The average price of a home in Canada crept higher in the third quarter, finds a survey by Royal LePage, but the real estate company warned a softening in prices may be just around the corner.
Royal LePage says the average price of a home in Canada rose between 1.8% and 4.8% in the third quarter, depending on the category, but the number of homes sold was slipping.
Fewer homes trading hands typically precedes a period of softening prices as sellers adjust their expectations and cut prices.
“During the third quarter, unit home sales were positive in July, fell 9% year-over-year in August and we are expecting September to show a decline as well,” says Royal LePage chief executive Phil Soper.
He adds, “We had predicted this cyclical change early in the year, a natural market reaction after a period of strong expansion. Changes to mortgage regulations, which took effect on July 9, accelerated the correction.”
Among the changes to tighten the lending rules, Ottawa cut the maximum amortization period for government insured mortgages to 25 years from 30 years, making monthly payments more expensive, but reducing the amount of interest paid in the long term.
The government also moved to place debt-to-income restrictions and ended government mortgage insurance for homes worth more than $1 million.
It was Ottawa’s fourth intervention in the mortgage market in just four years.
The outlook by Royal LePage came as the Toronto Real Estate Board reported Wednesday the number of sales in its region though the MLS system fell 21% compared with a year ago, though it noted there were two fewer working days this year.
The board said there were 5,879 home sales last month, down from 7,422 in September 2011, however the average selling price increased more than 8% from a year ago to $503,662 from $463,916.
“While sales have been lower due to stricter mortgage lending guidelines, we continue to see substantial competition between buyers,” says Toronto Real Estate Board president Ann Hannah.
“The months of inventory trend remains low from a historic perspective, which explains the strong price increases we are experiencing.”
The Real Estate Board of Greater Vancouver says home sales fell 32.5% in September compared with a year ago.
Royal LePage adds the cost of an average two-storey home in Canada increased 4% to $403,747, while detached bungalows rose 4.8% to $366,773.
Standard condominiums saw an increase of 1.8% to $243,607, and while most cities experienced modest price appreciation in the quarter, fewer homes were sold compared to the same period in 2011.