Canadian Housing Prices: Falling or Not?

The claim that the Canadian housing prices are falling is just a statistical illusion created by a slowdown in sales and a move towards more affordable housing, HuffPost says. A new report from Desjardins says that home sales in Canada have slowed markedly in the recent months due to the introduction of new mortgage rules. However, the report claims prices aren’t actually falling.

The Drop in Housing Price – a Statistical Illusion

If you look at the number of transactions completed since the start of 2018, there is an obvious drop recorded.

The report wrote that the opposite is true. The housing prices are not at all falling, but the average price is being distorted by the decline in sales in Toronto and Vancouver. It says Toronto and Vancouver have some of the highest house prices in the country. What’s happening, in reality, is that when they record fewer sales, the overall average skews down.

There is another factor that creates a statistical illusion of dropdown. Homebuyers tend to buy less expensive houses, reporting Toronto new condo sales drop of 66% while prices soar 40%.

Prices Continue to Climb in Several Regions

Benoit P. Durocher, a Desjardins senior economist, looked at Canadian Real Estate Association (CREA) home price index which tracks the change of comparable homes over time.

“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,” Durocher said.

Mortgage Regulations Fueling Demand for Lower-Priced Homes

Gregory Klump, a chief economist at the Canadian Real Estate Association, said: “Recent changes to mortgage regulations are fueling demand for lower-priced homes while shrinking the pool of qualified buyers for higher-priced homes.” “Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb. As a result, ‘affordably priced’ homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up homebuyers,” he said.

This might explain the overall drop of sales prices recorded in Canada but will it be like that in the coming months? “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,” Durocher said.

The current uncertainty makes some buyers abstain from actions as of now with BILD president and CEO David Wilkes saying that the government measures aim at cooling the housing market “are likely keeping many potential buyers out of the housing market. Many may simply be taking a wait-and-see approach,” he said

With the market giving contradictory signals, shifts are realistic to expect.

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