Varun Kohli October 24, 2023 No Comments

Toronto is officially once again entering a buyer’s market. However, a puzzling question arises: Where are all the buyers? Despite an influx of new listings, many properties are languishing on the market. Why is this happening?

According to the Toronto Regional Real Estate Board, the sales-to-new-listings ratio for September stood at 35.8 percent, the lowest it’s been since the fourth quarter of 2008. When this ratio falls below 40 percent, it signifies a buyer’s market, granting buyers more options and negotiation power. This shift has ushered in a rare period where prospective buyers need not fear making conditional offers. They now have the luxury of time to conduct thorough home inspections and back out if things don’t align as expected.

The driving force behind this shift can be attributed to interest rate hikes. Potential buyers are now required to qualify for mortgages at interest rates approaching nine percent, dampening their motivation to purchase.

Seller’s Dilemma

For sellers, this change in the market dynamic has been particularly challenging. Some are left with no choice but to list their properties, even if it means receiving offers at or below the asking price. While certain homes in coveted neighborhoods do receive multiple offers, bidding wars are no longer the norm.

Sellers are discovering that today’s buyers are less willing to engage in bidding wars, and they often submit their best offer upfront. There’s a sense of assurance among buyers that if they don’t secure a particular property, there are plenty of other options available. The fear of missing out that once fueled the market has waned.

John Pasalis, president of Realosophy, points out that while bidding wars have tapered off, over 50 percent of lowrise houses sell within the first two weeks of hitting the market, which is still relatively quick.

Challenges in the Condo Market

The condo market in Toronto faces its own set of challenges. Investors looking to offload multiple properties have inundated the market, leading to a surplus of options but a shortage of buyers. Condo sales have slowed down considerably, making it a less than ideal time for condo owners to sell.

Real estate professionals are having candid conversations with sellers, urging them to consider whether it’s the right time to sell. The prevalence of conditional offers, where buyers request numerous conditions, is a key factor in these discussions. In many cases, it’s in the seller’s best interest to hold off and sell when market conditions are more favorable.

The Surge in New Listings

One of the standout features of the current market is the surge in new real estate listings. In September, there were 16,258 new listings, a 44 percent increase compared to the same period last year. This influx of listings can be attributed to several factors, including high-interest rates, inflation, and uncertainty about the Bank of Canada’s future decisions.

Investors in the condo market have played a significant role in driving up the number of new listings. Additionally, homeowners in lowrise houses, facing the burden of high-interest rates, have opted to list their properties.

Ron Butler, a mortgage broker, emphasizes that these sellers aren’t distressed; they simply can’t afford to hold onto their properties anymore due to rising mortgage rates. They haven’t missed any payments but have made the difficult decision to sell.

Potential for Power of Sales

As the economy grapples with mounting household debt and job losses, there’s a possibility that power of sales—when a homeowner misses payments, forcing the lender to sell the property—could become more common. This scenario could unfold if household debt continues to rise, and job losses accumulate.

Tony Stillo, the Director of Canada Economics at Oxford Economics, warns that the housing correction is far from over. High mortgages, coupled with record unaffordability due to falling prices and high-interest rates, are causes for concern. Stillo predicts that Toronto’s home prices could fall by as much as 25 percent from their peak in February 2022 to mid-2024. This would bring the average home price in Toronto down to around $997,500 from its peak of $1.33 million. In September, the average home price in the city was $1.12 million.

While Canada isn’t currently facing a financial crisis on the scale of 2008, there are undeniable similarities, including high-interest rates and mounting household debt, which are causing apprehension among Canadians.

Toronto’s real estate market has undergone a significant transformation, transitioning from a seller’s market to a buyer’s market. The cooling effect can be attributed to rising interest rates, inflation, and a surge in new listings, particularly in the condo market. Sellers are facing the challenge of accepting offers at or below asking prices, while buyers now enjoy greater choice and negotiating power.

As we move forward in this evolving landscape, it’s essential for both buyers and sellers to carefully assess their options and seek advice from experienced real estate professionals. That’s where Tembo can lend a helpful hand! Call us today!

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