Recently I have seen agents locally, and particularly in the Toronto region, facilitate large price reductions in order to precipitate offers for homes that have languished on the market – usually due to an initial pricing strategy that was not well-considered.
Pricing is truly a challenging process.
Understandably a seller wants maximum value and often they have invested a great deal of love sweat and money into their home, which they feel others should value. This subjectivity often skews their perspective of fair value upwards.
Buyers ALWAYS conclude on a price by thinking “THIS home is worth this much of MY money at THIS time.”
It is an art to navigate buyers’ and sellers’ expectations in a rapidly changing markets.
It is fair to say we have entered a buyer’s market and I believe that will last until spring. Buyers have more choice and negotiating power — a seismic shift from the sellers’ market that dominated for more than a decade. There are a greater number of homes now on the market than buyers to purchase them. Demand has dropped, primarily in the under 2.5 million dollars as high-interest rates push over-leveraged homeowners to sell and prevent first-time homebuyers from entering the market.
The luxury market tends to be immune to interest rate fulgurations and other economic forces.
It’s hard for sellers, after years of being in the driver’s seat and the incredible windfalls during COVID, to adjust to this new reality. During COVID I discouraged my clients from buying, unless absolutely necessary. It was clear to us here at Sotheby’s that the pricing was artificially inflated.
But now, if you want to sell you need to be able to accept the objective realities of the market and know if you do not, you will wind up getting less than you could over the longer run due to overpricing, than you would should you have priced ‘on the money.’
It’s a buyer’s market. Buyers have options. And buyers won’t be showing up with their money on the table unless they feel: “THIS home is worth this much of MY money at THIS time.”
WHAT IS HAPPENING WITH SELLERS?
As sellers adjust to this new market, the wise ones, and ones who must sell, will price accordingly.
It is challenging to price your beloved home when you know just a few years ago you could have gotten substantially more has you listed during the artificial frenzy of COVID.
During the frenzy many REALTORS list properties below market value to attract bidding wars and sell for more than the listed price and buyers were reading about multiple offers – sometimes over 20 at a time from buyers experiencing FOMO (Fear of Missing Out).
After the pandemic-fuelled price run-up, the Bank of Canada began to hike interest rates in March 2022, causing prices in some regions to drop by around 15 percent. Spring, after the central bank held the overnight lending rate, the real estate market bounced back from its slump bidding wars returned and the number of listings was down, increasing the stress on the buyer to anti-up.
In May 2023 Toronto edged up to $1.19 million according to the Toronto Regional Real Estate Board which was still below the February 2022 price peak of $1.33 million. When the Bank of Canada raised rates in June and July, the under 2,5 million, market quieted down.
Banks set a ‘qualifying rate’ for a mortgage on which they base eligibility, and leery of a loss from those overleveraging, it is at almost nine percent, creating fewer buyers. Yet prices remained high – this statistic not having a bearing at this time on seller’s pricings. In Toronto, average selling price in October was $1.12 million — increasing month over month since August by almost $45,000. In Sothern Georgian Bay, the average price, particularly for waterfront, was close to the same. A continued large volume of new listings in most markets and decreased demand (except Waterfront), backed off buyers.
It’s imperative real estate agents educate their clients on the current market conditions, helping them adjust expectations, Marin said, as there’s likely to be fewer showings and longer wait times.
For sellers not pressed to sell, many are holding out for the spring market, hoping to see a higher demand. Some consider leasing as an alternative to being vacant until they feel the time is right to maximize their return.
In Toronto, homes listed for under $1 million, tend to move but homes in the $1 million-to-$2 million range, the offers are close to asking, if priced right. Above 2.5/3 million, excepting special interest properties like waterfront, particularly in the prime areas of Sothern Georgina Bay and Muskoka, it is business as usual.
WHEN SELLING IS NOT ADVISED
The sales-to-listing ratio, how many homes are available, as opposed to how many actually sell, is a critical statistic that always impacts pricing and best timing. If it is high, tons of homes, yet few sales, buyers have the option to wait you out or just take a pass until they feel a deal comes along that fits their needs – and they do.
If you need to sell, regardless of why, (finances, career, relationship change, health..) the best strategy is to ask me to review our economists’ reports with you, listen carefully to what I see out there daily, and price objectively and realistically. This is how you will get top dollar – ‘let’s just try this number and see’ will inevitably have you following the market downward and net you less as buyers watch you try and game the market. They will not play that game when the listing-to-sales ratio is high.
AND HERE IS THE BUYERS’ MARKET
Conversely, when the listing- to-sales ratio is low, that is few properties and tins of buys – such as it was during COVID, it is a good time to buy. Couple that with off-season shopping, holiday periods like Christmas, and winter, and smart buyers are out in full force.
Of course ‘flush’ buyers (those with lots of cash) either of their own or from the largest ever transfer of generational wealth (the bank of Mom and Dad) lead the charge, whereas the rest tend to buy at a speed that is inverse to interest rates. The higher the rates the less eager and/or the lower the price point.
In Toronto, investors who are over-leveraged are also having to sell, especially as interest rates have risen quickly creating a boon for condo buyers. Condo prices and are the only property type to see a price decline year-over-year pushing prices rapidly downward, More than half of Toronto condos built in recent years are investor-owned.
The risk of forced sales is also rising, according to a new report from Capital Economics, especially for those facing refinancing at rates that may be over double their original mortgage at the time of purchase.
Moving forward prices will come down as sellers, and less experienced agents, come to the realization they’re pricing properties too high.
Buyers will notice that premium neighbourhoods and special interest properties, like waterfront, are more immune to all these forces, but if located in a dense larger region they will also be seeing some pricing relief, particularly in the under 2.5 million dollar mark.
IT IS IMPORTANT TO REMEMBER
Sellers and buyers have access to some statistical information, much of which has been skewed by its presentation in the media and are looking to increase readership. Realtors have extensive access to statistics, and in a Brokerage house like Sotheby’s International, that tomb of statistics is analyzed monthly by our house economists who are seasoned Realtors capable of integrating market experience into the analysis.
As a Realtor, I am ethically and most often legally bound to get my client the best price. To do this I thoroughly understand the property, integrating both our subjective and objective property observations into the objective realities of the market. These observations and conclusions, including my professional market experience from being in the midst of it daily, plus the invaluable guidance of our in-house economists and brokers, give me an unparalleled edge to finding you the best price, whether buying or selling.
It’s trickier out there than one might presume. With the new Ontario laws in place to ensure you can bind me by contract to apply my extensive expertise to get you the top price selling, or best price buying, it only makes sense we work together to navigate your sale or purchase. There is too much money on the table not to treat your transaction with the professionalism and consideration any large financial transaction should demand. Give me a call and let’s sit down and talk.
Todd Kaufman, REALTOR
647-230-2068
