Canadian home prices fell six per cent to $746,000 in April, as higher interest rates poured cold water on a red-hot real estate market.
Home sales fell 12 per cent nationally in April, with the biggest drops seen in big cities like Toronto, the Canadian Real Estate Association said Monday.
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Prices peaked at a record high of more than $816,000 in February this year and average home prices have now declined for two months in a row. In March, the average price stood at $796,000, before falling another six per cent in April, which is typically a strong month for the housing market.
“Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue,” CREA chair Jill Oudil said in a statement.
CREA says the average selling price can be misleading because it is 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 gauge of the market because it adjusts for the volume and type of homes sold.
The HPI shrank by 0.6 per cent in April, the first monthly decline in two years.
While prices are down from their recent peak, they remain up by about seven per cent from where they were a year ago.
Still, the numbers paint a picture of a housing market cooling from its feverish activity just a few months ago.
“The exorbitant run-up for more expensive units (like detached homes) during the pandemic may give way to a steeper decline,” TD Bank economist Rishi Sondhi said in a note to clients.
“Moving forward, we expect prices to continue falling, reflecting the cooler demand backdrop.”
A problem for sellers — and some buyers, too
Lower prices may be welcome news for buyers trying to get into the market, but they’re anxiety-inducing for those trying to sell — especially if they’ve already bought somewhere else themselves.
For some recent buyers, a market that’s cooled after they’ve bought can cause major headaches. Some who bought at the highs assuming their lenders would loan them a certain amount are discovering in the appraisals process that the bank is valuing that property by less than anticipated, which forces the buyers to have to come up with more than they were expecting up front .
Leah Zlatkin, a mortgage broker with Lowestrates.ca, gives the example of a buyer who offered $1.2 million on a home and assumed their lender would finance 80 per cent of the cost. On appraisal, however, the lender valued the property at $1.1 million, which forces the buyer to come up with tens of thousands of dollars more than they anticipated.
“When home purchasers have really stretched their budget and bid over asking price, we are starting to see those appraisals come in a little bit lower in some cases,” Zlatkin told CBC News.
Keith Lancaster, CEO of the Appraisal Institute of Canada, says it’s not uncommon in frothy markets for buyers to get carried away and offer far more than an appraiser values the property at — and the same is true of down markets.
“The selling price doesn’t drive the mortgage, the appraised value drives the mortgage, and that’s the value that the lenders base their decision on,” he said.
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A slowing market is also anxiety-inducing for those who jumped in at the peak and have buyer’s remorse now. That’s something recent buyers Joshua Keyes and Yuri Nakashima are sadly familiar with, after buying their first home in Sudbury, Ont.
Since they were living in Vancouver, they worked with a Sudbury-based realtor who the couple says didn’t encourage enough due diligence, causing them to offer far over asking price for a property that has since proven to have numerous problems with water and other damages, a cockroach infestation and other structural issues.
They say they didn’t view the home virtually or in person before submitting their unconditional offer, with no home inspection. They now face a six-figure bill to repair their currently uninhabitable dream home, they said.
“We’re hoping that our story serves as a cautionary tale for other first-time home buyers,” Keyes told CBC in an interview. “Make sure you do your due diligence or else people will take advantage of your ignorance.”
“We want to make sure that this doesn’t happen to other people.”