Sellers taking advantage of rate drop to enter housing market
When the Bank of Canada cut its key interest rate in early June, some industry watchers predicted that the move would re-energize buyers in the Toronto-area real estate market.
Instead, it’s the sellers who have been galvanized into action.
Robin Pope, broker with Pope Real Estate, says the languid spring market has slowed even more in June.
Potential buyers were watching to see whether the Bank of Canada would cut its benchmark rate for the first time since 2020. When the central bank did indeed lower its policy rate by 25 basis points to 4.75 per cent, they waited some more to see if the move would have an impact on the market.
“It did nothing – people were hoping it would do something,” says Mr. Pope. “It had no impact.”
Even another cut of the same size won’t move the needle much in his opinion.
“How is one-half per cent going to impact buyers that much when interest rates are as high as they are?”
Mr. Pope points to the example of a well-polished Toronto row house listed by a colleague with an asking price of $1.95-million.
“After 10 days of being on the market, not one inquiry, not one showing,” says Mr. Pope, adding that traffic was so slow the agent needed to verify the listing was actually online.
Anna Wong, real estate agent with Strata.ca., has been watching new listings stream onto the Multiple Listing Service of the Toronto Regional Real Estate Board since the central bank announcement.
Strata.ca’s data crunching shows inventory in the core 416 area code recently surpassed the high water mark set in October, 2020 during the depths of the pandemic.
Many aspiring buyers will feel more confident if they see another rate cut or two, according to Ms. Wong.
“The buyers are actually still on the fence,” she says. “They still have that fear. They want to make sure that it’s a trend.”
Ms. Wong has been surprised to see homeowners rush to put a “for sale” sign on their property when active listings have been steadily rising.
“Maybe they just weren’t paying attention to the market, or they really need to sell,” she says. “People are pushing it out, but there’s nobody to pick it up.”
Ms. Wong says much of the increase in inventory is coming from the condo segment, with units languishing in the downtown core.
Earlier in the spring Ms. Wong suspended the listing for a renovated two-bedroom condo in the St. Lawrence Market area. It’s the sort of unit that would be snapped up in an instant in a strong market, she says.
If sellers are not desperate, she is advising them to hold off.
“I don’t think it makes sense to go into this push with everybody else,” she says. “It’s hard for sellers to hear, ‘you’ve got to hold your horses.’”
With the monetary easing cycle now under way, Daren King, economist with National Bank of Canada, says a number of factors may support transactions, including strong demographic growth, low vacancy rates in the rental market and additional cuts by the central bank in the months ahead.
Still, Mr. King is only cautiously optimistic about a possible rebound in the housing market, he says, because a great deal of uncertainty remains in the form potential deterioration in the labour market and housing affordability he calls “horrendous.”
In the condo market, Mr. Pope says, potential buyers are wary of buying a unit today that they are betting may be cheaper a few months from now.
“Right now there’s downward pressure on price – they don’t want to catch a falling sword.”
Some of that pressure comes from new supply coming on-stream. Industry analysts at Urbanation Inc. estimate more than 26,000 condo units in the Greater Toronto Area will reach completion in 2024.
“That’s a big number when the condo market is underperforming,” Mr. Pope says.
He notes that not all of those units will come up for sale but a portion were purchased by investors who may have always intended to sell. Others will feel pressure to sell because they can’t qualify for a mortgage at today’s rates.
When the Bank of Canada move failed to energize hesitant buyers, the cohort gambling that prices will fall became even more entrenched in their position, he senses.
As a result, the condo segment of the market is firmly in buyers’ territory.
“Some buyers will execute a purchase if they think they’re getting a really good price,” he says.
Still, deals are sometimes hard to put together.
Mr. Pope is working with one buyer who recently sold a row house and is currently shopping for a condo. She accepted a lower sale price than she was expecting, he says, but so far the sellers she has been negotiating with are unwilling to bend.
“She was told she was going to get $1.4-million for it all day long,” says Mr. Pope. “After 30 days it sold for $1.35-million.”
The client is now in the market for a condo in the $700,000 to $800,000 range. She is keen not to overpay after taking less than she expected for her house.
“What’s motivating her is price,” says Mr. Pope, noting that the buyer is not submitting lowball offers, but she has a handful of properties on her shortlist.
And with more listings arriving, inflexible sellers risk losing to the competition.
“Any miscalculated counter-offer can end up with an end to negotiations,” he notes. “Sellers forget that they’re not in a bubble – every hour it changes – you don’t want a buyer to walk away because another seller has stolen your buyer.”
Meanwhile, some agents are trying a variety of questionable tactics in order to get a deal, Mr. Pope says. He notes one listing in Liberty Village failed to sell with an asking price of $850,000, then came back on the market three weeks later with a price of $699,900 and offers welcome any time.
Mr. Pope’s client was interested but he talked to the listing agent and learned that the seller is hoping for a deal somewhere around the $800,000 mark. Such baffling swings in asking prices can alienate buyers, he says.
His client decided to cancel her appointment.
“People are desperate to play any trick in the game just to get someone to make an offer on their property. You don’t try that in this market.”
This article was first reported by The Globe and Mail
