After the whirlwind of bidding wars have calmed down, some property buyers regret their outrageous spring offers now that prices have fallen.
The Royal Bank of Canada analyst, Claire Fan, says demand is falling quickly across the country, making markets that previously favored sellers more balanced.
According to Fan, the downturn was worst in regions with robust markets and high pandemic prices.
Due to higher average home prices and bigger mortgages in Toronto and Vancouver, consumers have been shown to be more sensitive to the Bank of Canada’s initial interest rate rises, she argues.
Even though demand dropped in June, Fan says there were many new listings. This lowered sales-to-new-listings ratios everywhere.
Durham, east of Toronto, has seen steep price increases in recent years. Initially, detached homes in family-friendly neighborhoods were affordable. Now, price cuts are common, and “days on the market” are rising. The sudden turnaround frightens some sellers.
Buyers had 1,414 active properties to pick from last month, compared to the abnormally low inventory of 712 in June 2021, according to Shawn Lackie, an agent with Coldwell Banker R.M.R. Real Estate.
According to Lackie, the buyers are seated and exclaiming, “We got the hammer!” He counsels current market sellers to exercise patience and to consider any bids they get.
Durham’s market peaked in February when the average price topped $1,228,990. June prices averaged $972,354, down 20%.
Some disgruntled buyers are requesting a price reduction to reflect the current market, and sellers must decide whether to renegotiate.
According to Lackie, homes in Courtice with $799,000 asking prices sold for $1.15 million to $1.2 million thanks to offers of $300,000 to $500,000 above the list price.
Now that a buyer’s spring closing date is near, they can see that neighborhood prices have dropped. They may be tempted to abandon their $60,000 deposit. If they believe the property’s price has dropped by $260,000, for example.
The sellers may then relist the home. If they sell for less, they could sue the initial bidder.
Lackie suggests that in many situations, sellers are better off accepting the price concession and continuing their business.
Even when sellers agree to lower the price, litigation will likely last two years or longer, and some sellers know they are still in the lead.
Another obstacle may arise if the property’s price has dropped since the offer date and the buyer needs a mortgage. If the appraised value is less than the sale price, the buyer must pay the difference.
Lackie informs the client, “You’ve got to come up with another $300,000 because the bank’s surely not going to front you.” The race begins at that point.
He adds that young consumers frequently ask their parents for extra financing.
Lackie predicts a calm summer market with a slight increase in September listings. A portion of those, he predicted, would be suburbanites who moved there during the pandemic but no longer commuted. Another portion will be homeowners struggling with higher interest rates.
RBC’s Fan warns of further challenges as the Bank of Canada raises interest rates.
According to Fan, the central bank’s actions will likely reduce home affordability, deter buyers, and lower prices.
Farrell Macdonald focuses on Toronto and Ottawa, where buyers and sellers are trying to understand the market. The fear of losing out has been replaced with the anxiety of purchasing in a declining market for buyers.
Former accountant MacDonald says consumers are worried about rising inflation and borrowing rates. Unless you don’t eat or drive, you’ll notice, he says.
He adds that during the pandemic, “There was a race to buy more houses, yards, and pools.”
In search of a spacious backyard, people moved to the suburbs, causing York Region in the 905 area code to cool.
King Township’s average price fell to $2.083 million in June from $3.2 million in February, despite a 2.3-month increase in inventory. King sold 21 homes in June, compared to 86 new listings.
As prices fell, Macdonald saw collateral damage. One Toronto-area couple planned to move to Ottawa. They went against their agent’s advice to sell their current home before searching for a new one. He says they postponed retirement after buying in Ottawa at the market’s peak in February and selling in the GTA two and a half months later.
Macdonald is looking at the reasons why sellers are selling their residences. He claims that the expense and anguish of moving are particularly important.
If they’ve owned the home for a while, he adds, sellers who are moving from Toronto to a smaller city can really carry out their intentions. According to him, they often lock in some gains even if they sell for less than the property would have brought earlier this year.