Shrinking inventory making Toronto home buyers even more aggressive

Share

It seems so long ago that $200,000 above the asking price was a shocking amount to pay for a comfortable house in Toronto. In reality, it was early 2016.

As the year crept on, the amounts above asking became more jaw-dropping. By about the end of May, deals for $500,000 above a $1.4-million list price became commonplace. The outliers stretched toward a $1-million premium as the spring market drew to a close.

And still, the dynamic hasn't changed: The number of properties for sale shrinks, which in turn makes buyers more ravenous.

Real estate agent Matthew Regan saw the market encapsulated in one deal recently: He listed a house, built in the 1970s, in the coveted Lorne Park area of Mississauga with an asking price of $1.489-million. The house drew 11 offers and sold for $1.92-million.

He had two bully offers within six hours of the house hitting the market, four offers after 24 hours and 11 by the deadline they set for the third day.

"We had to create a firm date when these offers were flying in," Mr. Regan says. "People couldn't put in an offer fast enough."

The house at 775 Glenleven Cres. is set on one acre with a swooping driveway and a stream running along the property. But because of its vintage and West Coast style of architecture in a more traditional neighbourhood, Mr. Regan thought it might take a bit longer to sell.

The number of strong bids shocked him and the sellers.

"It's not like there was one runaway offer. The guy that won at $1.92-million didn't win by much."

Mr. Regan says his team at Royal LePage Real Estate Services Ltd. is on track to sell 200 properties in 2016. He estimates his business has swelled by 35 per cent since the end of 2015.

Prospective buyers want to get into the market before prices shoot up even more; move-up buyers and those who want to downsize are all reluctant to sell because they don't feel secure about finding a new property.

"It's really tight," Mr. Regan says of the number of listings. "We're seeing all-time lows of inventory levels right now. The demand has shot through the roof."

It wasn't all that long ago that Mr. Regan began drawing buyers away from Toronto when people discovered they didn't have to compete for a house in Mississauga. That's no longer the case.

Sohail Mansoor, of Royal LePage Signature Realty, also sees the lack of inventory as his greatest challenge.

"The trends are deepening," he says.

Mr. Mansoor points to numbers from the Toronto Real Estate Board for November: active listings plunged 35.8 per cent compared with the same month last year. The average price jumped 22.7 per cent in the same period.

In June, active listings contracted by 31.4 per cent compared with June, 2015; the average price climbed 16.8 per cent in the same period.

Mr. Mansoor says some owners are afraid to move because they fear they won't find another house while others are put off by the high cost of moving. Land-transfer taxes, real estate commissions and legal fees combined persuade some prospective sellers to stay put.

Mr. Mansoor sees one possible shift in 2017: Commuters who are concerned about the prospect of road tolls on the Don Valley Parkway and Gardiner Expressway may veer away from settling in the suburbs.

That change would put even more pressure on prices in the central 416 area code, he points out.

"A lot of people are stretching their budgets to a maximum," he says of the rich cost of owning a house. "Two dollars a day times two ways can add up pretty quickly."

Another event that could shape Canadian real estate in 2017 is the election of Donald Trump to the office of U.S. president.

Mr. Mansoor figures signs of an increase in hate speech and crimes targeting specific groups could propel foreign buyers away from the United States toward Canada.

Meanwhile, efforts by the federal government to tighten mortgage rules and cool overheated markets have been good for Toronto, in his opinion.

The regulations around insured mortgages make it harder for buyers to stretch their budgets too far, he says, but the "stress tests" are not so stringent as to bring about a downturn.

"It's sort of tough love for us," he says.

The most surprising development this year, Mr. Mansoor says, is the spike in the condo market.

As buyers have been priced out of single-family dwellings, they have been competing for condo units, pushing prices up 15.1 per cent year over year.

The bidding contests for single-family houses, meanwhile, have been hair-raising.

Mr. Mansoor's most memorable sale of 2016 was a listing for a house in Ajax.

He set an asking price of $799,000 with a scheduled date for offers and the expectation that the property would sell around the $850,000 mark.

Early on, a bully stepped up with an $880,000 bid. Mr. Mansoor sensed the sellers could get more on the offer date, so he recommended they reject the bully.

"Needless to say, I didn't sleep for the next three nights. As confident as I was, multiple offers are unpredictable. You never know who's going to show up on the night."

On that particular night, another bidder beat the bully's offer by $70,000.

Mr. Regan in Mississauga has found one way to relieve some of the pressure in the process: He advises sellers to ask for a very lengthy stretch until the deal closes so that they will have more time to look for their next property.

At the Lorne Park house, for example, the closing date is at the end of April, five months after the sale.

"We bought the seller time to be able to go and look for their own property."

Lately, he has been using that tactic with nine out of 10 properties.

"It's amazing how we can stipulate to the buyer that we want a long closing and we get it almost every single time."

The buyers, he says, often have an existing house to get ready for sale, so that gives them time to prepare.

For Mr. Regan, it's one way to break up the logjam.