Toronto’s real estate market has entered its biggest slump in decades, but some properties are generating a surprising amount of competition.
A three bedroom bungalow at 6 Hancock Cres. in the Borough of Wexford-Maryvale recently solicited a staggering 57 bids. It sold for $390,100 over the asking price of $629,900.
Another three bedroom home at 4 Princeway Dr. in Scarborough received 23 bids and sold for $251,000 over the asking price of $799,000.
“It was out of control,” said Belinda Lelli, a broker at Royal LePage’s corporate brokerage in Toronto, of the Princeway Drive home. “At that price, we knew we were going to get some offers. We just didn’t know we were going to get 23,” Lelli said.
“I had three people working on it and taking calls … It was crazy.”
Realtors say they’ve seen unprecedented bidding wars in recent weeks — not seen since home sales peaked in February — as potential buyers scramble to sign a deal before their mortgage pre-approvals expire. And another rate hike by the Bank of Canada.
“Buyers are feeling the pressure to take advantage of the interest rates they locked in months ago by buying before their pre-authorization expires and before interest rates rise significantly,” said Lorry Greenspan, real estate agent at Forest Hill Real Estate. “It leads to increased competition for certain properties as buyers try to take advantage of their interest rate.”
Earlier this month, in a bid to bring rising inflation under control, the central bank raised the benchmark interest rate by three-quarters of a point – the fifth hike since March – taking the overnight interest rate to 3.25 percent. The central bank signaled that Canadians should expect interest rates to rise even more as it continues its fight against high inflation.
As home prices fall, rising mortgage rates make it harder for buyers to qualify for these mortgages due to rising interest rates. Pre-approval interest rates allow potential buyers to lock in an interest rate while they search for a home and give them approximately 90 to 120 days of interest protection before they expire.
Because of the competition, Greenspan said he saw “two markets happening at once.”
“One of them is the slow market that we’ve become accustomed to, where interest rates push prices down,” Greenspan said. “But at the same time, I see another market that’s eerily similar to February where there’s intense pressure and competition for some properties that come on the market and they either get multiple offers or they get offers very quickly in the listing process.”
Another factor driving competition is a lack of inventory, said Karen Yolevski, COO of Royal LePage Real Estate Services Ltd.
In July, Toronto home resales fell about 47 percent year-over-year, while new listings fell about four percent, according to Statistics Canada. In addition to the lack of inventory, sellers, many of whom have not received desirable offers, are canceling real estate listings, leaving potential buyers with limited options.
Developers are also expected to delay construction of 10,000 new condos as pre-construction sales slump on rate hikes, adding to the strain on potential buyers.
“We don’t see it on every deal, but we certainly see multiple offers by house,” Yolevski said. “If you don’t have a tremendous amount of inventory on the market, you create a situation where homes that are well positioned, cheap and attractive are being exploited.”
Yolevski added that a drop in sales is normal even for a fall market.
“What we are also seeing is a return to some kind of normalized market. We may have forgotten what a normal real estate market is like in GTA, where there’s a bit of a lull in the summer and then things pick up again in September,” Yolevski said.
According to Greenspan, the initial shock of rising interest rates has also normalized.
“As interest rates continue to rise, it seems any rate you can get now is going to be better than the rate you’ll get in a few weeks or months,” Greenspan said.
“The shock is gone. The reality has come. And if a buyer is looking to buy something, now is a better time than in a few months when prices will continue to rise.”
JOIN THE CONVERSATION