Record high prices and a surge of new listings cooled Canada's hot housing market in April, with the number of sales slipping for the third time in four months.
While the market remained hot with double-digit gains in both resale prices and the number of sales made compared with a year ago, there are signs that the remarkable rebound from recessionary lows may have run its course.
Some of the country's top economists and the Canadian Real Estate Association (CREA) now expect gains to taper off for the rest of the year, and then for prices to even post declines in 2011.
"We've started a transition here from a red-hot market to something more balanced," said Douglas Porter, deputy chief economist at the Bank of Montreal. "This is still a strong market, but it's the direction that is important. And it's fairly clear that sales are starting to simmer down."
CREA said seasonally adjusted sales fell 2.6 per cent in April compared with March, at 42,078 units. Sales are now 6.8 per cent lower than they were in December, which is now looking like the peak of the recovery in terms of volume.
The average sale price reached a record high of $344,968 last month. That's up 1.1 per cent from March, and 1 per cent higher than the previous high set in October, 2008.
"Next month will mark the passage of one year since the national average price rebounded from the recessionary trough to return to the pre-recession peak, so the rise in the national average price is expected to be more subdued next month, " said CREA chief economist Gregory Klump.
The number of new listings on the association's Multiple Listing Service, meanwhile, set a new April record at 99,901. On a seasonally adjusted basis, there were 5.3 months of inventory on the market. That's the number of months it would take to sell all the houses available at the current pace of sales. It's the most inventory since last May, lower than a year ago but higher than at any time between 2004 and 2007 .
"We see catalysts for a price decline," said Kate Warne, an Edward Jones analyst who co-wrote a report recently warning that the market is showing signs of weakness. "We think it's important for people to acknowledge this, because one of the first rules of investing is to avoid surprises."
Toronto-Dominion Bank revised its outlook for the Canadian real estate sector lower earlier this month, saying that while income and employment seems to be recovering quickly from the recession, the number of listings to hit the market and the number of new housing starts has been a surprise.
The bank had previously expected prices to gain 1.6 per cent in 2011 in inflation-adjusted terms; it is now calling for a 2.7-per-cent drop.
"As a result of the stronger supply response, the market balance is now expected to be somewhat softer next year, consistent with market conditions more favorable to potential buyers and a mild depreciation in home values," the bank's economists wrote. "Taking into account the typical lags between home affordability, sales and price behaviour, the impact of all these combined changes is that we now project a modest price pullback for 2011."