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A sign advertises a house for sale on a residential street in midtown Toronto, July 12, 2017.

Chris Helgren/Reuters

May was supposed to be the month that the Greater Toronto Area’s real estate market returned to its usual spring ebullience.

Instead, the numbers for May showed deflated sales and prices compared with May of 2017, which was the month that the market went into deep shock after the Government of Ontario introduced a 15-per-cent foreign-buyers tax and other cooling measures.

According to the Toronto Real Estate Board, 7,834 properties changed hands in May. That’s 22 per cent below the 10,066 sales in the same month last year. And that figure is 20.3 per cent below the 12,790 transactions in May of 2016.

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Cam Forbes, general manager of ReMax Realtron Realty Inc., has one theory on why the market is taking longer to recover than he and others anticipated: “Interest rates rose more than I thought.”

Many lenders raised the interest rate for their fixed-term, five-year mortgages earlier this year.

Other factors that may have dampened sales include a cooler-than-normal spring and a scarcity of listings in some popular neighbourhoods.

According to TREB, 19,022 new listings arrived on the Multiple Listing Service in May. That’s a 26.2-per-cent drop from the 25,764 new listings that flooded onto the MLS in May of 2017. This year’s tally is slightly ahead of the 17,356 new listings that arrived on the market in May of 2016.

Active listings stood at 20,919 in May for the GTA . That’s a 13.2-per-cent jump from the 18,477 active listings in May of 2017. In May of 2016, active listings were 12,931.

The average price in May came in at $805,320, which marks a 6.6-per-cent decline from the average price of $862,149 in the same month last year. May’s average price marks a seven per cent gain from the average price of $752,100 in May of 2016.

The average selling price edged up a seasonally-adjusted 1.1 per cent from April.

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“Market conditions are becoming tighter in the Greater Toronto Area and this will provide support for home prices as we move through the second half of 2018 and into 2019. There are emerging indicators pointing toward increased competition between buyers, which generally leads to stronger price growth,” says Jason Mercer, TREB’s director of market analysis.

TREB is bravely pointing out that the dive in sales in May was less harrowing than in previous months. In March, for example, sales plunged 39.5 per cent compared with March of 2017.

Mr. Forbes also thinks that seeing less disturbing year-over-year comparisons for sales and prices will help to buoy consumer optimism. In the first quarter of 2018, harsh comparisons with the run-up in the early months of 2017 undermined the confidence of many potential buyers and sellers, he says.

Eileen Farrow, a real estate agent with Chestnut Park Real Estate Ltd., says the market remains extremely busy in central Toronto neighbourhoods, with bully offers for houses in areas such as Rosedale, Summerhill and the Annex.

“The super high-end is a little quiet,” she says.

Ms. Farrow says she is seeing fewer overseas buyers circulating. For some luxury properties, showings are down.

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“If there are no showings, it’s demoralizing for sellers.”

Inventory is down because homeowners are reluctant to list one place for sale if they are worried about finding another to buy.

She’s getting calls from owners to have their homes evaluated, she says, but many are holding off on actually listing.

“If they don’t have to sell, they wonder if a safer market would be in the fall.”

Ms. Farrow believes that may be a risky strategy because there could be fewer listings in the fall.

“It’s very unpredictable,” she says of the overall market.

Mr. Forbes points out that the manufacturing sector and the overall economy in the GTA and Ontario are strong.

Looking ahead to the potential for a rate hike by the Bank of Canada in July or later in the year, Mr. Forbes believes that house hunters have taken that possibility into account.

“That’s all priced in.”

Mr. Forbes predicts that June will be a flattish month compared with sales in June of last year, while prices will remain down slightly.

He anticipates that sales will turn positive in July compared with a moribund July of 2017. Prices will likely be flat in July and August, he adds.

Mr. Forbes is also anticipating that the strong run-up in prices in the condo market – with gains of 15 per cent to 20 per cent, compared with a year earlier – will prompt more condo owners to trade their units in the central 416 area code for a larger property in the surrounding 905 area code.

“That’s where the opportunity lies. If you’re looking to sell in the core and buy in the core, that’s not easy to do.”

He says some condo owners are selling a typical $1-million two-bedroom unit in the city in order to purchase a three- or four-bedroom townhouse in a desirable part of Richmond Hill or Markham, for example, where prices have dropped 20 per cent from their peak. “You can buy so much more space now. People will be motivated to do that over the year.”

As a result, townhouses around the $800,000 mark are hot, he says, while properties above $1.5-million are still sitting for a longer time.

Mr. Forbes also sees retirees who are selling their larger houses in the suburbs and buying a condo in the preconstruction phase closer to downtown. As long as detached house prices were climbing at 20 per cent a year and higher, those homeowners tended to hang onto their houses. But now they’re willing to let them go and downsize into a condo. If they can’t find a unit that suits them, many people will buy a three-bedroom unit from plans and stay in the house until it’s ready, he adds.

“They cost $2-million, but if you’re selling a house for $3.5-million you can do it.”

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