The latest homebuying numbers are out and indicate what's been an ongoing theme a third of the way through 2018: The red hot housing market finally seems to be cooling down, much to the delight of people looking to buy at a price they can afford.
In April, home sales dropped on a monthly and a yearly basis, according to the Canadian Real Estate Association. Purchase activity was down 2.9 percent compared to March and by double-digits from 12 month earlier, falling an unadjusted 13.9 percent. The total number of properties bought in April represented the lowest amount in over five years.
Barb Sukkau, president of the CREA, attributed the sales slump to mortgage stress testing, which started Jan. 1.
"The stress-test that came into effect this year for homebuyers with more than a 20 percent down payment continued to cast its shadow over sales activity in April," Sukkau explained. "Its impact on housing markets varies by region."
Home prices in Ontario ease in wake of mortgage changes
Perhaps the biggest benefactors of stress testing have been hopeful homeowners in the Greater Golden Horseshoe, a highly desirable part of Ontario that's proven difficult for budget-minded buyers to enter due to exorbitant cost increases. Besides Guelph, where home values rose nearly 6 percent, prices were down 5.2 percent on a year-over-year basis in the GTA and dropped 8.7 percent in the Oakville-Milton region, the CREA reported.
Tamping down price hikes was part of the reason why the government decided to expand mortgage stress testing, which previously wasn't required of buyers whose down payments were greater than 20 percent of their homes' values. For the most part, the policy seeks to provide assurances that those buying have the means to maintain their monthly payments should interest rates rise further.
The CREA was never a proponent of home loan stress testing and remains adamantly opposed. CREA Chief Economist Gregory Klump noted the best evidence of the policy's adverse effects were on display in the prairie provinces and Atlantic Canada.
"This year's new stress test has lowered sales activity and destabilized market balance for housing markets in Alberta, Saskatchewan and Newfoundland and Labrador Provinces," Klump warned. "This is exactly the type of collateral damage that CREA warned the government about.
He added that given the trying economic circumstances these provinces have experienced as of late, it's difficult to rationalize why the government determined the stress test was the best course of action.
Home values in Toronto and Vancouver down considerably while supply grows
Prospective buyers in Toronto and Vancouver might beg to differ on the government's policy, as prices in these two cities have fallen considerably since stress testing went live. As noted by the CREA, purchase activity has decreased 33 percent in Toronto through the first three months of 2018 versus the same period last year and 27 percent in British Columbia's capital city at the conclusion of the first quarter. Other price cooling mechanisms preceded stress testing, such as Ontario levying surtaxes on foreign buyers and investors.
Additionally, what was once a market that overwhelmingly favored sellers is now starting to tip the scales more toward buyers, albeit slightly. At 53.7 percent, the CREA's sales-to-new listings ratio remains within balanced territory, up slightly from 52.6 in March and the supply situation improved to 5.6 months. That's the largest amount of inventory in approximately two-and-a-half years and ahead of the long-term average of 5.2 months.
Helping along the way are builders, hard at work to make more options available to interested buyers. The six-month moving average of housing starts in Canada totaled 225,696 in April, according to the Canada Mortgage and Housing Corporation. The trend measure dipped slightly from March's 226,942 units that broke ground.
The combination of more stringent borrowing stipulations and increased inventory have helped reduce typical. The average house in Canada in April sold for $495,000, the CREA reported. That figure was 11.3 percent below what was the norm this time last year.