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As Toronto’s housing market cools, some sellers face tricky situations

A "For Sale" sign in the Toronto suburb of Vaughan.

MARK BLINCH/REUTERS

With a new home and a baby on the way, this summer was meant to be joyful for Pickering teacher A.J. Smith. Instead, he's found himself squeezed by the Greater Toronto Area's housing-market slowdown, watching tens of thousands of dollars evaporate from the value of a house he needs to sell by Aug. 3. Otherwise he's facing the frightening prospect of having to carry two mortgages to the tune of $6,000 a month.

Believing at the time that it would be harder to find a new home than to sell their old one, Mr. Smith and his wife, Lindsay Smith, purchased a house in mid-April before listing their own. On April 20, the government of Ontario introduced a suite of measures to rein in the galloping real estate market.

"I had no idea how important those two weeks were. Things went from day to night," said Mr. Smith, after a month of trying to sell his old home.

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"Even though my wife and I have very good jobs, we're in a nightmare position where we're being forced to either default on our contract or carry two mortgages until we're able to sell this house," he said.

The decline in prices and sales activity across the GTA is seen by many real-estate agents as a temporary return to a more sane and balanced market. But it has caused some to reassess their housing plans and left others in financial jeopardy.

"A lot of the conversation we're having now is, can I afford two houses? Can I afford to turn my one house into a rental property?" said mortgage broker Brian Hogben, owner of Mission 35 Mortgages.

"It's small percentage. Around 5 to 7 per cent of our clients would be in that spot," he added. "But I think it feels like more, because those are the ones we're talking to almost daily. I'm telling them to be resilient, to hold tight, to stay steady. The market is still moving, just not quite at the pace that it was."

For someone in this position, bridge financing might be a solution, but as Shubha Dasgupta, owner of Capital Lending Centre in North York, adds, the caveat is that Mr. Smith would have to have a firm sale in place on his current home first.

"Originally, bridge financing was designed to bridge the time between the sale of a home and the purchase," Mr. Dasgupta said. "In the situation where the property is not sold, it's no longer classified as bridge financing. It's just financing."

Mr. Dasgupta says he has received at least 15 calls from different home buyers over the last two weeks in this situation. He has suggested a number of alternative solutions to them, including renting the first home out and keeping it as an investment property until a buyer comes along.

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For Mr. Smith and Ms. Smith, the timing was nearly perfect. With a toddler approaching preschool age and Ms. Smith expecting a second child, the couple wanted to relocate closer to family in Burlington and settle into their "forever home."

After a bidding war, they secured a property in Burlington with a pre-emptive offer $100,000 over the asking price. The plan had been to spend a week or two preparing their detached house in Pickering for sale, then turn it loose onto the red-hot seller's market.

"This wasn't about trying to make a huge profit off the house," Mr. Smith said. "This was simply trying to sell a house for what the market was asking – and then having someone come along and pop that balloon and totally change the rules of the game while you're in the middle of it."

"It was a Thursday the government came out with this. That following Monday things really got quiet," said David Batori, broker of record with the Re/Max Hallmark Batori Group Inc. "A lot of these buyers had been losing and losing and losing, and eventually ended up securing a home, and then by the time they were able to get their [old] homes ready for market, things had changed."

The swift and substantial shift was picked up in data released by the Toronto Real Estate Board this week. May sale prices for homes in the GTA dropped 6.2 per cent compared to April. The number of listings shot up by 19.4 per cent over the same period, while total sales fell by 12 per cent.

Mr. Smith quickly readjusted his expectations downward, listing their home for $799,000 rather than the $850,000 to $900,000 he'd been told he could get for it only weeks before. The house didn't move. He relisted it for $70,000 lower to tempt buyers, but still found no bites. He has since raised it back to $798,000, the home's assessed price and is waiting anxiously for interested buyers.

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"It's not just the fact that it's on the market. It's the fact we have to keep it in showroom condition all the time and you can imagine what that's like with a toddler," he said.

The consensus among real-estate agents seems to be that the slowdown is temporary and everyone is looking to Vancouver to anticipate what will happen next. After the British Columbia government introduced a 15-per-cent tax on foreign buyers last August, the market cooled much like it did in Ontario this spring.

"In Vancouver, their [Home Price Index] benchmark dropped for three consecutive months and then went up for three consecutive months," said David Fleming of Bosley Real Estate and the Toronto Realty Blog. "No matter what stat you look at, prices have dropped but you're only going to see five, six or seven months before it goes up."

The composite benchmark price for all residential properties in Vancouver increased by 5 per cent in the three months leading up to May of this year.

In the GTA, not all neighbourhoods are affected equally. Supply in the core is still relatively small and demand is high, said Brendan Powell, a broker with Sage Real Estate's BREL Team. Toward the outer edges of the GTA, however, inventory keeps opening up in suburban neighbourhoods while buyer interest declines.

"In Vaughan specifically, prices have dipped 10 per cent from the previous month while in Toronto proper it looked like prices went down 5 per cent," said David Ursino, a realtor with Royal LePage in Vaughan. "We've seen a drastic increase in listings. In the month of May we've seen 1,200 listings come out."

Mr. Ursino did caution that because of the number of people lowering their prices and relisting their homes, some listings are being double-counted, suggesting there may not be as many homes sitting around as it initially appears. Regardless, some houses are still moving.

Barry Cappell listed his home of 39 years in Newmarket in early May. A risk-taker, Mr. Cappell didn't put his house on the market until he'd put in a final offer on a house in Bracebridge, Ont.

"We were attempting to downsize but we really, really liked the house. It's a bit bigger than the house we had but it's okay, we can handle that, it means family can visit more often," said Mr. Cappell, smitten with his new home, located a short drive away from his daughter in Huntsville.

The 70-year-old retired handyman sold his Newmarket house in 11 days – a lot slower than other homes in the area were selling just weeks before. But Mr. Cappell considers himself lucky, quick to point out that had he waited a little longer, things could have gone differently.

"Over the last two weeks, you see more and more houses going up with no activity," Mr. Cappell said. "Not necessarily no open houses, but not a lot of people going in."

For some homeowners, the temporary dip in the housing market is being seen as an opportunity to upgrade. Krishnendu Chakraborty and his wife, Monika Nandy, bought a two-bedroom condo at Yonge and Finch in February, 2015. It wasn't until April of this year, when they saw the price that similar units in their building were fetching, that they realized their home had grown significantly in value. With the prices for detached houses declining, the elusive suburban home suddenly became a more affordable prospect.

"We didn't think we would be able to get one so soon. We see this market as an opportunity at the moment," said Mr. Chakraborty, a 32-year-old lawyer at Rousseau Mazzuca LLP.

"I think people are still wanting to buy condos so the condo value is still there, even if it's less than what it was in April. We want to use that money and get into the relatively cool housing market now that it has taken a bit of a dip," he said.

The young couple is eyeing Thornhill for their next home, ready to leave the condo life behind. Once they put an offer down on a house, they'll take the plunge and list their condo. Until then, they're closely watching the price movement in their building, tracking units with similar specifications.

Video: This six-bedroom mansion sold for under list price in Vaughan, Ont.
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