Photo: James Bombales

National home sales rose 0.9 per cent month-over-month in August, as the Canadian housing market continues to warm up after a cool start to the year.

But as activity starts to pick up speed, should Canadians brace for housing affordability to deteriorate? According to one economist, the answer might be yes.

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“It’s clear that housing markets are moving past the [new mortgage stress test] induced weakness earlier in the year. Questions now centre on the path of the recovery going forward,” writes TD economist Rishi Sondhi, in a recent note. “Our view is that sales and prices will continue to grow…this is particularly true for more expensive markets in Ontario and B.C. where affordability pressures are acute.”

But according to RBC senior economist Robert Hogue, it’s that lack of affordability that should keep housing activity in check in the coming months.

“Going forward, activity will reflect only the ‘permanent’ effect of the stress test — which will keep some buyers out of the market for an extended period of time,” he writes, in a recent note. “Rising interest rates and affordability issues in key markets will significantly restrain further advances in the near term.”

Hogue adds that, though the market is beginning to warm up, it is unlikely that it will return to the red-hot conditions seen in the spring of 2017.

“We see limited scope for Vancouver and Toronto prices to contribute to further material gains,” he writes. “The Vancouver benchmark in fact has been under downward pressure for several months now. In Toronto, the benchmark edged down on a month-to-month basis over the past three months.”

He notes that markets that have been performing particularly well this year, including Ottawa and Montreal, should see prices move upwards at a faster clip, but adds that it is unlikely to “move the needle at a national level.”

“Our outlook for Canada-wide prices calls for a modest increase of just 1.8 per cent on an annual basis in 2018. This would constitute a significant slowdown from gains of nearly 10 per cent in each of the past two years,” concludes Hogue.

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