Rising interest rates and tighter mortgage lending rules may dampen the Canadian housing market in the coming months by reducing affordability for prospective buyers.

That’s the latest outlook from the Canadian Real Estate Association (CREA), which revised its fall housing forecast, saying now that sales will drop 9.8% and prices will soften 2.8% to $494,900.

“The new stress-test on mortgage applicants implemented earlier this year continues to weigh on national home sales,” said CREA President Barb Sukkau. “The degree to which the stress test continues to sideline homebuyers varies depending on location, housing type and price range.”

Prices are likely to see only a slight decline because of supply issues: the number of newly listed homes was unchanged between July and August. Prices will remain fairly strong without a surge of new listings, and as long as sales remain steady.

As it stands, the majority of Canadian markets are in balanced territory with the national sales-to-new-listings ratio at 56.6% in August. Still, that’s higher than the long-term average of 53.4%. If the ratio continues to edge upwards, we may see more sellers’ markets in the future.

The national average sale price in August crept up 1% compared to last year, to just over $475,500.

But this average is heavily skewed by sales in Canada’s two most expensive regions: the Greater Vancouver and Toronto Areas. Excluding these two markets from calculations cuts almost $94,000 from the national average price, slicing it to just under $382,000.

Price growth, as has been the case all year, differs dramatically by market segment.

Apartment units posted by far the largest year-over-year price gains in August, rising 9.5%. This push into the least expensive housing type is another indication that Canadians are experiencing reduced affordability. Townhouse/row units rose 4.3%, while single-family homes were mostly stable year over year.

Montreal is the Canadian city that saw the fastest price growth this August, rising 6.4% to about $392,000. Next is Toronto, up 4.5% to $765,000. Vancouver rose 2.9% to an average of around $1 million, maintaining its position as the most expensive place to buy a home in the country. The Prairies saw slight declines across all markets, while Halifax rose 3.3% to about $295,500.

Check out the infographic for more details:


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