There was still snow on the ground when real estate agents first felt the mood of the market begin to shift.

Slowly, but surely, there were fewer buyers -- or none at all -- coming forth on offer night. The frantic urgency that had driven buyers over the course of the pandemic seemingly dissipated. Offer conditions such as upon inspection or financing -- unheard of just a few short months prior -- began to re-emerge.

The gut feeling of an imminent slowdown grew, especially among those working in suburban housing markets. Then, the April data drove it home: sales and prices were indeed falling, both month over month and from the February peak, as mortgage rate hikes whittled buyers’ purchasing power. According to numbers, it’s most prominent in the markets outside of the core: the average price of a home in Durham has slid $153,658 (12.5%) over the last two months, while York Region dipped by $160,952 (10.1%). Halton and Peel aren’t far behind, down 9.56% and 5.68% -- $146,276 and $74,849 -- respectively. 

READ: Ontario is Moving Towards a Buyer’s Market: Here’s What That Means

And the pain extends well beyond the GTA. Cole Murray, a broker at Century-21 United Realty Inc. Brokerage in Peterborough, says he’s seen a significant shift over the last three to four weeks, as conditions reverse from the “quite substantial” run up the local market experienced at the start of the pandemic; sales and dollar volume are each down 28.9% and 15.5% on an annual basis.

“It's not as easy to sell a house right now,” he tells STOREYS. “The vocabulary has changed so much in the past few weeks: it has gone from, ‘What do we need to get this house? How high do we need to go? We really want this house,’  to, ‘This is our top, this is as high as we feel comfortable for the house.’ The buyers have more choice, and there's a little more uncertainty there; they’re looking out for themselves and their situation, as opposed to just getting a house.” 

Riding the Dip

It’s undeniable that today’s buyer is feeling considerably less pressure than those in the February market. According to the Toronto Regional Real Estate Board, while all of the GTA regions are technically still sellers’ markets -- with a sales-to-new-listings ratio above 60% -- those percentages have softened considerably since February, down between -9.4% - 6% in Halton, Peel, Durham. Toronto has eased to a lesser extent, down -2.4%. That reflects a better balance between the number of new listings coming to market and sales activity. 

However, Daniel Foch, a 905-based broker and real estate analyst, says conditions are slower than the numbers are letting on, as buyers grapple with rising interest rates. The Bank of Canada has implemented a 0.75% increase over two hikes since March. A 0.5% increase is assured in June, which would bring banks’ Prime to 3.7%. Meanwhile, five-year fixed rates have soared to 4.59%, meaning borrowers are now being stress tested in the 6.5% range.

READ: Getting a Fixed-Rate Mortgage? It’ll Cost Nearly $800 More a Month

“I would say that right now, qualitatively, the market is behaving like a buyers’ market, but quantitatively, it’s not one yet based [on the numbers],” he says. “And maybe it’s time to rethink what gives us a buyers’ market. But a lot of people were saying, ‘As long as supply stays this tight, there’s no way that prices can come down.’ ... But once the credit contractions started, we started to see that demand come down. I’m going to expect that by the end of May, the statistics are going to look very different, and they’re going to shock a lot of people.”

Foch says there are a few clear advantages for today’s buyers: first, they’re able to negotiate much more effectively than just a few short months ago. But, as it’s certain mortgage rates are poised to rise, there’s an advantageous window for those able to lock into a pre approval now.

“You’re starting to see a lot of buyers rush in now -- and maybe they’re catching a falling knife, only time will tell -- but those buyers are rushing in because they’ve done those kinds of calculations, and they’re saying, ‘Ok, prices are down 20%, but my buying power is only down 5%, and so this makes sense.’ If rates keep going up a the rate that they’re going, which is happening -- then mechanically, it makes more sense for them to buy sooner,” he says.

“It depends on how much downtime most people see in the market. But if you were to buy a house today, and it goes down $100,000 in value, that’s a $100,000 cost. But if you buy a house at the end of the summer at an interest rate that’s double would it would have been today, that can also be a $100,000 cost. So I think you’re just starting to see people weighing that cost… You’re trading equity cost for interest rate cost.” 

