It’s fair to say that many people looking at Toronto’s housing market have been experiencing a sort of prolonged “WTF” moment, as they watch home sales fall while prices continue to rise and bidding wars continue to pop up.
According to the Toronto Real Estate Board, home sales in Toronto fell more than 17 per cent in March, compared to the same month a year earlier.
The market for detached homes did as poorly as the obviously oversupplied condo market. Condo sales fell 18.4 per cent, but detached homes fell almost as much -- 17.8 per cent.
Meanwhile, prices in the Toronto area rose 4 per cent, year over year. And news continues to come in that bidding wars for detached homes in Toronto are still happening.
So how can the market be softening so much while people are literally in a panic to buy whatever houses appear on the market?
Part of the answer is homeowners who have taken their houses off the market, for fear of an imminent house price decline. The fall in the number of active listings would suggest this is happening.
But something else is happening too, and that something appears to be artificially-created bidding wars in the form of real estate agents “holding offers” -- the practice of requesting that all potential buyers submit a bid for a house in writing, all at the same time.
In a Huffington Post column published Tuesday, blogger Jenna Em explained how the practice causes buyers to panic, driving up the price of the property being sold.
“So envision this: oodles of agents and their clients -- and cars -- descending on the same street at the very same time, fighting over the very same house! Sheer insanity!” Em writes.
This sort of artificially induced bidding war is made worse by the practice of agents listing houses at below market prices, in order to create an air of hysteria around the property, Em wrote.
“Without fail, this strategy creates a multi-offer frenzy and the home in question usually sells for well over fair market value. Some properties can sell for hundreds of thousands above asking,” Em writes.
The Toronto Real Estate Board, however, argues the market is healthy.
Of course, this market is only “affordable” with interest rates at rock bottom. And as Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney keep reminding us, those rates can’t stay this low forever.
When they finally come up, there will be pain in the housing market for sure. But maybe we’ll finally return to a sane market, one where bidding wars and price hikes don’t materialize even as sales plummet.
Also on HuffPost