Photo: James Bombales

It took the Canadian housing market five months to adjust to a new mortgage stress test, but it seems as though June may have been the month it finally did.

“Many Canadian housing markets showed further signs of stabilization in June,” writes RBC senior economist Josh Nye, in a recent note. “Unit sales rose 4.1 per cent from the previous month, the first substantial increase so far this year.”

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Nye admits that trends remain mixed at a local level, with the GTA seeing a strong uptick in activity, while BC recorded its sixth consecutive drop in sales. He also notes that just because many industry players expect the market to continue to heat up, doesn’t mean it will.

“In the past we’ve seen these types of policy changes simply suppress activity for several months before conditions heat up again,” writes Nye. “But we don’t think that will be the case this time around.”

That’s because the new mortgage stress test will make it harder than ever before for would-be buyers to enter the market. That, combined with a rising interest rate environment, could continue to put a serious damper on activity.

“The period when homebuyers could count on flat or lower borrowing costs has come to an end,” writes Nye. “We still expect resales will firm slightly over the second half of this year, though rising rates and poor affordability mean June’s jump in resales isn’t likely to be repeated.”

Nye forecasts that home sales will come in at 456,700 units for 2018 as a whole, down 10 per cent from last year’s record pace. As the market continues to balance out, price growth will likely slow as well.

“The MLS benchmark price was up just 0.9 per cent from last June, with the year-over-year rate having slowed each month since April 2017’s record pace,” writes Nye. “With monthly price movements starting to level off, June might represent the near-term bottom for annual price gains.”

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