On paper, Canada’s housing market is still firmly in sellers’ territory. But in some areas of the country, slowing home-price growth and soaring mortgage rates are tilting the power balance toward buyers faster than the statistics would suggest. That means everything from scrambling to line up a mortgage, to fewer bidding wars, to transactions that – once again – include the right to a home inspection.
When you look at the numbers, the market has simply pulled back from an unprecedented frenzy, says Ben Rabidoux is founder of North Cove Advisors, a market research firm.
“It’s like you’re driving at 150 kilometers per hour on the highway for a period of time and then you slow down to 100 km / h,” he said.
As soaring interest rates shrink homebuyers’ budgets, torrid conditions at the start of the year quickly gave way to an unusually slow spring housing market. Nationally, home sales declined by more than 5 per cent between February and March, running against the usual seasonal pattern.
The reversal came as the Bank of Canada hiked rates by a quarter of a percentage point at the start of March, followed by another half-of-a-percentage-point increase in mid-April. The central bank is widely expected to boost its trend-setting rate by another half of a percentage point at the beginning of June.
In March, though, Canada’s housing market still had only 1.8 months of inventory, meaning it would have taken less than two months to sell all listed properties at the prevailing rate of sales activity. While that was up from an unprecedented 1.6 months in the previous three months, it usually takes at least six months of inventory for conditions to resemble a buyers’ market.
Fewer home bids easing competition for some Canadian buyers, but prices still high: brokers
But in some particularly overheated areas, like the Greater Toronto Area, even the moderate market slowdown seen so far has already caught out some sellers. These are often homeowners who bought a new property near the peak of the market and now can not sell their old home for as much as they expected, said Daniel Foch, a broker and real estate analyst at Foch Family Real Estate.
Another source of stress for some who are closing purchase deals now: Appraisals commissioned by lenders are coming in far below the contract price buyers committed to earlier this year, according to Mr. Foch.
Low appraisal values usually mean buyers will not be able to borrow as much as they need from the bank they had lined up for the mortgage. The options, then, are to pony up a larger down payment, borrow from friends and family or line up a private mortgage to bridge the gap, Mr. Foch said. As the market cools, though, it’s getting harder to find lenders for such deals, he cautioned. Buyers who walk away from a purchase agreement typically forfeit their deposit and may face a lawsuit, he added.
In April, Toronto saw its home price index, the industry’s preferred gauge of home values, dip by 1.6 per cent compared with March, the first monthly decline since October, 2020. By comparison, the index had climbed a record 3.5 per cent between January and February alone. Nationally, the home price index has continued to climb so far this year, although the pace of monthly growth slowed to 1 per cent in March. The Canadian Real Estate Association has not published April data yet.
In Toronto, outlier bids helped propel home prices upward during the pandemic housing boom, Mr. Rabidoux said. Buyers could put in firm offers above market price and count on home valuations catching up by the time an appraisal would be done several weeks later, he added. At the same time, that property’s closing price would become a benchmark for similar listings in the same area.
But now that the market has turned, those aggressive bids are accelerating the price adjustment downward, according to Mr. Rabidoux. That’s because low appraisal values can force sales at significantly lower prices, which will also weigh on the valuation of nearby comparable properties, he said.
“You’re gonna get this this period of turbulence this spring as we work through these distressed sales and you’re not really going to get a sense of the real direction of the market until later in the summer,” Mr. Rabidoux said, speaking about Toronto.
In much of the rest of the country, the real estate market is experiencing a softer landing so far, several real estate agents told The Globe and Mail.
In Halifax, for example, realtor Andrew Perkins said multiple offers on a property remain quite common, although there’s been a marked change of pace from four months ago, when a coveted home might attract more than 60 buyers. These days, he said, a hot property may get eight to 10 offers.
Still, there’s little doubt that the power balance between buyers and sellers is changing. Buyers, who are much quicker at adjusting their expectations in a slowing market, are less likely to get carried away in a bidding war and more willing to wait on the sidelines for a bargain, said Phil Soper, president of Royal LePage.
Sellers, by contrast, typically tend to cling to outdated price-growth expectations, he added. The result is that “a gulf” opens up between buyers and sellers, which means fewer homes will sell, he noted.
Buyers and sellers who are still hoping to close a deal this spring and summer may want to turn to a playbook the industry has not used since 2017 and 2018, when activity slowed down after the introduction of several measures, including the federal mortgage stress test , aimed at cooling off runaway prices in Vancouver and Toronto.
Sellers may need to curb their price expectations but also avoid underpricing their property in an attempt to trigger a bidding war that may not happen, Mr. Foch said.
“A lot of agents are still trying to use that underpricing strategy to get a lot of showings and a lot of offers,” he said. But while multiple offers have not completely disappeared even in Toronto, “I think buyers were fatigued and fed up with that, as a listing strategy a long time ago,” he added.
The risk is that an underpriced property that did not attract a high enough offer will have to be relisted at a higher price, he said.
In today’s conditions, Mr. Foch suggested pricing at market value instead.
The days when homeowners could sell a property in a matter of days without so much as a fresh coat of paint are also on the way out, Mr. Soper sad.
“You should absolutely be prepared to make your property and your listing stand out in a market where you’ll have competition from other listings,” he said.
Buyers, meanwhile, are now more likely to be able to insert some conditions into their purchasing offer. Home inspections, for example, are making a comeback even in Toronto, Mr. Foch said. Some buyers are even including a clause that gives them a period of time that they’ll be able to get a mortgage for the home they want to buy, although such financing conditions remain rare in the city, he added.
“Sell before you buy” is another piece of advice some homeowners may once again want to heed to, Mr. Foch said.
Prudent homeowners may want to choose a 16-week closing period, Mr. Soper said. Across the country, that should be enough time for a properly priced property to find a buyer and for the seller to find another property to purchase.
“The change in the market is providing the opportunity to buy when you find the right home,” he said. At the height of the pandemic housing frenzy, he recalled, some homeowners were “terrified” to list their home even though they needed to move because “they were worried they could not find a home.”
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