Home prices in Vancouver and Toronto are set to fall in the coming year, with steeper drops expected on the West Coast.
Vancouver home prices are expected to correct by 10 per cent over the next 12 months, said a National Bank report released Friday.
A real estate for sale sign is pictured in front of a home in Vancouver on Sept. 22, 2016. (Photo: Ben Nelms/Reuters)
Vancouver's decline would represent a "moderate correction" after prices rose by 24 per cent over the past year, senior economist Marc Pinsonneault said.
It expects declines of 20 per cent for detached homes, nine per cent for attached homes and five per cent for condos.
Those drops would follow a series of government actions to stem price hikes and increase affordability in Canadian housing.
In February, the federal government raised the minimum down payment on the portion of a home's price above $500,000 from five to 10 per cent.
The B.C. government also implemented a 15 per cent property transfer tax on foreign buyers in August.
The so-called foreign buyers' tax alone was expected to calm housing activity; but Vancouver sales had already been falling for months, representing some of the sharpest declines the market had seen in years.
These actions haven't done much to yank down Vancouver home prices so far.
Area home prices grew an average of 2.5 per cent through August, despite the drop in sales, according to the Teranet-National Bank House Price Index.
But the bank thinks a price correction is coming after the federal government announced new rules requiring that borrowers of insured mortgages be qualified at the Bank of Canada's posted rate, as well as the rates they negotiate with their lenders.
"The impact on sales of the new federal government measures should not be overestimated," Pinsonneault said.
"It could drive some potential homebuyers from the market, but other buyers could still be in a position to acquire a home in this urban area, albeit less expensive."
Toronto homes for sale on Sept. 8. (Photo: Andrew Francis Wallace/Getty Images)
Toronto, however, is a different story — overall prices are only expected to fall by three per cent next year.
The housing market in the city remains hot, with prices rising by a monthly average of 2.9 per cent for the past four months.
The problem there is supply: listings have declined by 37 per cent over the past year, while home sales have increased by 21.5 per cent.
Toronto's housing market is now the tightest it's been in at least 18 years among condos and other forms of housing. So it's not surprising that prices for condos grew by 9.6 per cent and other housing types by 19 per cent last month.
The two markets have heavy indebtedness in common, however.
Toronto had Canada's highest percentage of new insured mortgages with loan-to-income ratios over 450 per cent last year, and Vancouver wasn't close behind.
The federal government's new mortgage rules are thus expected to weigh on both of these markets.