Julie Gordon and Nichola Sainather

TORONTO (Reuters). Toronto Realtor Nasma Ali noticed a slowdown in housing market in the hot Greater Toronto Area in recent weeks. She sees this as a sign of a coming reckoning for the surrounding suburbs that have experienced a rapid price rise over the last two years.

Ali, Chief Executive of Broker One Group said, “I had listings which, in January would have had a hundred+ showings.” All of a sudden we only get five to six showings within four days. This transition period is not suitable for all markets and price points. But we’re seeing it.”

The number of homes for sale in Toronto, which has a tight supply, is already falling at a slower rate than in February last year. This compares with the majority of last year’s slow sales.

A confluence of events seems to have accelerated the slowdown in big cities such as Toronto and Vancouver, and surrounding areas.

For a related graphic on Canada home sales and new listings, click https://graphics.reuters.com/CANADA-HOUSING/SALES/akvezjangpr/chart.png

Sentiment is changing due to a decrease in housing affordability and rising fixed and adjustable mortgage rates.

Canadian home prices have risen 52% in the last two years due to record-low mortgage rates. Demand is slowing as fixed mortgage interest rates rise alongside surging bond yields.

Markets are betting that the central banks will hike its policy rate by 2.25% this year, from the current 0.5%. [BOCWATCH]

David Larock (a mortgage agent with Integrated Mortgage Planners) stated that “this is the biggest increase in five year fixed rates I can recall,” and he was referring to his experience in the industry for over two decades. He said that he is starting to notice purchase and sales agreements with financing conditions. This has not been seen in the past few years.

Marnie Bennett of Bennett Property Shop Realty, Ottawa said that she’s seen a change in the market as first-time buyers are dissuaded by affordability worries and investors withdraw near the peak.

Sal Guatieri (BMO Capital Markets Senior Economics Officer) said, “It is because interest rates so low that there are any affordability left.” He said that “but that affordability will erode pretty fast,” and added that the central bank’s rate increases “will put out the flames somewhat.”

Although it’s unlikely that this will cause significant damage to households finances, it can put pressure upon marginal buyers, he stated.

According to Pedro Antunes (Chair economist, Conference Board of Canada), home prices are expected to fall 10% between peak and trough due to the removal of all pandemic income subsidies, increasing interest rates, normal consumer spending, as well as the reduction of poverty.

He said that people will take their vacations south, and may not want to invest as much in a mortgage.

Even with the softness in prices, Toronto and Vancouver saw price increases of 27% and 20% from one year ago. The average price of a home in the United States is up by 20%.

Lisa Bednarski, a Toronto real estate agent at BSpoke Realty said that “it’s still a sellers’ market.” But we will stop seeing homes which sell at unimaginable levels above the market.

For a related graphic on Canadian house price gains by province, click https://graphics.reuters.com/CANADA-HOUSING/PRICES2/gkvlgqxbkpb/chart.png