Photo: James Bombales

In recent years, activity in Toronto and Vancouver’s housing markets has tended to move in the same direction. But according to one economist, that has started to change.

The two cities’ home resale numbers went in opposite directions last month, writes RBC senior economist Robert Hogue, in a recent note.

“The Toronto Real Estate Board (TREB) [has] reported the first year-over-year increase [in home resales] (2.4 per cent) since March 2017,” he writes. “This contrasted with Vancouver-area resales falling for a fifth consecutive month by 37.7 per cent.”

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The Toronto increase in sales could indicate that the market is finally adjusting to the effects of a new mortgage stress test, while Vancouver may still be in what Hogue calls “adjustment mode.”

Month-over-month sales in both cities follow a similar pattern, with a 17.6 per cent increase in Toronto and a 2 per cent decrease in Vancouver.

“Quite noteworthy was the fact that activity picked up in Toronto’s detached home segment following a year-long string of precipitous declines,” writes Hogue. “In Vancouver, all segments fell sharply with detached homes leading the way with a 42 per cent plunge relative to a year ago.”

When it comes to prices, Hogue writes that Toronto and Vancouver went in the same direction — sideways.

“Aggregate benchmark prices were effectively unchanged from May in both markets,” he writes. “This resulted in an easing in the year-over-year rate of decline in Toronto from –5.4 per cent in May to –4.6 per cent in June, as well as an easing in the rate of annual increase in Vancouver from 11.5 per cent to 9.5 per cent.”

Still, despite the relatively flat prices, Hogue notes that affordability in both markets deteriorated last quarter.

“Some of Canada’s priciest markets are very sensitive to interest rate hikes, which affect ownership costs as mortgage rates also rise,” he told Livabl last week.

The overnight rate, which affects mortgage rates, currently sits at 1.25 per cent, after a 25 basis point hike in January. The Bank of Canada is widely expected to hike it again before the end of the year, possibly as early as next week.

“The prospect of more interest rate hikes in the period ahead poses material risk of further affordability erosion in Canada,” he said. “The odds of this ultimately occurring will also depend on the degree to which household income increases.”

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