sunnylea area, a three bedroom elevated bungalow was listed with an asking price of $2.89 million and sold for $4 million.
“My clients are nervous,” he says after losing to two bidders who each paid more than $1 million more than asked.
Mr Singh says this segment of the market will not be held back by an increase in interest rates. For wealthy climbers, the challenge is the lack of supply.
Buyer frenzy is fading west of Toronto amid signs of falling house prices
The Bank of Canada raised interest rates by half a percentage point to 1 percent in April. It’s the largest single-session move since 2000.
First-time buyers are more sensitive to rising interest rates, he says, and many who were looking for semi-detached homes in the 416 area when rates were lowest have now switched their search to a two- or three-bedroom condo.
Condominiums have been out of favor for a while, but now that pandemic restrictions have eased and some workers are returning to the office, he’s seeing a return to high-rise living.
Earlier in April, Mr. Singh listed a two-bedroom, two-bathroom unit at 628 Fleet St. with an asking price of $979,000. Unit 3007 had a good view of the lake and city.
Over the course of a week, the condo had 14 showings. The unit sold for $1.186 million when three competing buyers emerged on the night of the bid.
“We were expecting at least five or six,” he says. “I also see ebbs and flows in the housing market.”
The condo market was more resilient than the single-family segment in March, according to the Toronto Regional Real Estate Board.
In the Core 416, March condo sales fell 18.3 percent from the same month last year. In the outer 905, March condo sales were down 16.3 percent from March 2021.
Toronto real estate listings are swelling, taking away the advantage from buyers
In March, the median price for a condo was essentially flat compared to February at $831,351, while the median price in the suburbs also settled at $760,410.
This contrasts with a steeper sales decline of about 34 percent for single-family homes in the GTA in March compared to March last year.
Elli Davis, a real estate agent at Sotheby’s International Realty Canada, says her inventory of homes and condos is low.
“We had a kind of quiet time,” she says. “It’s not that hysterical and fast.”
Ms. Davis is offering a two bedroom, two bathroom unit at Renaissance Plaza, 175 Cumberland St., Suite 2202, Avenue Road and Bloor Street. There is currently only one other unit for sale in the tower, which was built in the mid-1980s, she says.
Ms. Davis plans to list the unit in need of a makeover with an asking price of $1.795 million.
Ms. Davis says some condos sell within a day or two of listing — especially if there’s no other inventory in the building. Others don’t move.
Investors buying older condos and renovating them for resale may charge a premium, but some of them are languishing longer than they have in the past, she says.
“I think their expectations will go down.”
Ms. Davis expects the rising interest rate environment to further calm the market.
Paul Ashworth, chief North America economist at Capital Markets, says Canada’s over-reliance on combined housing and household debt makes the country most vulnerable to the impact of higher interest rates.
Bank of Canada Governor Tiff Macklem has welcomed a newfound hawkishness, he notes, and Mr Ashworth is forecasting another half a percentage point hike in June.
Household debt reached 170 percent of disposable income in Canada at the end of 2021, up from 164 percent just before the pandemic and 135 percent at the time of the 2008 financial crisis.
On a comparable basis, US household debt is now just 139 percent of disposable income, unchanged from pre-pandemic levels and well below the 2009 peak of 172 percent.
Canada has finally reached the levels of household debt that preceded the housing collapse in the United States, he notes.
“Canada’s economy is also far more dependent on housing investment than any other advanced country, and at this stage it’s nowhere near as so,” he said in a note to clients.
The conundrum facing the central bank is that residential real estate investment is the most interest-rate-sensitive part of any economy, the economist says.
With signs the housing market is already slowing in response to the rise in mortgage rates in recent months, Mr Ashworth doubts the central bank can raise interest rates much more than 2 percent.
“If we’re wrong and it’s hasty, the resulting downturn in the housing market will be much worse.”
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