The number of Canadian homes sold in March plunged 23% and the national average price was down 10% from the same month last year amid double-digit plunges in most housing markets across the country, according to the latest monthly sales data released Friday.
The Canadian Real Estate Association (CREA) said the level of sales activity marked a four-year low for the month of March and was 7% below the 10-year average. Still, national home sales were up from the previous month by 1.3%, according to CREA’s latest statistics.
The drop in home sales comes after several government policy measures were implemented to cool the country’s hot housing market. Last March, national home sales activity had reached an all-time record for that month, according to CREA.
Recent changes to mortgage regulations known as B-20 — which make it harder for homebuyers to qualify for uninsured mortgages — are fuelling demand for lower-priced homes, while shrinking the pool of qualified buyers for higher-priced homes, said Gregory Klump, CREA’s chief economist.
“Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb,” he said in a statement. “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 home buyers.”
Apartment units posted the largest year-on-year price gains in March, up 17.8%, followed by townhouse/row units at 9.4%. One-storey single family homes saw price gains in March of just 1.3%, and two-storey single family home prices were down 2% from a year ago.
As of Jan. 1, homebuyers with a down payment larger than 20% seeking a mortgage from a federally regulated lender are now subject to a financial stress test. These borrowers now have to prove that they can service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage point or the five-year benchmark rate published by the Bank of Canada.
The new policy reduces the maximum amount buyers will be able to borrow to buy a home. An existing stress test already requires those with insured mortgages to qualify at the Bank of Canada benchmark five-year mortgage rule.
In turn, home sales activity was pulled forward to the end of 2017 as home buyers tried to lock in a mortgage before the new rules took effect.
Sales in the first quarter slid to their lowest quarterly level since the first three months of 2014.
Overall, the national average price for all types of residential property slipped to about $491,000, down 10.4% from March of last year — with the Vancouver and Toronto markets causing most of the drag.
Excluding Canada’s two most expensive real estate markets, the national average price would be $383,000 — a decline of 2% from March 2017.
March marked the third consecutive double-digit decline compared with the comparable month last year, when prices in the Greater Toronto Area soared to record highs.
CREA said activity was below year-ago levels in more than 80% of all local markets, in all major urban centres except for Montreal and Ottawa, with the vast majority of year-over-year declines well into double digits.
Markets are likely to remain under pressure from the recent B-20 regulations, higher mortgage rates, and provincial regulations in some regions, Toronto-Dominion Bank’s senior economist Michael Dolega said in a research note.
“However, lower-priced markets where affordability is good should generally outperform in the current environment.”