Canadian home prices fell six per cent to $746,000 in April, as rising interest rates poured cold water into a fiery property market.
Home sales fell 12 percent nationally in April, the Canadian Real Estate Association said on Monday, with the biggest drops recorded in major cities such as Toronto.
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Prices peaked at a record high of more than $816,000 in February of this year and median home prices have now fallen for two months in a row. In March, the price averaged $796,000, before declining another 6 percent in April, usually a strong month for the housing market.
“After two years of record-breaking, housing markets in many parts of Canada have experienced a sharp lull over the past two months, in line with a jump in interest rates and buyer fatigue,” CREA President Jill Oudil said in a statement.
CREA says the average selling price can be misleading because it is easily influenced by exorbitant, multiple sales in major cities like Toronto and Vancouver. It highlights a different number called the Home Price Index as a better measure of the market because it adjusts to the size and type of homes sold.
The HPI contracted 0.6 percent in April, the first monthly decline in two years.
And while prices are down from their recent peak, they are still about seven percent higher than they were a year ago.
However, the numbers paint a picture of the housing market cooling off from its hectic activity just a few months ago.
“The exorbitant rise of more expensive units (such as detached homes) during the pandemic could give way to a sharp decline,” TD Bank economist Rishi Sundi said in a note to clients.
“Going forward, we expect prices to continue lower, reflecting a cooler demand backdrop.”
A problem for sellers – and some buyers too
The lower prices may be welcome news for buyers trying to enter the market, but they are worrisome for those trying to sell – especially if they have already bought elsewhere themselves.
For some new buyers, the market cooling after purchase can cause a major headache. Some who have bought at heights assuming that lenders will lend them a certain amount discover in the appraisal process that the bank is undervaluing that property, forcing buyers to offer more than they expected up front.
Leah Zlatkin, a mortgage broker with Lowestrates.ca, provides the example of a buyer who offered $1.2 million on a home and assumed the lender would finance 80 percent of the cost. However, upon appraisal, the lender appraised the property at $1.1 million, forcing the buyer to provide tens of thousands of dollars more than he expected.
“When homebuyers exhausted their budget and bid on the asking price, we started to see those valuations coming in a little lower in some cases,” Zlatkin told CBC News.
It’s not uncommon in frothy markets for buyers to drift away and offer much more than an appraiser would value a property in — and the same is true for bear markets, says Keith Lancastle, CEO of the Canadian Valuation Institute.
“The sale price is not paying the mortgage, the appraised value is the motive for the mortgage, and that’s the value that lenders base their decision on,” he said.
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The market slowdown is also causing concern for those who jumped on the peak and now have buyer’s remorse. This is something new buyers Joshua Keys and Yuri Nakashima are familiar with, after purchasing their first home in Sudbury, Ont.
Since they were living in Vancouver, they worked with a Sudbury-based realtor who the couple say did not encourage adequate due diligence, causing them to bid a much higher price than asking for a property that has since proven to suffer from numerous water and other issues. Damage, cockroach infestation and other structural issues.
They say they did not view the house in virtual or in person before making their unconditional offer, without inspecting the house. They said they now face a six-figure bill to repair their currently uninhabitable dream home.
“We hope our story will serve as a cautionary tale for other first-time home buyers,” Keys 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 others.”