How to navigate Toronto’s cooling housing market

On the other hand, high interest rates, pushed aggressively by the Bank of Canada to cool inflation, have dramatically hiked up mortgage rates, offsetting the lower purchasing price of a home.

“It’s an odd time in the market and there’s a lot of people with lots of questions, anxieties and confusion trying to figure it all out,” says Gus Papaioannou, an agent with Realosophy Realty in Toronto.

Since the market first showed signs of cooling in early 2022, uncertainty has taken hold. Unit sales dropped by more than 44 per cent in Toronto from September 2021 to September 2022, and the average selling price fell to $1.09 million, down from the February high of $1.33 million, according to the Toronto Regional Real Estate Board.

Meanwhile, sellers are holding off listing properties because they’re worried they won’t make as much as they did earlier this year when the market was sizzling, leading to the lowest inventories seen in decades.

So, should you buy? Should you sell? Should you wait?

Real estate experts weigh in on what it all means whether you’re buying or selling.

If you’re buying

For buyers, the first step is to understand the numbers, Papaioannou says. This includes understanding preapproval rates and upfront costs such as utilities, condo maintenance fees, land transfer tax and lawyer fees.

Buyers should get their pre-approval rates and speak to their lenders to really understand what they can afford and make sure they stay below that rate when putting down an offer.

As home prices drop, increasing mortgage rates, caused by climbing interest rates, are making it a challenge for buyers to qualify for those mortgages. Pre-approval rates allow prospective buyers to secure a rate while they look for a home and give them around 90 days to 120 days of interest-rate protection before they expire.

Papaioannou says a crucial consideration for buyers is to buy a home “you will stay in for seven to 10 years. In this uncertain market, you need to plan that a house will only appreciate by three, maybe five per cent, year over year.

“If you plan it that way and it appreciates on the lower end, say three per cent, then, in seven years, when you go to sell, you’re not in the hole and can afford to pay things like realtor fees, land transfer tax and other fees.”

For buyers considering lowballing a home offer — the negotiating tactic of bidding significantly below the asking price — Anu Joshi, a realtor at home life Miracle Realty, says you can shoot your shot, but nothing is guaranteed.

While Joshi says she has witnessed several lowball offers come through on listings, she says the success of this strategy really depends on the seller’s motivation … and you risk offending the seller.

“It’s not something that you can strategize; if that seller has already bought a home or has to move due to family circumstances, they will probably sell for under market value and they’re more likely to accept a lowball offer,” Joshi says.

“However, if the seller is someone in a position where they don’t need to sell again, then lowballing is hit or miss.”

For prospective buyers worried about whether it’s the right time, “the best time to buy is now and long-term real estate is a very stable investment,” says Lorry Greenspan, an agent with Forest Hill Real Estate.

“You can look at any point in history and you’re almost always guaranteed a return on your investment in Canada if you buy real estate long term,” he says.

Buyers need to make their key objectives as clear as possible and Greenspan advises they research trends to see what the up-and-coming neighbourhoods in the city are for “opportunities outside of where everyone else is looking.”

If you’re selling

If you’ve decided you’re going to sell, sell now and sell fast, Greenspan says.

“Get it done as soon as you can. There is no reason to wait. It’s not like a year ago, when we’d think the longer you wait, the more valuable your property would be,” he says.

Papaioannou urges sellers not to wait longer than they must.

“I don’t see things getting better this year. At best we’ll flatline but I don’t see prices going back up next year,” he says.

The most important thing for sellers is to be realistic about pricing, says Joshi.

Because the pool of buyers is small and the values of properties are uncertain, doing some research about on the area you’re selling in and comparing how much properties have been listed for in recent weeks is a good thing to do, says Joshi.

“Things have changed. Sellers and their agents have to be crystal clear on what their property value is and then price it accordingly,” she says.

“The overall buyer pool is small so it’s unlikely you’re going to find someone who is going to pay top dollar. Pricing a listing higher or expecting higher offers might increase your days on market.”

Greenspan warns that sellers who are pricing aggressively might end up “shooting themselves in the foot.”

“If a house is worth $1 million and a seller gets aggressive and tries to sell it for higher, they might not get that offer. The property then sits on the market for 30 to 60 days. They then relist it and end up selling it for less because it sat for so long the market thinks there’s something wrong with the property,” Greenspan says.

“It’s a scenario that’s played out quite a lot recently.”

As there may be a lack of buyers, the “offer night” strategy, in which a home is listed below market value to lure aspiring buyers into a bidding war, is not recommended, says Greenspan.

But he says a seller can try a “hybrid strategy,” where they list a property a little below market value and, instead of hosting an offer night, they’d list it with “offers anytime.”

“You might luck into getting multiple offers that come in at the same time by creating a bidding war without there actually being an offer night. But I wouldn’t suggest it right now because it’s a much colder market than (it was) in January or February,” Greenspan says.