TORONTO - Home sales in two of Canada's hottest housing markets, Toronto and Vancouver, are showing signs of a cooling trend in what could be the beginning of a long-awaited contraction that economists have been expecting.
The Greater Toronto Realtors Association said Thursday that the number of pre-owned homes sold by its members last month was down 13 per cent in the city proper and off 5.4 per cent in the broader GTA region compared with the same time last year.
Those numbers came on the heels of a report Wednesday that showed Vancouver home sales hit their lowest level in more than a decade in June, falling 17.2 per cent from May.
CIBC deputy chief economist Benjamin Tal says Vancouver shows where Toronto is headed. He suggested that lower sales volumes in those cities will be followed by lower selling prices, sometime in the future.
"The magnitude in Vancouver will be more significant but it is the same forces that really impact the Toronto market: namely we see some softness in investment activity, especially in the condominum market and we see less foreign money entering the city," Tal said.
"We know that prices tend to follow sales by about three to five months, so those declines in sales they reflect much more than techcnicalities. They reflect a real softening in the market — credit market and housing market fatigue — and I think it is exactly what we need before interest rates start rising."
Tal said the effectivness of low interest rates is dimishing "because we've been in this environment for a long period of time."
The lower sales volume, particularly in the condominium segment, is being reported in advance of tightening mortgage and other housing rules coming into effect on Monday.
"So, to me, this is just the beginning of a trend," Tal said. "In fact it will get worse before it gets better."
Overall, there were 9,422 sales in the GTA in June at an average price of $508,622, compared with 9,959 at an average price of $474,223 in June 2011.
The average selling price in Toronto proper last month — the so-called 416 area — was $554,077, up eight per cent from $511,591 in June 2011.
Meanwhile, the average price in the 905 area around Toronto was $481,512, up about seven per cent from $448,579 in the same month last year.
On Wednesday, the Real Estate Board of Greater Vancouver reported 2,362 sales in June, a decline from 2,853 in May and also off 27.6 per cent from a year earlier when there were 3,262 sales.
In fact, June sales were the lowest total for the month in the region since 2000, the board said.
But despite the lower sales numbers, the housing price index for residential properties in Vancouver was still up 1.7 per cent from a year ago, with the price for detached properties was up 3.3 per cent from a year ago at $961,600.
Several studies have said Toronto real estate is overvalued but there's been mixed opinion about whether prices will come down quickly or gradually.
Some of the strongest concern has been focused on the hot condo market
Finance Minister Jim Flaherty moved last month to cool the markets in both Toronto and Vancouver by tightening the rules for borrowers.
The changes don't go into effect until July 9. However, the figures released Thursday show condo apartment sales in the Greater Toronto Area were down a hefty 18 per cent year over year in June at 1,996.
Flaherty's move last month, the fourth time he has tightened the rules in as many years, included cutting the maximum amortization period for government-insured mortgages to 25 years from 30.
That change alone will mean that monthly payments on a 25-year, $350,000 mortgage at three per cent interest will be $184 higher than they would have been on the same mortgage amortized over 30 years.
As well, financial regulators have since told lenders they can only issue home equity loans up to a maximum of 65 per cent of the property's value, down from the previous 80 per cent.
Meanwhile, the government will no longer be in the business of insuring homes that are worth more than $1 million — meaning that buyers will need to put up at least a 20 per cent down payment or seek private insurance.
As well, Ottawa will now insist that prospective buyers have the means to afford mortgage payments, property taxes and heating costs on their home. It will do so by setting cost ratios based on household income — a kind of affordability ratio — of 39 per cent for gross debt service and 44 per cent for total debt service.
"It's a question of trying to moderate behaviour and I hope Canadians will reflect before they jump into a market at the high end,'' Flaherty said at the time.
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