Before the days of bidding wars and bully offers, the real estate market used to be cyclical and fairly predictable.
There was a spring market, which was typically the busiest time of year, and there was a fall market, where the action typically picked up following a quiet summer.
However, over the past decade, the pace of the real estate market picked up and realtors were forced to quickly adjust to the rapidly changing market, especially when the pandemic hit, and interest rates were at rock bottom for a lengthy timeframe.
Things changed again last year as interest rates slowly began to creep up, leaving realtors across Ontario trying to advise their clients as best they could in a constantly shifting landscape.
In January, many believed the Bank of Canada was done raising interest rates and the market began to heat back up in the spring, prompting rates hike in June and July, Robert Hogue, RBC’s assistant chief economist.
“We’ve seen in July and August with the most recent numbers and especially August, that home retail activity has come down,” he explained.
After the interest rates went up, sales slowed across much of Ontario, which was a sign to some realtors that we may be seeing a return to old real estate ways.
“I think we’re starting to see a bit more predictability in the market versus volatility,” Kitchener realtor Tony Johal explained about a return to real estate markets past.
Ottawa realtor Nick Kyte explained that traditionally, the summer market has been slower as people have been away.
“If they haven’t purchased a property by July, they tend to take August as their vacation months or going to the cottage or just kind of enjoying summer activities. And then they come back to the market in the fall,” he said.
Much like the rest of Ontario, it was a slow summer in Toronto, and over the first week of September, people began listing and looking again.
“Honestly, we were all sitting on our hands the last couple months going, ‘Geez, I hope this changes in the fall’ and it does feel like it is,” said Toronto realtor Brendan Powell.
He noted that some clients were still looking in Toronto this summer, but were unable to find properties to meet their needs.
With the real estate market appearing to approach a more traditional market, many of the realtors Global News spoke with believe there will be a bit of a bump in sales during the fall months as people return from summer vacation.
“There’s going to be a little bit of a spike right now in the fall market,” Hamilton realtor Rob Golfi said.
Johal was also cautiously optimistic about expectations for the fall market.
“I don’t think we’re going to hit spring’s numbers. The interest rates are staying put, and I do believe that will have an influence over pricing and overall activity,” he explained. “I do foresee the fall market leading all the way to closer to Christmas as being fairly consistent and strong.”
Hogue shared Johal’s cautious view of what will happen with real estate in Ontario when the fall approaches as he says the seasonally adjusted numbers for the summer were well worse than sales in the spring.
“Once you take that into consideration, the traditional slowdown, even then the July and August numbers of of this year were a slowed down relative to what we saw in the spring,” the economist explained.
He also noted that the rebound from the spring appears to have been reversed, offering a sign of things to come in the fall.
Buyers were cautious in the fall of 2022 and they remain so in 2023, especially with the potential for another rate hike in November if inflation persists.
“Buyers are acting like they did last fall, and last fall is when we saw continuous rate hikes,” Kyte said. “So therefore, if buyers were going to purchase, they had you know, they want to make sure that the home was in good shape, that it was what they were looking for.”
Hogue says that RBC believes that at most, there may be one more rate hike to come from the Bank of Canada, but the current rates are likely high enough to keep most first-time home buyer on the sidelines.
“It might take a month or two for the market to come to that conclusion,” Hogue said of the idea of the end of rate hikes. “And then you might see some people jumping back in. But the thing is, affordability is still a big issue, especially for first-time homebuyers.”
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The economist also noted that if unemployment rates rise, that could keep people out of the market.
“It is also our view that the Canadian economy has already started a very mild recession,” he said. “So that is likely to potentially take the confidence of some people.”
Kyte looks back at how sellers reacted last year as an opportunity to explain how they might act in the fall of 2023.
He said if homes are priced correctly, then they will move but if not, they will make adjustments.
“Some sellers decide to status quo, others decide to adjust their price downwards to elicit some new buyers that may want to purchase before winter occurs,” the realtor said of the Ottawa market. “And some others just decide that maybe now’s not the right time for them to be on the market.”
The Ottawa realtor noted that if that was the case, then some sellers pulled houses off the market and relisted in the spring, which is traditionally a busier time in real estate.
In Toronto, Powell says the slowdown has created a more balanced market, which has allowed for conditional offers to return to the marketplace.
“There’s a lot more caution and we’re seeing mostly conditional offers, which is kind of what it should be,” he said.
“Conditions are a normal, smart part of a balanced market as people do their due diligence right and protect themselves from risk.”
That does not mean that the bidding wars have vanished entirely.
Johal says about half the homes that hit the market are being priced for bidding wars while the others are priced for market value.
While many buyers remain squeamish about the idea of a bidding war, Johal believes most are now expecting to see the price built into listings.
He explained that if several homes in one area were priced for bidding wars at $600,000 and one was priced at $700,000, some buyers might assume that the house with the higher sticker price might be set for a bidding war at a higher cost.
“The problem is they’re going to look at your listing and think you want $800,000 and completely avoid it in many cases,” he said.
“While we are still seeing some bidding wars erupt these days, we are also seeing buyers place conditions on homes when they make an offer. I think that the last year of uncertainty has really made a lot of people stop and think about of a real risk and real volatility,” Powell said.
He noted that five years ago, conditional offers became rare as people were fighting over a scarce market.
“People threw caution to the wind sometimes and I think that the last year has reminded everybody that there’s real risks involved in any kind of market like this,” he said. “While the buyers are out and are out looking, people are more cautious than they would have been, say, two years ago.”
He said those cautions include people making conditional offers as it should be.
Golfi said that while this might scare off some sellers, they probably should sell sooner rather than later.
“It’s going to take longer to sell a house I think (going forward). In the next 12 months it will take longer days on market will grow and grow,” Golfi said.
While the realtors expect homes which are prices accordingly to move fairly quickly in the fall as they traditionally would, hey also expect the market to slow in December which may be a good time to buy.
“I think the best month out of the year as a buyer. December and even January, those are the two best months,” Golfi said. ”If you’re going to buy a house and you want to get a super deal but inventory might be a little bit tough sometimes in those two months.”
Kyte also said that the price might be right for buyers when the holiday season approaches.
“If you’re looking at purchasing, you want to buy when not everyone else is buying because that’s when you can get a good deal, which is traditionally the fall into the early winter market,” he said.