National Bank of Canada says home sales in the GTA market stabilized in March after seven consecutive months of decline.Fred Lum/The Globe and Mail
The files that land on the desk of a real estate lawyer each week can uncover strengths and weaknesses that overall numbers don’t reveal.
Mark Morris, Toronto-based real estate lawyer with LegalClosing.ca., is seeing a spectrum that ranges from severe distress to unfortunate timing to flashes of optimism.
Over all, the resale market in the Greater Toronto Area seems relatively healthy and normal, in the view of Mr. Morris, who describes conditions as slower but not fundamentally askew.
Sales in the GTA market stabilized in March after seven consecutive months of decline, according to National Bank of Canada.
Mr. Morris sees more buyers able to afford to buy a home now that prices have fallen – by as much as 20 per cent in some cases – from their 2022 peak.
“Those prices are much more tethered to Canadian incomes,” he says.
Another positive change came last month when the Ontario government gave the slumping market for newly-built homes a boost, Mr. Morris says.
The measure expands the eligibility for a rebate on the 13 per cent federal-provincial harmonized sales tax to more buyers.
Prime Minister Mark Carney makes an announcement about housing and affordability at a new condo development in Toronto last month.Nathan Denette/The Canadian Press
“I can tell you that it’s having a huge effect,” Mr. Morris says. “Now I’m seeing inventory product move.”
Before the change, only first-time buyers who planned to live in the home were eligible for a rebate on properties priced up to $1-million.
The new one-year policy, which came into effect April 1, extends the rebate to some repeat buyers who will live in the home and investors who plan to offer the property for rent.
Buyers of homes worth as much as $1.85-million may receive partial rebates.
Mr. Morris notes that one downside of the change is that it will hurt people who finalized a deal before April 1 because the rebate will be factored into appraised values from that date on.
“The entire new build product is 13-per-cent cheaper.”
But Mr. Morris notes that government has a responsibility to a broader population than those who signed a real estate contract.
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Under the current legislation, which limits the policy to one year, the government is in effect bailing out developers who have remaining inventory and want to get rid of it, in Mr. Morris’s view.
If the policy is extended for the longer term, it will likely lead to more homes being built, which will in turn expand the municipal tax base.
“That benefits everyone,” he says.
But Mr. Morris also sees gloom in the GTA landscape: Lower prices are partly due to the misfortune of homeowners who bought in an era of ultralow interest rates and are no longer able to shoulder the debt they took on.
“People are losing their shirts,” Mr. Morris says.
Many of those in dire financial straits today were caught by bad timing and shifts in the economic landscape.
In March, 2020, the Bank of Canada cut its key rate from 1.75 per cent to 0.25 per cent as a measure to bolster the country’s economy during the COVID-19 pandemic.
Low mortgage rates sparked a real estate frenzy, and heated bidding wars pushed prices to record highs in cities and rural areas throughout Ontario.
Many new purchasers and existing homeowners locked in a favourable rate for five years.
In a rattled real estate market, sellers look optimistically to spring
While lots of those people have found ways to navigate a course through heavy debt, inflation and higher interest rates, others are under intense strain.
Those folks can’t cope with the jump in their monthly payment at today’s higher rates. Recently, rates for five-year fixed-term mortgages have been hovering around 4 per cent.
In the past few years, some floundering homeowners have added a second and even third mortgage with a private lender to their primary loan with a traditional bank, Mr. Morris points out.
Eventually, some stop making payments at all.
“You hold your breath until you can’t, and then you drown,” Mr. Morris says.
After a borrower defaults, a lender may then sell the property under the process known as “power of sale.”
Mr. Morris does not track the number of properties sold under POS, but the frequency is rising, and that is pulling down values, he says.
“The market is being forced to reprice.”
Sellers who are in a solid financial position often want to test the market with a lofty asking price, Mr. Morris points out.
Then their agent says, “Here are the two power of sale on your street and here’s what they sold for,” Mr. Morris explains.
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As a result, homeowners are making their peace with the fact that they won’t be able to sell at 2022 prices, he says.
“We didn’t see that in 2023 and 2024,” he says of the years when sellers were still holding out for unrealistically high numbers.
Mr. Morris takes on a couple of files a week, he says, with sellers who are underwater. Before a deal is struck, he contacts the private lenders to inform them that they need to settle for less than they are owed.
If they don’t accept those terms, he explains, the homeowner may default on the first mortgage, and that lender will initiate the POS process.
In that case, the second lender in line will likely be wiped out. Usually, they agree to the reduction.
“Most of them are somewhat savvy,” he says.
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Patrick Rocca, broker with Bosley Real Estate, says many agents also need to understand their place in line when a homeowner is in distress because the funds to pay a commission may not be there.
He is delving into the financial situation of potential sellers more than ever before. Not only are mortgage rates higher, he says, but businesses are failing and people are losing their jobs.
“I think it’s going to get worse,” he says of the pressure consumers are under. “I just find it’s more crippling now.”
In some cases where the seller doesn’t seem forthcoming, Mr. Rocca looks into the background on mortgages, debts and liens on the property.
“A lot of people don’t tell you the whole story,” he says.
Mr. Rocca recently turned down a listing because the owner was facing hardship and continued to draw on the second mortgage to pay expenses.
“There’s no money there,” he says.
Mr. Morris says agents usually do receive payment from a POS transaction because the primary lender has the right to include expenses such as legal fees and commissions.
In the case of a negotiation with a second lender, Mr. Morris nails down terms – including the agent’s fees – before a seller accepts an offer to purchase. If the deal becomes firm, he can no longer wrangle with the lender.
“Almost all the lenders are taking their haircuts.”