Fickle home buyers tiptoe into spring market

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A fresh supply of listings has arrived on the Toronto-area real estate market in April, but aspiring buyers are not in the mood to rush.

Paul Maranger and Christian Vermast, real estate agents at Sotheby’s International Realty Canada, say sales are slower than usual for a month that is typically one of the busiest.

“We’re seeing a very, very late start to the spring market,” says Mr. Maranger.

He adds that any house hunters seem to move in herds as they listen to the tales of their friends, family members and neighbours.

“A lot of people are a bit leery of being first in,” he says. “For some reason, when the market picks up, they’re very happy to pay $100,000 over asking.”

Farah Omran, senior economist at Bank of Nova Scotia, says the flat performance of the national housing market so far this spring suggests buyers across the country are “treading lightly.”

But a swell in new listings after the Easter long weekend may point to a pickup in sales ahead as buyers absorb the new supply, she adds.

The Canadian Real Estate Association, which tracks listings on a weekly basis, reports inventory jumped in the first week of April.

Ms. Omran notes that the rise comes after seasonally adjusted sales edged up a slight 0.5 per cent in March from February.

Months of inventory, which measures how long it would take to sell available properties at the current pace of sales, also held steady at 3.8.

According to Ms. Omran, the Canadian housing market is in balanced territory, but the trends vary by market. Sales increased in March in more than half of the 31 markets she tracks. At the same time there was a fairly even split between cities where listings increased and where they declined.

Another factor clouding the picture in March this year was that the Easter long weekend fell within the month, instead of the more typical timing in April.

“Let’s face it – everyone seems unsure,” says Ms. Omran, pointing to vacillating sales from one month to another and economic growth forecasts which are frequently revised.

Mr. Maranger and Mr. Vermast say sales under the $2.5-million mark remain brisk but homes above that level sometimes sit. Prospective buyers in all price ranges are keeping an eye on the Bank of Canada and the outlook for interest rates, they add.

Mr. Maranger says homes between $1-million and $2-million are considered entry-level in Toronto, and buyers in that segment are willing to live with the relatively high level of interest rates at the moment.

“Those buyers have contemplated interest rates and have accepted them,” he says.

Properties in that bracket frequently have an attention-grabbing asking price and a deadline for submitting offers. Sellers often receive between two and five offers, says Mr. Maranger, compared with the 20 or 30 they may have fielded in years past.

Homes are not selling wildly above the asking price, says Mr. Vermast, who explains that buyers are more cautious now that they understand every $100,000 added to the sale price will have a significant impact on a monthly mortgage payment.

When rates sat at historic lows, buyers were more willing to pay hefty premiums.

Mr. Maranger says those first-time buyers also want a house that is move-in ready.

“They just don’t have that extra money to do renovations.”

In higher price brackets, Mr. Vermast says the increase in supply allows buyers to be more selective. Fully-renovated properties in prime locations sell quickly, but a house that has a less-than-ideal setting, floor plan or condition will languish.

“I guess that’s the sign of a balanced market – buyers can be more choosey,” he says.

Mr. Maranger says buyers also feel less of a sense of urgency when they see new listings landing on the market.

“They say, ‘if 123 Main Street sells, that’s fine – we’ll find 456 Main Street.”

The condo market, meanwhile, is very sluggish compared with the demand for single-family homes, the agents say.

According to the Toronto Regional Real Estate Board, condo sales in the core 416 area code dropped 15.5 per cent in March compared with the same month last year. That compares with a 10.4 per cent increase in sales of semi-detached houses and a 2.1 per cent dip in sales of detached houses in the 416 in the same period.

Mr. Maranger and Mr. Vermast say some homeowners appear to be delaying downsizing and holding onto their houses instead. As a result, prices for larger condos in older buildings have softened.

Five years ago, homeowners who wanted to sell their house and buy a smaller condo with some money left over were surprised to learn they actually might need to visit their bank in order to afford the condo, says Mr. Maranger.

But that dynamic has shifted.

“Now there’s definitely going to be that delta where they can take money off the table.”

The agents believe the spring market may linger into the summer of 2024. With all eyes on the Bank of Canada, an interest rate cut could spark a busy July and August, they say.

Ms. Omran at Scotiabank adds that the outlook for interest rates also keeps changing based on such factors as the performance of the U.S. economy, wage growth in this country, and the housing market itself, she adds.

Ms. Omran also notes the contradiction in seeing home sales below long-term averages while population growth is at record highs.

The economist says it’s certainly not a surprise that people are not jumping into the housing market en masse right now, and some small swings are to be expected.

It’s not an easy economic environment in which to make a very, very big financial (and emotional) decision, Ms. Omran says.

“It’s stressful on a normal day in regular times.”