The month of March 2012 levelled off after seeing sharp month over month increases in average resale home prices across property types.  Prices remain up sharply on year over year resale in the ‘416’ with TREB reporting a 10% increase in detached homes, 9% in Semi-Detached, and 8% for Condos.

There are a few market forces at play here:

  • There has been a lot of discussion about changing mortgage qualification rules including higher down payments and shorter amortization periods.  Lenders  and policy makers  are currently trying to determine what (if any) intervention may take place.
  • CMHC has indicated it has essentially hit its 600-billion limit for insuring mortgages and would be rationing bulk insurance offered to lenders.
  • 30% more homes traded hands in March over February lessening the potential for high priced homes across property types skewing the averages.

Many analysts have been raising concern over a real estate bubble for some time now.  Price stability is important for the real estate market – no one wants to face a scenario where their mortgage exceeds their home’s market value.  When deflation occurs new entrants (like first time home buyers) will have no economic incentive to enter the market which drastically alters the demand / supply ratio and can lead to a ‘bubble burst’.  When the bottom dropped out of the US market our local market faced a period where home prices went fairly flat and inventories increased however there were no sharp price decreases as sellers were able to wait it out.  Canadian lenders have been far more responsible than our neighbours to the south and a such we expect further levelling out of the market over the medium term without sharp price decreases.