The buyers are back. Toronto real estate market heating up after three consecutive rate cuts. But are first-timers still out in the cold?

It was a surprising start to September for realtor Cailey Heaps, when multiple offers came flooding in on a west-end Toronto single-family home listed just above $2 million.
“It’s been a while since I’ve seen multiple bids,” said the CEO of the Heaps Estrin Team. “We just had 50 people come to an open house, and the number of calls the team has received this last week has been phenomenal.” 
Since the Bank of Canada’s three consecutive interest-rate cuts in June, July and September — which brought the key overnight rate to 4.25 per cent from five per cent — Toronto realtors have noticed an increase in phone calls and showings from buyers who have been on the sidelines waiting for rates to drop.
Excitement is brewing amongst some, but first-time homebuyers still need to see a significant drop in interest rates before jumping into the market, while sellers are struggling to navigate a buyers’ market, when buyers have greater negotiating power. When the sales-to-new-listings ratio is below 40 per cent, it’s a buyers’ market, which the GTA has been in since May.
“We won’t have a crazy fall,” said Jarrod Armstrong, a sales representative at Armstrong Team. “But we’re seeing optimism bubble to the surface, for sure.” 
The Bank of Canada’s rapid rate-hike campaign, which began in March 2022, dampened activity in the real estate market. Even after interest-rate cuts this past June and July, it wasn’t enough to stir any momentum in the market. But the third rate cut on Sept. 4 allowed some buyers to begin their home search and even put down offers.
“I’m seeing an uptick in interest from homebuyers for houses and condos,” said Sean Mayers, a realtor with Toronto-based Century 21 Regal Realty brokerage. “It was a quiet summer and now it’s not. Most of that can be attributed to the success of interest-rate drops and also summer is generally a slower period.” 
In anticipation of the third rate cut from the Bank of Canada, Mayers said he was fielding numerous calls and emails from prospective clients on whether now is a good time to buy.
“There’s some talk that the next interest-rate drop might be a 0.5-percentage-point, and that will definitely spur homebuyers into the market,” he said.
Buyers want to stay ahead of home-price increases, which will likely happen as more buyers pile into the market, heating up demand. Once this happens, it will trigger a wave of buyers entering the market, Armstrong said. 
“Traditionally in Toronto, the flood of buyers comes in quick,” he said. “Once people read in the press they’ve missed that window of opportunity everyone will come at once. We saw a similar story after the 2008-09 financial crisis.”
However, affordability is stretched for first-time buyers. 
Interest rates are still too high for first-time homebuyers who must qualify with the stress test — which adds another two per cent to the mortgage rate, meaning people must qualify in the six per cent range for fixed-rate mortgages and seven per cent range for variable-rate mortgages. For the average Toronto home price of $1.07 million, households must earn around $200,000 and pay anywhere from $4,800 for a five-year fixed-rate to $5,200 for a five-year variable-rate on monthly mortgage payments. 
Affordability will improve as interest rates come down, but won’t return to pre-pandemic levels over the next two years, according to a report from Desjardins. Interest rates on mortgages will drop, but home prices will likely increase, making it difficult for first-time buyers to figure out the right time to purchase, the report added. 
Listings for properties that sat on the market for 60 to 90 days in the spring and summer have been terminated and re-listed in the fall real estate market (which begins after Labour Day weekend) with new pricing, Mayers said. 
It’s a challenging market for sellers who are used to bidding wars and intense competition in Toronto’s market, but are now facing a different climate. There’s a wealth of choice for buyers — active listings were up 46 per cent year-over-year in August, meaning buyers can take their time when making their purchase, looking for the best price. 
“We’re seeing buyers come back with different kinds of conditions with their offers,” Mayers said. “A typical condition you see is a home inspection. But recently we’ve seen people ask for a vendor take-back mortgage or ask for their lawyers to review all the documents — you would have never seen this pre-pandemic.” 
A vendor take-back mortgage is when the seller of the home lends money to the buyer — essentially acting as a bank by allowing the homebuyer to borrow money in order to purchase the seller’s home. The loan is typically offered for one or two years and can cover part or all of the purchase.
Homes that have been re-listed and priced right for the current market have garnered interest from buyers, said Armstrong, adding that “our listings in the last 30 days sold when the property was priced appropriately, which people weren’t doing in the summer.” 
In the condo market, sellers are also using certain tactics to try to sell their units. In the past several months the condo market has become a “ghost town” as over-leveraged investors off-load their units but few end-users (non-investors) are interested in purchasing microunits, resulting in a deluge of listings and historically low sales.
“We’re seeing sellers purposefully list their unit far below market value to garner bidding wars,” said Grace Chan, a real estate agent with Forest Hill Real Estate. Recently, a condo was listed for $599,000 when it was valued around $800,000. 
“It got 14 offers and sold for $801,000, so the tactic worked,” she said. “But it can be a mistake if people don’t get many offers — it’s a risk.” 
John Lusink, president of Right at Home Realty, is starting to see renewed interest among buyers when it comes to virtual and in-person showings, but said the wrong supply has hit the market. In Toronto, small condo units have driven most of the supply for the past decade, but many purchasers want to buy townhomes, semi-detached or detached houses.
“There’s a lack of alignment between what is being built and what people want,” he said. “Right now the product we have is not what buyers want.” At the end of the day, it impacts sales activity and results in condos sitting empty. 
On top of this, troubling signs in real estate persist. An uptick of new listings entering the market are due to power of sale, when a homeowner fails to repay their mortgage and has to sell their home, Lusink said. There’s also a rise in mortgage delinquencies — when homeowners can’t afford to pay the mortgage — a trend that economists say is likely to keep increasing as more mortgages come up for renewal.
Canadians are also factoring in broader economic concerns after unemployment reached 6.6 per cent in August, the highest since May 2017, stoking fears of a recession. When the economy is troubled people tend to hold out on significant purchases, such as buying a home, experts say. 
“These factors put a damper on things and create uncertainty,” Lusink said. 
However, as interest rates continue to drop as expected, the pile of inventory will lessen as more buyers enter the market creating tight supply-and-demand conditions again, Heaps said. 
“This upcoming fourth quarter we’ll see a notable increase in sales volume and slight increase in pricing but nothing too dramatic. We’ll continue with that positive movement into 2025,” she said.
“For now, more buyers will enter the market, especially over the next few weeks. Already, I can hardly keep up I’m so busy.”