The average home price reached a record high last month and, with room yet to move, has renewed worries that a major correction looms.
For months, the predicted pullback in real estate has failed to materialize. But the market’s peak might finally be in sight, turning attention to the depth of the downside ahead.
In the back half of this year, we’ll see the real estate market cool quite materially,’ said Derek Holt, vice-president of economics at Scotia Capital.
On a seasonally adjusted basis, the average price of a Canadian house rose to $357,000 last month, an increase of 3.9% over the previous month, according to figures released by the Canadian Real Estate Association. On the same basis, sales activity rose 4.5%.
The urgency with which homebuyers are closing deals can be explained, at least in part, by impending market changes.
In response to rising yields in the bond market, lenders are beginning to raise the cost of borrowing.
Additionally, stiffer rules for mortgage lending are set to come into effect next month, lowering the maximum amortization from 35 years to 30 and requiring borrowers to meet a more stringent test by qualifying for a fixed-rate plan.
I expect that to be a pretty sizeable force,’ Mr. Holt said.
Already, consumers are looking to lock into mortgage agreements under the looser conditions, said Vince Gaetano, a principal broker with Monster Mortgage.
Those with a pre-approval who fail to act in time might have to accept a higher rate or settle for a smaller home, Mr. Gaetano said. He expects invigorated buying activity right up until the day the rules change.
That last week is going to be an interesting one,’ he said.
Until the market absorbs the changes, CREA has asked the federal government to hold off on any more mortgage revisions.
It will take some time before the longer term impact of the latest mortgage regulations on the housing market can be known,’ CREA president Georges Pahud said in a release.