In October, real estate agent Ann Marie LoRusso told her clients to significantly lower their asking prices for homes in Etobicoke.
The original price for this detached three-bedroom property was $1.4 million. It was first listed in mid-September and left on the market for a month.
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She urged the price to be lowered by $400,000 to sell.
“I played so many shows and had all the verbal offers,” LoRusso said. “But no one wrote down a formal offer.”
The sellers looked worried. With winter approaching and the real estate market typically depressed, they ultimately agreed to lower the price and the house was relisted for $1 million. Three weeks later, it was sold subject to conditions, pending inspection.
“This is a family home that has lived well,” LoRusso said. “There haven’t been any major renovations, and it’s a sturdy house. But now buyers want something fresh and up-to-date. Today, people want to see angels sing.”
Toronto real estate agent Anne-Marie LoRusso says she had to convince a home seller to lower the price by $400,000 to sell in this slow fall market.
Andrew Francis Wallace / toronto star
Lorusso is one of many Toronto real estate agents who meet seller expectations in a rapidly changing market. In September, the city entered a buyer’s market in which buyers have more choice and bargaining power, a seismic shift from the seller’s market that had dominated for more than a decade. A flood of new properties is driving demand down as high interest rates encourage overleveraged homeowners to sell and prevent first-time home buyers from entering the market.
may be of interest
Experts say homeowners who choose to sell in this situation face fewer potential buyers and more offers with conditions. However, housing prices in Toronto remain stable. Prices have fallen about 15% since their peak in February 2022, but have plateaued over the past year.
Experts say sellers still want the highest market price for their homes, and many properties are priced too high. As a result, more homes were relisted for hundreds of thousands of dollars less, while others remained on the market for months on end.
What’s surfacing beneath the surface are overleveraged homeowners who bought at the height of the pandemic when interest rates were historically low. They are holding out hoping to make as much profit as possible on the sale, but experts warn that with interest rates tripling, some may be forced to sell at a loss. .
“We need to reduce some of the leeway for sellers,” Royal Lepage CEO Phil Soper said. “If you look at the past 20 years, it’s been largely a seller’s market, with buyers usually in the rear wheel. These are strange times for home sellers, and re-education will take time. It is difficult for some companies to adapt to market downturns and softening prices.”
Seller’s psychology
Experts say home prices will soften as sellers adjust to the new realities of the market, especially as interest rates remain high. But it will take time for sellers to jump on board.
“Sellers want the highest and best price possible,” said Cori Marin, a broker and co-founder of Fox Marin Associates. “And they will compare it to prices from two years ago. One seller just said he compared his home prices to 2021 (homes sold in).”
Sellers have also been trained to list their properties below market value to attract bidding wars and sell above list price, she said. However, in the quiet autumn market, the fear of missing out has receded, and there are fewer buyers than sellers.
The Bank of Canada began raising interest rates in March 2022 as prices soared due to the pandemic, and prices in Toronto fell by about 15%. However, this spring, the real estate market recovered from its slump after the central bank left overnight lending rates unchanged. Bidding wars recurred with a “revenge”, new listings failed, and buyers were forced to meet harsh conditions.
Prices rose rapidly and sellers quickly entered the market. The average sales price in Toronto rose slightly in May to $1.19 million, but remains below the February 2022 price peak of $1.33 million, according to the Toronto Regional Real Estate Board. Markets calmed down when the Bank of Canada raised interest rates again in June and July.
With qualifying mortgage rates at nearly 9%, fewer buyers are able to purchase homes. However, prices remain high. The average sales price in October was $1.12 million, an increase of about $45,000 month-over-month since August. But a surge in new listings and a drop in demand are making buyers less willing to pay those prices.
“We need to change our mindset because now it’s unlikely that a home will get multiple offers, the offers will come with conditions and not many people are willing to accept that change,” Marin said. added.
Marin said it’s essential for real estate agents to educate their customers on current market conditions and help them adjust their expectations, as the number of showings is likely to be lower and wait times longer.
