New benchmarks propel buyers back into Toronto housing market

Theglobeandmail.com
Sept. 14, 2017
By Carolyn Ireland

Leslie Benczik understands why house hunters were frightened to purchase a property in the depths of the Toronto area's stagnant summer market. Making an offer was like "a stab in the dark," he says.

The broker with ReMax All-Stars Benczik Team Realty is based in Markham. The surrounding York Region is one of the areas hit hard by a steep sales decline in the late spring and summer.

Buyers were propelled by "fear of missing out" in early 2017 - then suddenly became anxious about paying too much. "If I buy now, will it go lower? That's the fear."

Mr. Benczik has noticed a bit of an uptick so far in September, which he believes stems from the fact that recent transactions provide a barometer. Some fresh properties have recently sold within a couple of days of listing and houses that have been languishing on the market since May have also found buyers.

"When they see the marketplace established with new benchmarks they have the confidence to buy," Mr. Benczik says. Appraisers can also provide reliable numbers to the lenders. "Homes have sold, benchmarks are created, financing can move forward."

As the average price across the Greater Toronto Area has slipped 20.5 per cent from the peak in April, sellers have become acclimatized to lower prices, he adds. "In May and June, they were in denial. Now they're more realistic."

He points to one four-bedroom house in Markham, which was listed with an asking price of $1,888,000 in May. This week Mr. Benczik reduced the price to $1,639,800 and the house drew three offers. The sellers accepted a conditional offer close to the asking price.

But he is concerned that last week's interest rate hike by the Bank Canada will cause the market to stumble just as it starts to move past "all the pain and anguish" of the summer. Sales tumbled following the Ontario government's introduction on April 20th of a foreign buyer's tax and other measures designed to cool the market.

Folks who bought a new property early in the spring faced an abrupt shift in the market. In some cases they had to sell their existing houses for less than they would have received before the downturn. "Basically, a lot of people got caught in the crossfire," Mr. Benczik says.

That in turn led to some buyers needing to extend the time until closing and others trying to negotiate a reduction in price before closing. In the most severe cases buyers weren't able to secure financing because appraisers valued the home below the selling price.

"They're struggling to close and sometimes they just can't," he says.

Most of that turmoil is in the past, he says, because the market is more balanced between buyers and sellers.

York Region, which also includes such areas as Richmond Hill, Aurora and Vaughan, has a higher proportion of Asian buyers than many other areas, according to a Toronto Real Estate Board survey. After the introduction of the 15 per cent tax on speculative purchases by non-residents, sales in the area plummeted.

What impact did the tax have in York Region, where foreign buyers account for about nine per cent of the market? "I think it affected it dramatically," Mr. Benczik says.

But whether overseas buyers are deterred by the tax itself or the uncertainty it created is difficult to measure. He suspects it's a combination of both.

With the average Markham house changing hands at $933,000, an additional levy of about $140,000 is significant, in his opinion. He thinks any buyer would take the levy into consideration, whether they're moving money out of Asia or not.

"That's a big chunk of change - even if it's a consumer in China looking to put money overseas."

He adds that China-based investors are having more difficulty moving money out of that country as rules there are more strictly enforced and loopholes are closed.

Agents representing buyers often tell him they need more time to come up with the cash.

Mr. Benczik believes domestic buyers also moved to the sidelines after the tax and other cooling measures were introduced. The unharnessed run in the spring was unsustainable, he adds. But he sees signs buyers in the Greater Toronto Area are feeling encouraged by strong employment numbers and robust economic growth.

After the Bank of Canada raised its benchmark interest rate to 1 per cent last week, he cautions that another hike would likely temper that buoyancy. Homeowners already carry substantial mortgages, he points out, and buyers are stretched. "I think it will take them right out of the market."

The renegotiation of the North America free-trade agreement could also hinder the market, he cautions, as could proposed changes to the tax rules for small businesses and the possibility of stricter rules surrounding mortgage lending.

Looking ahead, Mr. Benczik believes prices will see slight increases in September, October and November, then level off in January and February. Over all, he's expecting a fairly straight line.

In the east end of Toronto, Rochelle DeClute of DeClute Union Realty Brokerage Inc. also reports the market is showing some spark so far in September. Sales at her office improved in August after a downturn in June and July

Deals take longer to put together, however, and buyers can easily get cold feet.

She cites the example of one house with an asking price in the $1.25-million range that sold on the third try after two conditional deals fell apart – one following a home inspection and the other when the financing didn't come together.

She didn't set an offer date, Ms. DeClute says, but each time two fresh bidders came to the table. After six tumultuous days, the house sold above the asking price.

"That house in March would have had six offers and they all would have been over asking and they would have been firm," she says.

Buyers aren't feeling as much pressure, she says, but they are returning to the market.

"It could be short-lived," she acknowledges. "It could be a little blip."

In a complete reversal from the trend in recent years, move-up buyers now want to sell their existing property before buying a new one. "They want to know what they're going to get."

Ira Jelinek, an agent with Harvey Kalles Real Estate Ltd., says it's too early to tell if the fall market will be strong. He is concerned that new rules to "stress test" mortgages could put a damper on the market if they are put in place later this fall. "I think that will be a big turning point."

Meanwhile, the mood among buyers is "all over the place".

One listing with an asking price of $1.55-million recently sold for $1.69-million. But a two-bedroom house with an asking price of $850,000 in the east end has been sitting, he says, despite a stream of house hunters booking showings.

Mr. Jelinek says buyers seem to have little tolerance for competition.

He is working with a couple looking to purchase a three-bedroom townhouse in Kleinburg or a similar area north of the city. They looked at 25 properties and narrowed their search down to two that had very good layouts, he says. Both of the townhouses drew multiple offers, despite a market flooded with plenty of listings.

Mr. Jelinek's clients backed away without making an offer once they realized they would have to compete.

"It was just a little too hectic," he says. "I think it was the right move."

He senses that buyers now are making very careful decisions. "If they're going to make a decision and buy a home, it better be something they really want to live in for a long time."