Mortgage rate increases are indeed a double-edged sword, concurs Murray. He points out a $200 - $300 rise in monthly mortgage prices is compounding with the rising cost of gas and groceries, leaving buyers increasingly anxious about carrying costs. However, increased choice can give them a leg up financially.

“They're nervous, but I do think they have a little more choice. And if they are serious, and they want to get into the market now, they're a little more cautious and finding the right situation, where maybe there's not multiple offers, or a seller who may have to sell. And they get a fair deal. Now, they're not overpaying for the house by any means, and they're comfortable with their numbers. They’re running them well before they have to go on offer, as well as carrying costs, beforehand,” he says.

Toronto Remains Immune -- So Far

The City of Toronto proper has yet to see the same price softening as surrounding markets -- in fact, it’s the only holdout where prices have increased since February, up 2% to an average of $1,243,070.

Jim Roberts, sales representative with Sage Real Estate, says that while some changes have been notable in the market -- “mediocre” houses with blemishes buyers were willing to previously overlook three months ago are now selling for significantly less -- the “very good" houses continue to receive bully and multiple offers.

“It isn't like it was in February, but it is still quite busy,” he says. “It's surprising, because you're hearing about what's happening all over the GTA, particularly, the 905. Those markets sound like they're about to be in free fall. And quite frankly, the run up that they've had over the last three or four years, in my humble opinion, never really made a whole lot of sense.”

That Toronto didn’t see the 50% -- and in some cases, 90% -- run up in prices over the last 24 months as the suburban markets did points to its better tethering to fundamentals, Roberts says, as reality starts to set into the 905.

“Yes, Toronto saw substantial gains. But I think you could argue a little bit easier that those gains made sense relative to low interest rates versus theirs. There’s no underlying economy in a lot of these places that support million-dollar houses,” he says. “The median household income in a lot of these places cannot even come close to supporting those mortgages. So it's almost like the whole run up in Toronto actually seemed affordable relative to the 905.” 

And he forsees those suburban declines will only deepen, as the Bank of Canada has only just kicked off its hiking cycle and the U.S. Federal Reserve is expected to pursue considerable liftoff as inflation spikes south of the border.

“Ultimately, the Bank of Canada is essentially going to have to follow whatever the U.S. Fed wants to do. And the U.S. Fed doesn't care about the price of houses in the GTA. They’re going to be raising interest rates another 200 - 250 basis points this year, if not more, and then probably several more hikes next year. And unless the Bank of Canada is willing to let the Canadian dollar completely collapse, they're gonna have no choice but to go along.” 

“It’s Nice to See This Whole Bull Run Come to an End”

As the market resettles, sellers are likely feeling they’ve missed out on peak returns -- but as the experts point out, a healthier housing market benefits all.

“I think everyone’s in a less urgent position. Sellers aren’t rushing to get out of the market, they actually have places to go buy now, if you’re selling to go purchase elsewhere, and buyers are, I think, being rewarded for patience, and more willing to exercise patience,” says Foch. “There’s low urgency in the market, and a lot of people are adopting a wait-and-see mentality. And that’s kind of nice to see this whole bull run come to an end, and everyone can enjoy their summer and it’ll be the first summer since lockdowns. I could see the market being crickets for the whole summer, honestly.” 

“[Sellers] are definitely upset that maybe their house would have went for a little more money three months ago than it would today. But I still try and tell them that we're up such a huge hill, and we're still on that hill, from where we were even four months ago,” says Murray, who adds that real estate agents stand to benefit from less hectic conditions.

“Really, unless you're a specialized listing agent, and that's all you really deal with, you do want a more balanced market. You want the market to go up slower -- a little bit-- so that nobody's losing money and no one's getting priced out of the market; 2 - 5% growth a year kind of keeps everyone happy, and the buyers are okay with it.” 

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