House price increases will likely slow this summer, experts predict

“We’re seeing more properties enter the market from investors and that will likely keep happening if the Bank of Canada raises rates again, which we predict,” said Robert Kavcic, senior economist at BMO Capital Markets.

Investors typically have variable rate mortgages and are more likely to sell amid higher rates than people who live in their primary residence, as those owners will try anything to keep their home, experts say.

The Bank of Canada’s renewed interest in hiking rates resulted in buyers promptly retreating in Toronto, Hamilton, Ottawa and Vancouver in June, as well as the strong price gains this spring, a recent RBC report said.

Chronic low levels of inventory in the GTA got a mild boost in June, the report said, and if that trajectory continues it could slow the rapid home price acceleration seen this spring.

The quick rebound in activity lost steam last month. After soaring 32 per cent in April and May, home resales fell 6.9 per cent month-over-month in June, the report added.

“Buyers backed off despite more properties becoming available for sale — marking a departure from the previous two months when rises in new listings significantly stimulated activity,” said Robert Hogue, senior economist and report co-author.

The good news is that supply is continuing to rise month-over-month, he said.

“We estimate that more homes became available for sale in every major market last month. That came on the heels for sizable broad-based increases in May. So far the growing supply hasn’t done much to ease (recently re-emerged) upward price pressure. But if sustained, we would expect the pace of property appreciation to slow in the coming months,” the report said.

Sales could continue to drop over the summer, which, coupled with increased inventory, could create more balanced conditions and slows the pace of home appreciations, the report said.

The higher rates have also deterred first-time home buyers for the rest of the year despite the balanced market likely to come, Kavcic said.

Currently, at the major banks, five-year variable mortgage rates are sitting in the mid to high six per cent range, and five-year fixed rates are in the low to high five per cent range, according to mortgage brokerage Ratehub.ca.

If you add the stress test — where buyers must prove they’re able to afford a mortgage at a minimum qualifying rate of 5.25 per cent, or their contract rate plus two percentage points (whichever is higher) — many first-time home buyers need to qualify at above seven or eight per cent, depending on if they’ve chosen a variable or fixed-rate mortgage.

Looking ahead, 2022 will be a guide to what the real estate market looks like this year, mortgage broker Ron Butler said, except it will be hit harder.

“There has been a dramatic slowdown of sales in Ontario,” he said. “We’re in a similar position to 2022 when rates were still rising, and it slowed activity in the summer and fall, but now rates are even higher.”