Mixed signals: Why it’s hard to tell if Canada’s real estate market is hot or not right now

Canadian residential real estate markets have been giving off mixed signals in recent months. After a strong start to spring, the Bank of Canada’s resumption of interest rate hikes in June sent buyers back to the sidelines. But while sales have cooled, prices in some areas have held their ground, even in the face of five-year fixed mortgage rates that are pushing six per cent. So is the market hot or not? The Financial Post’s Shantaé Campbell asked realtors in Vancouver and Toronto to assess their respective markets by looking at some of the indicators of bull markets gone by, from bidding wars to inventory levels.

Bidding wars

“This year, it’s only happening with the quality inventory and the highly sought-after product,” said Adil Dinani, a realtor with Royal LePage West in Vancouver, who has noticed a decline even since last summer in the overall prevalence of bidding wars.

By contrast, Cailey Heaps of Heaps Estrin Real Estate team, said she has seen a resurgence this summer.

“Last summer the market was pretty flat. After June 1 … it was very quiet in the latter half of 2022,” Heaps said. “The 2023 Summer market has been more robust.”

Heaps gave the example of a semi-detached property on Glendale Avenue in Toronto’s High Park-Swansea neighbourhood that sold in six days in June, fetching 13 per cent above the asking price following a bidding war. Most recently, she said another bidding war led to a downtown home going for 33 per cent above asking.

Inspections

In a competitive market, buyers will often choose to forego home inspections in their rush to secure a property. While exact figures are unavailable, a sharp decline in the membership at the Ontario Association of Certified Home Inspectors showed just how out of fashion they became. Though joining is voluntary, membership plummeted from 827 in 2017 to just 80 by 2022, suggesting a significant shift in industry practice.

Heaps said that inspections are still common in the Greater Toronto ARea, but that it is sellers who are now the ones preemptively springing for the cost.

“There has been a lot of dialogue around inspections,” Heaps said. “It’s not that buyers are completely foregoing it. Sellers are just opting to have their own. Because of this, inspection clauses are just not that common anymore.”

Dinani said that while buyers have more leeway to insist on an inspection nowadays, there are ways to avoid having such a demand hold up a deal.

He gave the example of a client who was competing with five other bidders for a home in Vancouver Heights. Assessing that the home would have commanded a higher price in a more robust market, Dinani advised his clients to conduct their own inspection before placing their bid, a strategic move to make their offer more attractive.

Offer dates

The use of offer dates — when a home is strategically priced to attract numerous bidders on a fixed date following a showing — was a hallmark of Canada’s hot real estate markets.

In a report focusing on the Hamilton, Ont. census metropolitan area from January 2012 to June 2022, the Canada Mortgage and Housing Corporation (CMHC) found that the practice was specifically tied to tight markets, with under 1.5 months of inventory and average prices exhibiting double-digit growth.

With inventories tighter than ever — at the end of the second quarter of 2023, the Canadian Real Estate Association (CREA) found that Toronto had 0.7 months of inventory, down from the 2.4 months recorded at the end of the second quarter of 2022 — one might assume that offer dates are making a comeback.

But Heaps said that while inventory is tight, the market dynamic has shifted because of rising interest rates.

Nevertheless, she said her brokerage has found situations in which offer dates make sense.

Dinani advises sellers to exercise caution and manage their expectations regarding offer dates.

“The likelihood of receiving multiple offers in today’s market is not as high as before, perhaps one in 10 homes,” Dinani said.

Inventory

There were 3.2 months of inventory on a national basis at the end of July 2023, up slightly from 3.1 months in May and June. While July marked the first month-over-month increase since January, inventory is still a full month below where it was at the beginning of 2023, and almost two months below the long-term average of about five months.

The Real Estate Board of Greater Vancouver reported that July’s housing inventory was 14.4 per cent lower than the 10-year seasonal average of 12,039.

While tight inventory in the past has been a bullish sign, driving prices higher, Dinani said there are forces at play — including high interest rates and demand from immigration — keeping the market balanced.

For some house-hunters, the lack of supply has been frustrating.

Days on the market

Length of time on the market is frequently used as a barometer of a hot housing market. Currently, the length of time between listing and sale is getting longer, though it differs markedly by city and by the type of residence.

In Toronto, for example, homes that were typically sold within nine days in July 2020 are now taking 19 days to sell due to current market conditions. Meanwhile, in Vancouver, properties that took an average of 33 days to sell in July 2020 are moving in 23 days this year.

Heaps believes the luxury market has skewed the numbers in Toronto.

“If you look at the ultra-luxury segment of the market, like the $10 million dollar plus, and of those listings that were live since Jan. 1 of 2023, only four per cent of them have transacted,” she said. “But if you were to look at the average days on market in the sub $2 million and a half range, I think you’d see it was very strong.”

• Email: shcampbell@postmedia.com