“People continue to look forward to the spring market,” said Linda McClellan, a Toronto-based real estate agent. “However, the market has changed significantly since the spring. Sellers are taking longer to relist.”
When homes are listed for less than $1 million, they typically sell quickly, he said. For homes in the $1 million to $2 million range, your offer will be close to or slightly below asking price. And a home priced at $3 million will receive offers for less.
“Sellers are a little frustrated, especially if they haven’t priced their home properly,” she says. “Some people are delisting their properties to wait until the market recovers, and others are renting them out.”
On listing site HouseSigma, a spacious four-bedroom, three-bathroom renovated semi-detached home in the popular Trinity Bellwoods neighborhood was listed for $1.8 million in September, and sold for $1.69 million in October. The price was reduced to US dollars. Unable to sell, it is currently rented for $6,450 per month.
LoRusso said many people are deciding to rent if their property doesn’t sell, especially as rents are soaring. Her Etobicoke client thought the same thing, but she advised against it because it would be difficult to sell her rented home.
“Nobody wants to walk around with an empty house,” she says. “But the situation becomes more complicated when tenants are involved. We recommend never renting.”
“This is the worst time to sell.”
Ralph Fox, broker of record and co-founder of Fox Marine Associates, advises his clients not to sell in the current market.
“It’s the worst time to sell,” he said. “They shouldn’t have any other choice.”
So who is choosing to sell in this market? According to Fox, there is a sudden change in life circumstances, such as a divorce, job change, or health concerns, and they need to sell their property. People (called emergency sales) are said to occur regardless of market conditions.
While the majority of new properties by investors are in the condominium sector, experts say the trend is also starting to be seen in freehold properties, or detached and semi-detached homes.
“A significant number of investors are fully leveraged and own multiple assets. They are realizing that they cannot pay off all their mortgages at current interest rates,” Soper said. Told. “They’re unloading properties and that’s why we’re seeing an increase in the amount of inventory coming into the market.”
What’s interesting to note is that “well-capitalized” investors can buy properties right now, not just wealthy buyers or investors gifted with cash from family members, Soper said. He said investors are not only the main drivers of new listings, but also buyers, making it a complex situation when analyzing investors.
Experts say some homeowners are overleveraged, struggling to cope with high interest rates, and are under significant financial stress as they need to maximize their profits on sales. It is said that the number of homeowners who are living in the same household is on the rise, albeit in a small number.
Daniel Viner, principal broker at mortgage company DV Capital, said homeowners who bought homes at the height of the pandemic, when interest rates on adjustable-rate mortgages were below 2%, sold because their mortgages became too expensive. He said that he may be forced to do so. The same goes for some people who took out two- or three-year fixed-rate mortgages in 2020 or 2021 and are now waiting to renew their mortgages.
“During the pandemic, many people are cutting corners to help finance their mortgages,” he says. “Parents have put money into their homes with HELOCs to help their kids shop, but this is dangerous,” he says.
A home equity line of credit (HELOC) is a revolving type of secured credit with a maximum credit limit, the collateral is the borrower’s property, and interest-only payments are required. Most have variable interest rates, which makes this form of financing expensive.
The risk of forced sales is also increasing, according to a new report from Capital Economics. This is especially true for homeowners who refinance their mortgages with non-bank financial institutions.
“So many people flooded the market, and for some, we weren’t dealing with their true income,” Viner said. “With home values falling and interest rates remaining high, selling may be the right choice for some homeowners.”
But that means those who bought at the peak of the pandemic are unlikely to get the same amount back and may have to sell at a loss. If enough people can’t afford to wait, these forced sales can lead to overall price weakness.
Experts agree that prices will come down as sellers and their agents realize they have priced their properties too high.
The Annex home was listed for sale in September for $2.89 million, but the price dropped $300,000 a month later, according to HouseSigma. Another home in High Park had its asking price reduced by $100,000. He lowered the asking price by $245,000 after the Rosedale house was on the market a month later. It hasn’t sold yet.
“We’re starting to realize that some of the popular neighborhoods that used to sell homes at all costs are not being affected,” McClellan said. “Prices are softening in areas that have been strong up until now.”
