More homes in Toronto and GTA sold at a loss by the end of 2022
A detached house in Burlington that sold midway through renovations for hundreds of thousands of dollars less than what it got in the summer of 2021. A mansion in Brampton that brought in about $340,000 below what it brought in the previous year. And an Etobicocke apartment bought in December for about $60,000 shy of what it got midway through the pandemic.
It was once almost unthinkable in the GTA, but data from real estate website HouseSigma suggests that more people are now losing money when unloading properties, a sign of another crack in the region’s volatile real estate market.
“There is an increase in the number of units being ‘sold under bought’, especially when expressed as a percentage of total units sold,” said Michael Carney, director of business development for HouseSigma. “We’re seeing that trend more strongly outside of Toronto in the rest of the GTA as well.”
From October to December 2021, only 51 homes were sold at a loss in the GTA, 29 in Toronto and 22 in the rest of the region. That is only 0.21 percent, 0.29 percent and 0.15 percent of the total number of homes sold respectively.
During the same period in 2022, although the total supply has dropped dramatically, there were 224 properties sold under bought in the GTA, 79 in Toronto and 145 in the rest of the region. That is still a relatively low percentage of all homes sold, but it has risen to 1.80 percent, 1.59 percent and 1.94 percent.
Carney said these are likely from people who bought between 2020 and early 2022, given the dramatic price increases over that period. Indeed, all of the above examples were bought at or close to the price spike when interest rates were historically low, and then remarketed in recent months, according to HouseSigma sales data.
It’s hard to speculate why these individuals choose to sell, Carney said, when so many other buyers simply sit on the sidelines waiting for prices to rise again, or even take properties off the market because they get the offers they want.
According to the Toronto Regional Real Estate Board (TRREB), sales fell 38 percent annually through 2022 and 48 percent in December. Average sales prices for all property types fell 9.2 percent year-over-year to $1.05 million, from $1.16 million in December 2021.
Carney said some sellers are trying to upgrade to larger properties that have also dropped in price, are making a loss, but remain in the market.
“And then, of course, there’s talk of people selling because of mortgage rates,” he said. they look at 4-something or 5-something.”
Some individuals who have bought pre-construction units, mostly apartments in Toronto and townhouses and detached houses in the wider GTA, will have “closing problems,” Carney said, with higher interest rates, a potential gap between what the bank bought the house appraised for and supply, and rising development costs.
“I think a lot of people who have bought pre-construction, in low interest rate environments, are very nervous. Those closures are going to be hard for a lot of people and we’re going to see some stock come in,” Carney added.
Nasma Ali, founder and realtor at One Group — RE/MAX Hallmark, hasn’t seen many ads where a family bought a house around the peak, last February, and is now unloading it. She’s heard buyers get nervous and won’t close deals, despite the fines that come with it. She also hears about “a lot of people who feel at this stage of fear and panic right now”.
They’re not selling yet, but they’re wondering what they’ll do to make rising interest payments if they have a variable mortgage, or if their mortgage is already due for renewal at the new higher rates.
So who are the ones selling now?
“I definitely think some of them were investors planning to freak out,” Ali said. “If you’re freaking out, you’re not necessarily selling for a profit in this market.”
Another group are “early investors” who may face mortgage payments in excess of the rent they receive for their unit. Some homeowners may have moved to another city to rent out their GTA home. But with rates rising and prices falling, they decide to sell, she added.
Others may have purchased a pre-construction apartment but are unable to close due to higher interest rates. They now struggle to sell through a consignment sale (where the original purchaser sells the rights and obligations of the purchase agreement to another person). People in that situation may need to unload something, so list their home, Ali said.
Recent data from Urbanation shows that the GTA is expected to deliver a record number of new apartments this year. “To me, that means there will be a lot of over-leveraged buyers who will have to sell something,” said Ali.
But overall, “You’re not going to see those mass sales, right now a lot of people are just holding their breath,” she added. They wonder, “when is the pain going to stop?”
Last week, the CEOs of some of Canada’s largest banks said tens of thousands of Canadians would be unable to pay their mortgages due to rising interest rates. Also, some brokers have reported an increase in inquiries about apartment sales, and some mortgage brokers have reported an increase in foreclosures by private and alternative lenders. In all of these scenarios, properties can be sold at a loss.
But Brendon Cowans, VP of sales at Property.ca Inc, said he hasn’t seen a rush of “fire sales” yet. The market is typically months behind interest rate announcements, he said, noting that the next one is scheduled for Jan. 25.
If people buy at the peak but are tied to a fixed rate for five years, they can get by with an enviably low rate. Canadians will also typically do what they can to save their home – “borrow from mommy, daddy, whoever it is, dip into their savings, whatever it is, to keep the property.”
But if they had a variable rate mortgage, “that’s where it can get tricky,” he said. “Those are the kind of people who might want to sell.”
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