It has been a roller coaster of a year for real estate in the Greater Toronto Area. While homebuyers faced hearty competition and rising prices at the start of the year, conditions began pointing to a buyers' market as early as April.

Since that time, both demand and prices have faltered significantly, but as we head into fall, things are looking back up.

According to data for August from the Toronto Regional Real Estate Board (TRREB), home sales were up 14% from July. Though that figure was down 34.2% on an annual basis, it was the mildest year-over-year disparity in four months. Detached home sales led the pack, followed by condo apartments, semi-detached homes, and townhomes. There were more new listings sold compared to the three months prior.

Meanwhile, home prices were more or less on par with what we saw last year at this time, rising just 0.9% from August 2021 and 0.4% from July 2022 -- but rising nonetheless.

For those who held off on purchasing throughout the turbulent spring and summer seasons, fall has historically been a time to regroup and get back to house-hunting. And while experts agree that this autumn will see more interest and follow-through from buyers, the consensus is that buyers -- jaded from the recent BoC rate hikes -- will approach the market with more trepidation than in years past.

Homebuyers Will be Eager to Reenter the Market

Christopher Alexander, President at RE/MAX Canada, says that while activity this fall probably won’t match that of Fall 2021, the market will see healthier buying demand than we saw over the summer.

“It's been so competitive for so long and you do have a lot of people that put the brakes on their buying decisions,” he says. “What I've heard -- even since things really slowed down in April -- is that people want to buy, they're just waiting for the market to bottom out. But I think a lot of those people that needed to buy are like, ‘okay, I can't wait anymore, so I'm going to make a buying decision.'”

This is in line with what RE/MAX has found in their market research, notes Alexander.

“People really want to own real estate in Canada,” he says. “They believe in the long-term asset value that it gives you.”

He adds that an uptick in sales activity is not unusual for the fall. With prospective buyers wrapping up their summer travel plans, they return to the real estate market with fresh expectations in September and October -- many with the intention to lock something down before the holiday season.

“I would say [fall] is probably the second-best time of the year to buy.”

Bargaining Power Will Shift in Favour of Buyers

With less demand overall and quieter conditions all around, buyers will have the leeway to be judicious with real estate transactions.

“Buyers will have time to make better decisions, informed decisions. They can put conditions in offers, they can negotiate -- sellers have started to lower their expectations a little bit,” says Alexander. “As far as being able to negotiate and buy on almost your own terms, it's going to be a really good environment for that.”

Kseniya Korolova, an agent with RE/MAX Metropolis Realty Brokerage, is already seeing proof of those buyer-friendly market conditions. In fact, she started noticing some shifts in August.

“I've noticed on the MLS -- and from my listings, too -- that a lot of listings are at property value and it’s a lot less of listing way below the market value to bring that huge traffic and then collecting offers,” she says. “For the fall, I think we're going to see a lot of the same. If the house is worth $1M, it will be listed at $1M or $999,999, and then the traffic will be based on that.”

And while some properties may accrue multiple offers, Korolova says it’s unlikely that we’ll see fierce bidding wars akin to what occurred last year.

With that said, depending on the number of buyers that reenter the market, prices are likely to go up and competition will naturally build, but Korolova believes that some buyers will end up holding out until next year.

“First-time buyers specifically, they're leaning towards spring 2023 to buy because, as you know, the predictions are that we will be seeing a drop in interest rates,” she says. “Some will jump in the market in the fall time, see what’s out there, get their feet wet. And then, if that doesn't work out, they will push for spring.”

Much Will Hinge on the BoC’s Next Rate Decision

Following a hike of 50 points on June 1 and a staggering increase of 100 points on July 13, the next rate hike is scheduled for September 7. It is expected that the Bank of Canada (BoC) will increase the key overnight rate by 75 points to 3.25%.

“This fall is going to be interesting. What the Bank of Canada does with interest rates, that's really going to be what dictates the remainder of the year,” says Alexander. “There is lots of speculation that this will be the last rate hike until the end of the year. If that is true, I think we'll have a little bit slower... start to the fall than normal. But I think come early to mid-October, things will pick up in a big way.”

