Home prices in Canada fell 6% to $746,000 in April as rising interest rates poured cold water on a booming real estate market.
Home sales fell 12% nationally in April, with the biggest declines in major cities like Toronto, the Canadian Real Estate Association said Monday.
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Prices peaked at an all-time high of over $816,000 in February of this year and average home prices have now fallen for two straight months. In March, the average price stood at $796,000, before falling another 6% in April, which is generally a strong month for the housing market.
“After two record years, housing markets in many parts of Canada have cooled quite sharply over the past two months, driven by rising interest rates and buyer fatigue,” said ICA President Jill Oudil said in a statement.
CREA says the average sale price can be misleading, as it’s easily skewed by expensive and numerous sales in big cities like Toronto and Vancouver. It highlights a different number called the house price index as a better indicator of the market because it adjusts for the volume and type of houses sold.
The HPI fell 0.6% in April, the first monthly decline in two years.
Although prices are down from their recent peak, they are still up about 7% from where they were a year ago.
Still, the numbers paint a picture of a housing market cooling after its feverish activity just a few months ago.
“The exorbitant rise in more expensive units (like single-family homes) during the pandemic could give way to a steeper decline,” TD Bank economist Rishi Sondhi said in a note to clients.
“Looking ahead, we expect prices to continue to decline, reflecting the weaker demand backdrop.”
A problem for sellers – and some buyers too
Lower prices can be good news for buyers trying to enter the market, but they are anxiety-provoking for those trying to sell, especially if they have already bought elsewhere themselves.
For some recent buyers, a cooling market after buying can be a big headache. Some who bought at highs assuming their lenders would lend them a certain amount discover in the appraisal process that the bank is valuing that property less than expected, forcing buyers to find more than they expected in advance .
Leah Zlatkin, mortgage broker at Lowestrates.ca, gives the example of a buyer who makes an offer assuming their lender will finance 80% of the cost. But when the property is appraised, it is valued at a number well below the bid price, leaving the buyer scrambling to find a much larger down payment than expected.
“When homebuyers have really stretched their budget and bid on the asking price, we start to see those valuations drop a bit in some cases,” Zlatkin told CBC News.
Keith Lancastle, CEO of the Appraisal Institute of Canada, says it’s not uncommon in choppy markets for buyers to get carried away and offer far more than an appraiser appraises the property – and so it goes. even for bear markets.
“The sale price doesn’t determine the mortgage, the appraised value determines the mortgage, and that’s the value that lenders base their decision on,” he said.
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A slowing market is also anxiety-provoking for those who jumped to the top and now have buyer’s remorse. It’s something recent buyers Joshua Keyes and Yuri Nakashima unfortunately know well after buying their first home in Sudbury, Ontario.
Since living in Vancouver, they’ve worked with a Sudbury-based realtor who the couple say didn’t encourage enough due diligence, leading them to offer a price well above the asking price for a house. property which has since been found to have numerous water issues and other damage, cockroach infestation and other structural issues.
They say they did not visit the house virtually or in person before submitting their unconditional offer, without a home inspection. They now face a six-figure bill to repair their currently uninhabitable dream home, they said.
“We hope our story serves as a cautionary tale for fellow first-time homebuyers,” Keyes told CBC in an interview. “Make sure you do your due diligence or people will take advantage of your ignorance.”
“We want to make sure this doesn’t happen to other people.”