Toronto real estate market ticks upward

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The real estate market in the Greater Toronto Area has turned a corner, gauges John Pasalis, president of Realosophy Realty.

New listings have been outpacing sales in recent weeks and inventory is gradually increasing.

“These are the first signs when the momentum is changing in the market,” he says. “I expect it’s going to trend up this week.”

Mr. Pasalis tracks “months of inventory” on a weekly basis. The measure is an estimate of how long it would take to sell all listed properties at the current pace of sales.

In the third week of June, that figure stood at about 1.7 months for low-rise and a little over two months for condo apartments.

Supply remains low but the trend line has bent upwards after declining steadily since the start of the year.

The market remains busy – just not as busy as it was about six weeks ago. As for sales, they are unpredictable at the moment.

“It’s a roller coaster,” he says.

Just as he saw signs the market was slowing, Mr. Pasalis was shocked recently to see a buyer pay $1.86-million for a 43-foot lot in East York.

Mr. Pasalis expects the 1940s-ear bungalow to be torn down, which makes the price quite rich, in his opinion.

In June, the market seems to be buffeted by a 25 basis point increase in the Bank of Canada’s key interest rate, a slight swell in listings and the usual summer distractions.

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Sellers who set a deadline for reviewing offers may spur intense competition or they may end up without bids.

“The nicest homes are still getting 10 offers,” he says. “What we’re seeing on the flip side is offer nights that are failing.”

Mr. Pasalis adds that changes in interest rates don’t fully explain the trajectory of the market. When rates were at rock-bottom, many market watchers claimed the run-up in prices was fuelled by the low cost of borrowing, he explains.

Since the spring of 2022, the Bank of Canada has raised its benchmark interest rate nine times. The policy rate now stands at 4.75 per cent.

Money isn’t as cheap in 2023 but the median price in the Greater Toronto Area has risen 15 per cent since the start of the year, Mr. Pasalis points out.

He adds that the market typically slows down in the summer months.

“Buyers are pulling back a little bit,” he says. “Anyone who’s been actively bidding for five months gets burned out.”

Mr. Pasalis says the central bank’s small hike in June has less impact after a string of increases, but he senses a psychological shift amongst buyers.

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At the beginning of the year, buyers were rushing to get into the market before prices climbed. Then they saw the average price begin to edge up, and they figured the rise would accelerate if the Bank of Canada decreased rates later in the year.

Economists say rate cuts this year are likely off the table.

Meanwhile, the average GTA price has risen about $150,000 so far this year.

“That fear has disappeared.”

Also, seeing a few more “for sale” signs popping up on lawns helps to quell “fear of missing out” on a given offer night.

“Already our clients are more patient,” he says. “They see more listings coming up and they feel they don’t have to bid as aggressively.”

One reason for the increase in inventory, he says, is that some homeowners are calculating that they should sell before buying another property. Some are nervous to buy first and risk selling in the fall when the market may not be as strong.

Mr. Pasalis is predicting that the market will be reasonably balanced in the fall.

“I don’t think we’re going to see a lot of downward pressure on prices,” he says.

Elise Stern, broker with Harvey Kalles Real Estate Ltd., has noticed a slight blip in the market in June as buyers seem less attentive, but she puts that down more to a seasonal summer shift than the Bank of Canada’s move.

“It seems odd to me that one-quarter of a per cent would have that much impact.”

She notes that the past couple of months have seen intense action in the market, which is often followed by a pause as buyers pause to refresh.

“I’m feeling this might be that week of fatigue.”

Ms. Stern says some buyers feel the need to take a break when properties are listed with asking prices far below the amount the seller would accept.

“It’s obnoxious how low it is,” she says of some cases where the tactic is used to spur competition.

Such prices are meant to attract eyeballs and they can confound potential buyers, she says.

If the strategy fails and the seller doesn’t accept any bid on the offer date, many house hunters feel irked if the house is relisted at a higher price.

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Ms. Stern says many families also have their attention pulled away from real estate at this time of year by school graduations, preparing for camp and other activities, and students returning from university for the summer.

With fewer buyers booking showings, she adds, some sellers are finding creative ways to attract the focus of potential buyers.

In one case, a homeowner is a designer who is offering to provide a consultation to the buyers of her semi-detached house with an asking price of $1.334-million.

Ms. Stern says the house at 124 Gilbert Ave. is renovated, but the owner is offering five hours of design services to a buyer who might want help choosing furniture or arranging the pieces they have in the three-bedroom house.

Vendor take-back mortgages (VTB), which become a more common tool during periods when interest rates are on the rise, are regularly offered these days, she says.

“New agents who came into the business five years ago have never even witnessed it,” Ms. Stern says.

The strategy is sometimes used by homeowners who have a solid amount of equity in the property they are selling or who are sufficiently well-off that they can delay receiving a cash infusion from the buyer.

Robert Hogue, assistant chief economist at Bank of Montreal, says the recovery to date in Canada’s housing market is stronger than expected.

The central bank’s mildly surprising rate hike in June and the prospects for further tightening are likely to temper the pace of the rebound, in his opinion.

Mr. Hogue says recent spurts of new listings across the country have eased the imbalance between supply and demand but not enough to tip the scale in favour of buyers.

His forecast for another 25 basis-point rise by the Bank of Canada could cool demand by a few degrees, he says, which could moderate the price of pace increases but not trigger outright declines, in his opinion.

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