When the market was about to explode, the Government stepped in with the new housing plan, introducing a foreign tax of 15% to ward off speculative investment. The new regulation also scared off the already over-burdened buyers, who got tired of bidding wars. They stopped hunting homes, waiting to see how the new regulations on housing would affect the market. It resulted in a turnaround. The number of listings started to increase, and prices started to drop. Home sales fell by almost 38% in the first quarter on a year-to-year basis and by 15% from May to June Compared to the first quarter, the average home price dropped by $173,000 to ca. $747,000 in the summer. However, the prices are still higher than last year. When it comes to average days on market, it went up to 25 days in August, which is more than last year. Even if it makes sellers nervous and they are worried that they won’t be able to sell, they are not that desperate to set the asking price below market value. They are more willing to negotiate the price, but they are also aware of the strong economy.
Another big event was the interest rate increase adopted by the Bank of Canada (twice, this year). Whereas the first increase in July was expected, the second (only two months later) was not. It even took experts by surprise who didn’t expect a new increase until October. Both times, it went up by 0.25% and stands now at 1%. Nevertheless, the interest rate in Canada is still pretty low, and the mortgage is still affordable, so it is not often associated with the decline of interested buyers. It’s the dominant seller’s market that chased away many potential buyers, but they are slowly coming back, hoping for further price drops. They might be now in a good position, but many experts predict a price hike again in the next period since it is known that interest rate increases are followed by price increases.
When it comes to a potential market collapse, many real estate agents agree that a shift in the market is completely normal. It’s like every other market where supply and demand define the rules of the game. Currently, supply exceeds demand, and it is only a matter of time when the market will turn upside down again.