A Burlington detached home that was sold mid-reno, for hundreds of thousands of dollars less than what it got in summer 2021. A Brampton townhouse that went for about $340,000 under what it fetched the year before. And an Etobicocke condo that was purchased in December for about $60,000 shy of what it got mid-pandemic.
It was once nearly unthinkable in the GTA, but data from property website HouseSigma suggests that more people are now losing money off-loading properties, a sign of another crack in the region’s volatile real estate market.
“There is an increase in units being ‘sold below bought’, particularly when expressed as a percentage of the total sold,” said Michael Carney, HouseSigma’s director of business development. “We’re also seeing that trend more strongly outside of Toronto in the rest of the GTA.”
From October to December 2021, there were only 51 properties sold at a loss in the GTA, 29 in Toronto, and 22 in the rest of the region. That’s only 0.21 per cent, 0.29 per cent and 0.15 per cent of total sold properties, respectively.
During the same period in 2022, although overall listings are down dramatically, there were 224 properties sold below bought in the GTA, 79 in Toronto and 145 in the rest of the region. That’s still a relatively low percentage of all properties sold, but it has increased, to 1.80 per cent, 1.59 per cent and 1.94 per cent.
Carney said these are likely from people who bought between 2020 and early 2022, given the dramatic run-up in prices during that period. Indeed, all of the above examples were purchased at or close to the price peak when interest rates were at record lows, and then put back on the market in the past few months, according to sales data from HouseSigma.
It’s hard to speculate as to why these individuals are choosing to sell, Carney said, when so many other buyers are simply sitting on the sidelines and waiting for prices to rise again, or even pulling properties off the market because they’re not getting the offers they want.
Sales were down 38 per cent annually in 2022, and fell 48 per cent in December, according to the Toronto Regional Real Estate Board (TRREB). The average selling prices for all types of properties, fell 9.2 per cent year-over-year to $1.05 million, from $1.16 million in December 2021.
Carney said some sellers are trying to upgrade to a bigger property that’s also gone down in price, taking a loss, but staying in the market.
“And then obviously there is talk out there that people are selling because of the mortgage rates,” he said.“ There are people who are definitely feeling the hurt, people who got variable rate mortgages, when rates were 1-something, and now they’re looking at 4-something or 5-something.”
Some individuals who bought pre-construction units, typically condos in Toronto and townhouses and detached homes in the wider GTA, are “going to have issues closing” Carney said, with higher interest rates, a possible gap between what the bank appraised the home for and the offer, and rising development charges.
“I think a lot of people who bought pre-construction, in low interest rate environments, are very nervous. Those closings are going to be tough for a lot of people and we’re going to see some inventory coming on,” Carney added.
Nasma Ali, founder and realtor at One Group — RE/MAX Hallmark, hasn’t seen many listings where a family bought a home around the peak, last February, and is now off-loading it. She has heard about buyers getting nervous and not closing deals, despite the penalties that come with that. She is also hearing about “a lot of people who are now at this stage of feeling fear and panic.”
They’re not selling yet but they are wondering what they’ll do to make rising interest payments if they have a variable mortgage, or if their mortgage has already come up for renewal at the new higher rates.
So who are the ones selling now?
“Definitely I think some of these may have been investors who were planning on flipping,” Ali said. “When you’re flipping, you’re not necessarily going to be selling at a profit in this market.”
Another group is “novice investors” who may be facing mortgage payments higher than the rent they’re getting on their unit. Some homeowners may have relocated to another city, renting out their GTA home. But now that rates are rising and prices are dropping, they decide to sell, she added.
Others may have purchased a pre-construction condo but aren’t able to close due to higher interest rates. They are now struggling to sell through an assignment sale (where the original buyer sells the rights and obligations of the purchase agreement to another individual). People in that situation might need to off-load something, so list their home, Ali said.
Recent data from Urbanation shows that the GTA is expected to see a record number of new condo units completed this year. “To me that means that there’s going to be a lot of over-leveraged buyers that are going to 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’re wondering, “when is the pain going to stop?”
Last week, the CEOs of some of Canada’s biggest banks said tens of thousands of Canadians could default on their mortgages because of rising interest rates. As well, some agents have reported a surge in inquiries in condo assignment sales, and some mortgage brokers have reported a rise in forced sales from private and alternative lenders. In all these scenarios, properties could be selling at a loss.
But Brendon Cowans, VP of sales at Property.ca Inc, said he hasn’t seen a rush of “fire sales” just yet. The market is typically months behind interest rate announcements, he said, noting the next one is planned for Jan. 25.
If people bought at the peak but locked in a fixed rate for five years, they could be doing just fine with an enviably low rate. Canadians typically will also do whatever they can to save their homes — “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 things can get tricky,” he said. “Those are the type of people that may want to sell.”
JOIN THE CONVERSATION