If your client is looking to buy a home, the fear of a bidding war may be a thing of the past, thanks to Canada’s cooling real estate market.

Home sales activity in June posted its largest monthly drop in seven years, driven by a plunge in the Greater Toronto market, the Canadian Real Estate Association (CREA) said Monday.

Transactions last month were down 6.7% compared with May on a national basis, the third consecutive monthly decline, with the Greater Toronto Area (GTA) registering a 15.1% drop.

Read: GTA annual home price growth slows to 6.3%

“Changes to Ontario housing policy made in late April have clearly prompted many homebuyers in the Greater Golden Horseshoe region to take a step back and assess how the housing market absorbs the changes,” CREA chief economist Gregory Klump said in a statement.

“The recent increase in interest rates could reinforce a lack of urgency to purchase or, alternatively, move some buyers off the sidelines before their pre-approved mortgage rate expires. In the meantime, some move-up buyers who previously purchased a home before first selling may become more motivated to reduce their asking price rather than carry two mortgages.”

The number of sales fell from the previous month in 70% of all local markets measured by CREA, including the Lower Mainland in B.C., Montreal and Quebec City.

Compared with a year ago, national home sales in June were down 11.4%.

Effect of foreign buyers tax

The Ontario government moved earlier this year to cool the Toronto real estate market, bringing in more than a dozen measures including a 15% tax on foreign buyers. Since then, sales in Canada’s largest city have slowed.

Read: It’s here: 15% tax on GTA’s foreign buyers

But recent data suggest that foreign buyers aren’t the driving force behind runaway home prices in Ontario’s Greater Golden Horseshoe, though it’s still too early to settle the matter, says RBC senior economist Robert Hogue in an industry note.

A new dataset from the Ontario government shows that foreign buyers accounted for 6.2% of all transactions in the GTA from April 24 to May 26, 2017.

During the same period, in two areas — York and the city of Toronto — foreign buyers were responsible for a greater percentage of home sales: 9.1% and 7.2%, respectively. But those areas haven’t appreciated at faster rates than elsewhere in the Golden Horseshoe region.

“The contrary has occurred, in fact,” says Hogue. “Price increases have had a tendency to be stronger in areas where the intensity of foreign buyer involvement was lower. Furthermore, we find no evidence that York region and the City of Toronto led price gains. Rather, the price surge was remarkably synchronized.”

Referring to CREA data, Zoocasa notes in an email to that the notable hot city for the month is Hamilton-Burlington, where prices increased 9.9% year over year. In that area — Halton region — non-residents accounted for 3.7% of home transactions from April 24 to May 26.

Mortgage rates rise, prices moderate

Separately, mortgage interest rates have started to rise in recent days. That came after the Bank of Canada raised its key interest rate last week, a move that prompted the big banks to increase their prime rates. Rates for new fixed-rate mortgages ticked up in anticipation of the central bank rate hike.

The national average price for a home sold in June was $504,458, up 0.4% from a year ago. Excluding Greater Vancouver and Greater Toronto, the national average price was $394,660.

The aggregate composite Multiple Listing Service home price index for June was up 15.8% compared with a year ago.

However, June saw the first month-over-month decline in Toronto’s benchmark price in almost three years (-0.7%).

And on a year-over-year basis, the rate of increase in the Toronto benchmark moderated for the second-straight month to 25.3% from a high of 31.3% in April.

“Average home prices declined month over month in the majority of [Ontario] markets in June, including Hamilton, Kitchener-Waterloo and Guelph,” says Hogue, in a housing market update. “We expect prices to ease further in the near-term in southern Ontario.”

Overall, Hogue forecasts a soft landing for the housing market, driven by policy changes, poor affordability in some markets and rising rates.

“We project home resales in Canada to ease by 3.7% to 515,300 units this year from a record 535,300 units in 2016, and price increases to moderate from 9.6% in 2016 to 7.8% in 2017,” he says.

Read: Royal LePage sees 9.5% national price gain this year

Also read:

Real estate agent rules and penalties under scrutiny

Is housing exposure a risk for portfolios?

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