Resale Market Remains Soft Following Tax Rebate on New-Build Homes

It’s unclear to what extent, if any, a new tax incentive for new home buyers had on the resale market this spring, but there was an uncharacteristic pullback in bidding competition this May.

By Josh Sherman | 4 minute read

At the end of each month, digital real estate platform Wahi compares the differences between median list and sold prices to determine whether neighbourhoods are in overbidding or underbidding territory.

Bidding competition over resale homes in the Greater Toronto Area sputtered during what would normally be the peak of the spring market following the recent unveiling of a major tax incentive for buyers of new and pre-construction homes.

So suggests new analysis from digital real estate platform Wahi that compares list and sold prices for resale homes across the GTA in May. 

Some 7% of the 303 GTA neighbourhoods in which atleast five resale homes changed hands were in overbidding territory last month, down from 13% of the 289 neighbourhoods that met the sales minimum in April. A remaining 92% of neighbourhoods across the region were in underbidding territory last month, while 1% were selling at-asking.

“It could be that some buyers who were previously considering a resale home are setting their sights on pre-construction properties thanks to Ontario’s recently announced HST rebate on new homes,” says Wahi Economist Ryan McLaughlin.

Towards the end of March, the Ontario government announced it was broadly waiving HST on new homes priced under $1 million, saving potential buyers up to $130,000. “That should certainly be enough to encourage some buyers to purchase a new home, though it’s difficult to gauge to what extent the incentive is affecting the resale market,” adds McLaughlin.

While the Wahi analysis includes sales data for all property types, it does not count new or pre-construction home sales. However, a separate report from the Building Industry and Land Development Association (BILD) points to a recent surge in sales of some new homes.

Much of the demand for these new homes following the rebate announcement appears to be concentrated in the single-family home category. New single-family home sales in the GTA outpaced the 10-year average by 22% in April, whereas new condo sales were 88% under the long-term norm for the month, according to BILD.

This is also the market segment that saw the sharpest pullback in resale bidding competition this May.

Some 12% of the 257 GTA neighbourhoods with at least five single-family home sales were in overbidding territory this May, down from 21% in April. Meanwhile, 1% of the 115 neighbourhoods in which five or more condos changed hands were overbid, compared to 3% in April.

Single-family homes in Wahi’s analysis include detached- and semi-detached homes as well as row houses and townhomes without maintenance fees. Condos include units in mid- and high-rise buildings as well as townhome communities with monthly fees.

When looking at all May resale transactions regardless of housing type or neighbourhood, bidding competition also wilted slightly. Approximately 73% of all homes that sold on the resale market in the GTA last month did so for less than the asking price, versus 74% in April. 

“For the third straight year, the traditionally busier spring market seems to have evaded the GTA,” says McLaughlin. “On the plus side, this favours homebuyers, who are far less likely to encounter bidding wars than they would be in a normal spring market.”

Toronto’s East End Overbidding Persists

When it came to the top overbidding neighbourhoods this spring, two trends were playing out.

For one, neighbourhoods in Toronto’s east end have seen some of the strongest overbidding. Also, the majority of the top five overbidding neighbourhoods in recent months have been found within the City of Toronto.

These trends held true in May. Three of the top five overbidding neighbourhoods were from Toronto (Riverdale, the Beaches, and the Danforth) and all were located within the 416. 

Note that a variety of factors can influence bidding trends, from seasonality to selling strategies. For instance, in some cases, REALTORS® may be more likely to price a home below market value in hopes of attracting multiple offers.

The similarities between the top overbidding neighbourhoods extend beyond geography. All were considerably lower priced than the top underbidding neighbourhoods, where median sale prices ranged from $2.1 million to upwards of $3 million. 

For the second consecutive month, Lawrence Park and Eastlake occupied the top two slots for the most underbid neighbourhoods in the GTA. 

Methodology: How Wahi Ranks Overbidding and Underbidding Neighbourhoods

At the end of each month, Wahi compares the differences between median list and sold prices to determine whether neighbourhoods are in overbidding or underbidding territory, excluding those neighbourhoods with fewer than five transactions in a given month. A total of 303 neighbourhoods out of the GTA’s approximately 400 met this threshold in May, up from 289 in April. Data is sourced from Information Technology Systems Ontario (ITSO) and the Toronto Regional Real Estate Board (TRREB).

The top overbidding and underbidding neighbourhoods are ranked by the median overbid or underbid amount. The median overbid and underbid amounts are calculated by subtracting the list price from the sold price of each individual listing in a given neighbourhood. These are then ranked by the median of all subtractions and presented as the median overbid or underbid amount. For the latest data on overbidding and underbidding at any point in the month, Wahi’s Market Pulse tool provides readings based on the past 30 days of transactions.