So far this year, changes to the stress test environment, induced by the BoC hikes, have already reduced borrowing power amongst consumers -- according to Elena Bogomaz, a chartered professional accountant and mortgage agent with Dominion Lending Centres, it has already been reduced by approximately 8% or 9%.

Bogomaz saw a shift in consumer behaviour to a “wait and see approach” following the July 13 hike. Now, with another hike looming, she suspects buyers will be cautious -- though not nearly as wary as they were in July.

“We anticipate the market will become active [in the fall], but activities might be reduced by the anticipated Bank of Canada rate increase. If they increase as predicted by 50 or 75 basis points, the market will slow down for a little bit, but after the shock is kind of observed, people who want to buy, they will buy,” she says. That said, she forecasts that if the BoC raises the benchmark rate by the aforementioned amount, buyers will qualify for smaller mortgage amounts -- around 20% less. “It’s significant. Instead of $500,000 it will be $400,000.”

Lack of Inventory Will Continue to be a Concern

“Inventory levels are low. They went down 5% from June to July,” says Alexander. Although he says this is on par with activity for August, immigration is rapidly driving up the need for more housing. “We've got a tremendous amount of new Canadians coming every single year. We had almost 20,000 in the first quarter alone and typically about 40% to 60% of those end up in the GTA. They'll all need a place to live.”

Ontario is currently facing a shortage of approximately 500,000 homes and will need an additional 1M by 2031 to meet demand. But according to a recent report from Smart Prosperity Institute, it’s unlikely that the construction sector has the capacity to produce 1.5M new homes in that timeframe.

On top of what the GTA is already facing, Bogomaz adds that inventory shortfalls will be compounded by investors, and that will be regardless of the rate decision.

“For investors, the rate is not as important",” she says. This is contrary to traditional homebuyers; their main concern is what they can afford, so the rate can make or break a buying decision. “But investors, they are just looking for the positive cash flow. Since the rental prices went up, investors are still finding cash-producing properties to purchase. So investors will be buying regardless.”

Lending Options are Tightening Up

On the lending side of things, Bogomaz says a number of factors might tack some extra time on the approval process this fall.

“It’s been noticeable across different lenders -- they’ve been feeling a shortage of qualified personnel needed to process the big volume of mortgage applications in the first and second quarters,” she says. “That's why some applications get declined due to insufficient timeframe. For example, if it’s less than 30 days even private lenders will decline the application. It’s a little bit unusual to see.”

READ: Lenders Now "Super Picky" On Appraisals as Home Prices Continue to Drop

To be safe, Bogomaz suggests that buyers who are planning on using a mortgage lending service should leave themselves plenty of time to get their applications approved -- as much as two months if it’s possible.

“Lenders are also asking to provide more documents to satisfy their funding conditions,” she warns. “I don't know if that’s because there is increased risk or maybe they're just doing more due diligence.”

Buyers Will Need to Invest Smart and Think Long-Term

Going into the fall season, buyers should closely consider whether they’re best suited by a fixed- or adjustable-rate mortgage. There are pros and cons to both.

“If you go with an adjustable rate, then every time the Bank of Canada increases or decreases the rate, your payment will change,” says Bogomaz. “To have a more stable cash flow, I would recommend clients to go with a variable rate with static payment. But if the Bank of Canada rate increases to the point where the payment is not covering the interest portion, they will be asked to increase the payment. The perfect product doesn’t exist. That’s always something property buyers have to consider.”

Overall, Korolova urges homebuyers to think long-term when it comes to purchasing real estate. This is particularly important when you’re buying in an unstable market.

“It's always important to consider, ‘what if I'm in this house for two or three or six years?’” she says. “You never know what's going to happen. The market could drop another 10% or 20%. At that point, you should be able to stay in that property until the market bounces back up.”

And if affordability is a concern, Korolova advises buyers to purchase what they can and leverage the hot rental market in their favour.

“Buy a two-bedroom and rent out one of the rooms. And then you’ll have a little bit help,” she says. “Get into the real estate market. No matter where you are, what you buy, you will typically have a return -- we roughly say you're guaranteed a 4% per year increase.”

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