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‘It’s crickets’: How sellers are getting creative in a slow housing market

Click to play video: 'Business Matters: May ‘another sleepy month’ for homebuyers. Will a rate cut wake them up?'
Business Matters: May ‘another sleepy month’ for homebuyers. Will a rate cut wake them up?
WATCH: Housing starts climbed 10 per cent in May compared with April, according to the Canada Mortgage and Housing Corporation (CMHC) while Canadian Real Estate Association (CREA) data shows it was "another sleepy month" for homebuyers. – Jun 17, 2024

A flood of listings in many Canadian housing markets is giving buyers who can qualify their pick of the litter and is forcing some sellers to get creative to land a deal.

A glut of condos in Toronto, for example, means some sellers have to pull out unorthodox strategies to land one of the few prospective buyers in the market.

Davelle Morrison, a real estate agent in Toronto, says that one of her clients recently deployed a “reverse offer” to land the sale on a condo.

As Morrison tells Global News, the unit had a few interested buyers, but the parties couldn’t settle on a price. After another three weeks went by, she suggested her client go back to a buyer whose offer they had initially rejected and suggest that they’d now be willing to entertain a lower price.

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Buying a home remains unaffordable: poll

“We put an offer in place for them and there was a little bit more negotiation,” Morrison recalls.

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“And I think this time, because the property had sat on the market for a little bit longer, there was a little bit more willingness to work with either party, and we were able to strike a deal and have both parties be happy.”

While the competition for houses in the market can still be fierce, prompting bidding wars for some sought-after properties, Morrison says it’s “a lot more difficult” in the condo market. In some cases, she says, it’s hard to get even showings on condo properties in Toronto right now.

While Morrison doesn’t think reverse offers are common by any means, she argues that many sellers will have to think outside the box to land an offer.

“People are definitely more open to getting creative in order to get that condo sold, because right now, the condo market, it’s crickets,” she says.

Delayed impact of the rate cut

Home sales were down month-to-month in May on a national basis, the Canadian Real Estate Association said this week, even as some standout markets such as Calgary, Edmonton and Saskatoon continue to see activity tick up.

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Even if buyers aren’t showing up in most Canadian cities, sellers certainly are. At the start of this month, there were roughly 175,000 active property listings across Canada, up 28.4 per cent year-over-year, according to CREA.

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Across the Greater Toronto Area, there are some 24,000 units including condos and detached homes up for sale — a 14-year high, according to an analysis by Hanif Bayat at Wowa.ca.

Active listings for condo units in Toronto are at or near record highs right now, notes John Pasalis, president of Realosophy Realty.

But that glut of supply comes as buyers remain priced out of the market. Despite an initial interest rate cut from the Bank of Canada earlier this month, borrowing costs remain elevated and the bar to qualify for a mortgage continues to price many Canadians out of homeownership.

“Rates are still way too high to fuel demand to see buyers rushing in,” he says.

Click to play video: 'Small rate cut not enough to get most Canadians off housing market sidelines'
Small rate cut not enough to get most Canadians off housing market sidelines

CREA representatives said earlier this week they were hopeful the Bank of Canada’s quarter-point cut would mark the turning point in the housing correction moving forward, where buyers would come off the sidelines to stimulate the slower market in the fall.

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But would-be homebuyers responding to recent Ipsos polling conducted exclusively for Global News indicated it would take more than 25 basis points of easing before they were willing to jump back in the fray.

Some 63 per cent of non-owners responding to the poll said they would remain on the sidelines until they saw steeper interest rate cuts.

Barriers to homeowners are particularly stark for first-time homebuyers, many of whom are eyeing entry-level condos if they’re living in Canada’s most expensive housing markets like Toronto to Vancouver.

Toronto-based Realtor Desmond Brown tells Global News that the confidence isn’t there yet for would-be buyers, leaving condo sellers holding onto properties for longer — three weeks to a month is typical in the current market, he says.

Because of that, Brown is suggesting the clients sell their properties first before heading out to find the next home.

Things could change in the months ahead if there are more interest rate cuts from the Bank of Canada — the next decision is slated for July 24 — and buyers grow more confident in trying the market, Brown notes.

“The fall may pick up. So if anything, what we’re telling our clients is to be patient,” he says.

Opportunities for deals this summer

CREA shows home prices were “sliding sideways” in most markets across the country in May.

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In Toronto, prices are largely holding around buyers’ expectations, Morrison says, with more power on the buyers’ side than the frenzy of the pandemic-era market.

“I would say for the last year or so, we’ve been really in more of a buyer’s market where buyers are actually able to do a little bit of negotiation where they weren’t able to do that before,” she says.

The condo market in Metro Vancouver is also facing a slowdown, with sales for apartment-style homes down nearly 23 per cent year-over-year in May, according to the local real estate board.

But the sales-to-active listings in Vancouver remains above the 20 per cent mark, which the Real Estate Board of Greater Vancouver said historically points to upward pressure on prices.

Growing inventories could nonetheless be a boon for buyers who can qualify this summer, according to Andrew Lis, director of economics and data analytics with the REBGV.

“Up until recently, prices were climbing modestly across all market segments. But with rising inventory levels and softening demand, buyers who’ve been waiting for an opportunity might have more luck this summer, even if borrowing costs remain elevated,” he said in the board’s May sales report.

Pasalis says that a lot of the sellers in Toronto’s condo market right now are investors, many of whom are unable to raise rents to keep cash flow positive in the face of still-high borrowing costs.

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He adds that if listings continue to rise in Toronto, some sellers might get impatient and take a steeper cut on price to win over buyers in the market, putting some downward pressure on home values.

“Inventory builds up and then you start getting one or two sellers just throwing in the towel, saying, ‘You know what, I don’t want to wait any longer for this price. Let’s just unload it,’” Pasalis says.

Click to play video: 'Impact of rate cut on housing affordability'
Impact of rate cut on housing affordability

But he also cautions that if prices do decline, it tends to be more gradual than the kind of appreciation home values see on the way up.

“Prices tend to be sticky on the way down in the real estate market,” Pasalis says.

Shaun Cathcart, senior economist at CREA, told Global News this week that despite the relatively robust housing supply in the market right now, inventory levels are still below historic averages from before the pandemic.

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Nationally, Canada was sitting at 4.4 months of inventory in May, according to CREA. That’s up from 4.2 months in April and the highest mark since the fall of 2019, before the COVID-19 pandemic. But that’s still below the long-term average for the measure of five months.

With Canada’s rapidly growing population and expectations that more rate cuts are on the way this year, Cathcart thinks supply levels have peaked in the cycle.

Should more buyers come off the sidelines and start to compete for properties, that inventory will trend lower and prices could head up after a few more rate cuts, Cathcart argues.

“If you want to jump in the market now, you might find some deals in advance of everyone else starting to come back,” he said.

— with files from Global News’s Anne Gaviola and Kyle Benning

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