Real estate deals timed to mortgage rate moves

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Scrutinizing the pronouncements of the Bank of Canada has become a popular summer pastime in the Toronto-area real estate market.

Buyers who need a mortgage often try to speed up a purchase if they believe a hike in the central bank’s benchmark interest rate is looming.

These days potential sellers are also trying to read the tea leaves to decide whether they should sell, and when. Some are timing their listings around the dates the Bank’s governing council gets together to decide the direction of rates.

Andre Kutyan, broker at Harvey Kalles Real Estate, predicts sales in August will be sluggish as people vacation – and brace for the Bank of Canada announcement scheduled for Sept. 6.

“Listings are pretty dry right now.”

Mr. Kutyan has been advising his own clients who are thinking about listing in August to wait until after Labour Day.

And some homeowners who have already listed but haven’t landed a deal so far are considering taking properties off the market and relisting after the Bank of Canada sheds some light in September, he adds.

Others who haven’t put up a “for sale” sign yet are considering going to market immediately after the update if it seems that rates will stay where they are or move higher. Others will be watching for signals from the Bank that they could begin cutting rates by the end of the year, which would make early 2024 a better time to list, in the eyes of some homeowners.

At Capital Economics, assistant economist Olivia Cross expects the Bank of Canada to leave interest rates on hold at its September meeting. She points to recent data showing an easing in core inflation, adding that another rate hike would require an upside surprise to the central bank’s forecasts.

Derek Holt, head of capital markets economics at Bank of Nova Scotia, sees underlying resilience in Canada’s economy. He believes transitory shocks such as strikes and forest fires have masked some of that strength, and the central bank will stay focused on the details.

In Mr. Holt’s opinion, the Bank of Canada will maintain a bias toward further tightening that will be informed by data.

Part of the reason for the preoccupation in the real estate market is that even slight shifts in the central bank’s stance have appeared to have an outsized impact on the market in recent month.

Governor Tiff Macklem and his team’s decision to hit pause early in 2023 appeared to give buyers more confidence, which in turn led to a rebound in sales and prices between January and May.

An increase of 25 basis points in June unnerved some buyers but sales continued, if a little more hesitantly.

An additional 25 basis points was tacked on in July, bringing the policy rate to a 22-year-high of five per cent.

That’s when activity cooled noticeably, says Mr. Kutyan, who still saw strong sales into early July.

He points to the example of a four-bedroom house in Toronto’s Lytton Park neighbourhood, which sold for $1.025-million above the asking price when 19 bidders vied for the property in late June.

Mr. Kutyan expected to receive multiple offers when he set an asking price of $2.195-million and an offer date for the house at 291 Glengrove Ave. W., but he was surprised at the number of bidders.

In early July, he listed an opulent five-bedroom house at 12 Gordon Rd. in the Bayview and York Mills area in Toronto that sold for the full asking price of $4.498-million after two days on the market.

But after the rate hike on July 12, showings and sales slowed down.

“I think it definitely did pump the brakes on the summer.”

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Interest rates are only one factor, Mr. Kutyan adds, explaining that location and type of house contribute to the fervour.

The Glengrove property, for example, attracted a broad spectrum of buyers: the highly ranked school district made it appealing to families and a relatively small interior compared with other homes in the neighbourhood drew downsizers.

But properties that appeal to a smaller pool of buyers are not receiving the attention they likely would have drawn in the spring.

“Some of my listings are crickets chirping.”

Munira Ravji, real estate agent with Royal LePage Signature Realty, says she typically sees “a bit of hustle and bustle” before interest rate announcements as buyers with pre-approved mortgage agreements look to sign a deal.

Lately that attention has intensified.

“Buyers are seeing affordability erode with every increase,” she says.

Recently, she has seen investors listing their rental properties for sale as they are increasingly squeezed by higher interest rates. Tenants who moved in with discounted rental rates during the pandemic are paying less than the owner would fetch if the property were listed today.

“The rental rates are not covering their carrying costs,”Ms. Ravji says.

Sellers are become increasingly flexible about the price they’re willing to accept if the offer is firm, she adds, because higher rates are prompting many buyers today to make their offers conditional on financing.

Sellers feel the urgency to find a buyer before the next central bank meeting in September, she says, because another rate hike may be on the table.

Single-family homes are still selling fairly quickly, she says, and condo units that are priced well will find buyers.

In the condo segment, many buyers are trying to snag a deal. If a unit seems overpriced, most buyers will pass by without making an offer.

Meanwhile, all eyes are on the Bank of Canada, she says.

Many investors are not waiting to see what happens on Sept. 6.

“They’re saying, ‘let’s get it on the market right away before the announcement’. Everyone’s very tuned into that.”

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