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National home prices just about kept pace with inflation in May, according to the Canadian Real Estate Association (CREA).

Property prices increased 1.8% to $508,000 year-over-year, or $397,000 when you exclude two of Canada’s most expensive cities: Toronto and Vancouver. The benchmark price, which many consider to be a more accurate reflection of the “typical” home, remained stable at $624,400, rising under 1%.

CREA is concerned that the stress test, where borrowers must qualify at 2% higher than their contract rate, is crushing market demand.

“The mortgage stress test continues to present challenges for homebuyers in housing markets where they have plenty of homes to choose from but are forced by the test to save up a bigger down payment,” says Gregory Klump, CREA’s chief economist. “Hopefully, the stress test can be fine-tuned to enable homebuyers to qualify for mortgage financing sooner without causing prices to shoot up.”

But prices are growing in most markets across the country, save the Western provinces.

Cities like the Greater Vancouver Area, the Fraser Valley, Calgary, Edmonton and Regina were all down compared to May 2018. But markets in Ontario and the Eastern provinces posted price gains, with the exception of Barrie, a commuter city just north of Toronto.

Furthermore, the decline in British Columbia is almost certainly a temporary blip, since benchmark prices are up at least 57-80% from five years ago. That’s still an annual increase of about 10-15%.

In fact, the only cities showing a decline from five years ago are in the prairie provinces, which have been hurt by low oil prices and a glut of inventory from overbuilding when times were good.

The only clear consequence of the stress test is that it’s pushing buyers into less-expensive and denser living situations, such as apartments. As has been the case since the lending rules were tightened in January 2018, apartments and townhouses have outpaced detached homes in terms of price growth.

For example, home prices rose 8% year-over-year in Ottawa, led by a 12% increase in townhouse prices. And while overall prices rose just 2% in Greater Moncton, apartment prices are up 16%.

For more data on this month’s national housing situation, check out the infographic below:

CREA may home prices


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