According to a recent report on Move Smartly, Toronto’s real estate market seems to be slacking off due to a 30% increase in house prices over the last year and the decreasing demand.
Toronto's real estate market has been unstoppable, with property prices skyrocketing, but purchasers aren't without hope.
According to recent research by Move Smartly, a real estate authority in Toronto, the city is displaying early indicators of a decrease due to fewer buyers seeing houses and a drop in the number of bids sellers get.
Another positive trend for purchasers is the rise in the number of properties that do not sell on offer night.
During the start of the year 2022, the market value of Toronto had risen as compared to the market value of Vancouver, and after reviewing the month-to-month spikes, it seemed that the market would continue to heat up.
With the city having just surpassed Vancouver as Canada's highest-expensive market, the city's remarkable month-over-month price rise in recent months appears to signal that the rising trend is far from over.
One report by RBC Economics stated that the prices have been escalating by 4% every month. But as noted by Canadian Mortgage professionals, the real estate market seems to be slowing down in the upcoming months.
With present low rates driving homeowners into overdrive to take advantage of cut borrowing costs, the prospect of approaching rate hikes should help to take some of the stings out of the market.
The future of the Bank of Canada's benchmark rate has been the subject of much speculation. Some analysts speculate that the central bank may face pressure to introduce more rate hikes than planned – or more dramatic increases – due to its decision to leave that rate unchanged.
As Toronto property prices have continued to skyrocket, people have been flocking to the suburbs and other areas of the Greater Toronto Area (GTA) in recent years — a tendency has only been exacerbated due to the COVID-19 epidemic and the resulting work-at-home limitations.
The critical reasons for the decline are the increase in the interest rate and the anti-speculation policies. Due to this factor, the potential buyers seem to back off due to the psychological element.
The first signals of a downturn include a decrease in the number of buyers visiting houses and the number of offers a seller gets on offer night, which are patterns noted by market players rather than statistics.
Weekly, the agents addressed the real-time patterns they were experiencing on the ground. By mid-February, it was beginning to show early indicators of these tendencies. The market was likely to calm down sooner than expected (typically, the market usually remains competitive until the end of spring).
We've also seen an increase in sellers willing to take "bully" or "pre-emptive" offers before their scheduled offer night, which some brokers misinterpret as a sign that the market is heating up.
The knowledge imbalance between buyers and sellers causes an increase in sellers prepared to accept pre-emptive bids. The price offered and the number of scheduled showings are the two main elements influencing a seller's choice to receive a pre-emptive offer.
It ultimately results in the cooling down of Toronto's real estate market shortly.
Surprisingly, the signs of the decline are observed by Toronto's real estate agents rather than being supported by the data.
It has been observed that the sellers are more tempted to accept pre-emptive offers when the showings are less in number, and they consider that a sign of the market rising. However, things are another way around.
Accepting more pre-emptive offers indicates that the sellers see things going downhill and are ready to take them reluctantly.
Another trend we've noticed is a rise in the number of properties that don't sell on offer night.
When sellers expect many bids on their house, they typically put the asking price substantially below the market value to entice more bidders. The final sale price is usually 5-20% more than the asking price, but it is closer to the actual market worth of the house (based on how comparable homes have recently sold).
Although a few weeks do not constitute a trend, it is believed that this shift will persist in the months ahead. Buyer weariness, high prices, increasing rates, inflation, and the macroeconomic dangers ahead should all contribute to a gradual market decline.
Buyers should watch these trends because they may find themselves buying a highly competitive property to sell their existing home in a much weaker market.
On the other hand, the second trend observed by Toronto real estate agents, which is becoming the cause of easing out, is the decrease in sales on their offer night. The reduced number of deals on the offer night ultimately forces the sellers to increase the asking price.
If the same trends continue, the market will also continue to slow down.
Some of the Toronto real estate agents and the people who have already bought the houses at peak times and are willing to sell their homes expect potential buyers to bid high. Still, it can be eye-opening for them when they wouldn't get the same number of offerings and showings.
Buyers searching for a bungalow for sale in Toronto, where house prices are objectively exorbitant, have long had to dig deep to summon the mental fortitude required to enter the game.
When you throw in uncertainty and worries of a market fall, as we recall from the subprime mortgage crisis in the United States in 2008, fortitude will inevitably give way to hesitation.
It is undoubtedly because the real estate agents might not be aware of the ground realities and bank policies.