Home sales in Canada have slowed markedly in recent months, following the introduction of new mortgage rules, but prices aren't actually falling — not yet, anyway, says a new report from Desjardins.
According to the Canadian Real Estate Association (CREA), the average price of an existing home sold in Canada fell by 10.4 per cent in March, compared to the same month a year earlier, and if house prices were actually falling at this pace that would raise "some concerns," says Desjardins senior economist Benoit P. Durocher.
"This drop in property value could have a major impact on the housing market and the Canadian economy in general," he wrote in a report Friday.
But that's not what's actually happening, at least so far. What's happening is that the average price is being skewed by the slowdown in sales in Toronto and Vancouver. Those cities have some of the highest house prices in the country, so when they record fewer sales, the overall average skews down.
At the same time, homebuyers in those expensive cities have downgraded their expectations and "are increasingly turning to less expensive homes," Durocher notes, which may help explain how new condos in Toronto have seen a 40-per-cent price spike over the past year, even as sales have fallen by two-thirds.
To get an idea of what's happening with the prices of actual homes, Durocher says look at CREA's home price index, which tracks the change in price of comparable homes over time.
That index "has not really recorded any declines in the last few months. In fact, a slight increase was noted recently," Durocher wrote.
"In reality, prices continue to climb in several regions, especially in Vancouver and Montreal, while home prices in Toronto have been stabilizing somewhat since mid-2017."
That's good news for homeowners fearing they could be seeing a decline in their home equity. But Durocher isn't willing to declare that Canada's housing market is out of the woods just yet.
"The risk that the housing market could deteriorate further in the months ahead remains high, which could potentially lead to a genuine drop in property prices," he cautioned.
"The situation will have to be monitored closely in the coming quarters, arguing in favour of a very gradual approach to key rate increases."
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