Vancouver's housing market is cooling to the point that the balance appears to be shifting in favour of buyers for the first time in years.
Prices in the country's most-expensive real estate market remain stable, but activity has dropped sharply.
The number of sales in June, normally one of the busiest months of the year for home deals, dropped more than 17 per cent from May and 27.6 per cent below June, 2011, the Real Estate Board of Greater Vancouver said Wednesday.
Economists welcomed the decline in sales as an early sign that a correction is taking root, and said prices are likely to follow suit.
While that would not please many homeowners, it could provide some relief to policy makers both in Ottawa and British Columbia. A slowdown now decreases the chance of a more severe correction when interest rates rise later.
Local officials have been grappling with how to deal with what Vancouver's mayor has deemed to be "an affordability crisis," one that has been a long time in the making.
The benchmark price of a detached home in the city is now $961,600. That is up nearly 35 per cent from three years ago and about 50 per cent higher than in Toronto.
While there is anecdotal evidence that foreign investors are losing their appetite for real estate in the Vancouver, experts remain perplexed as to exactly why the city is seeing such a decline in transactions right now.
Toronto's equivalent statistics will be released on Thursday, but mid-month indicators from the city's real estate board suggest that sales are holding relatively steady and new listings continue to rise.
"The Vancouver market is leading the Toronto market in terms of a correction," said Toronto-Dominion Bank deputy chief economist Derek Burleton, who is calling for price declines of at least 15 per cent in both cities. "Toronto's housing market correction is more likely to be a story of 2013, 2014."
A decline in prices tends to lag a decline in sales by one or two quarters, Mr. Burleton said.
The average price of a home in Vancouver rose 90 per cent from 2002 to 2007, compared with 40 per cent in Toronto, according to TD.
But Toronto has seen prices increase more quickly since the financial crisis, adding to the view that Toronto is lagging its western cousin.
Vancouver's slowdown is "striking, because nothing has really fundamentally changed in the market. It's hard to pinpoint. Something has affected the psychology," Mr. Burleton said.
Only 2,362 properties changed hands in the Greater Vancouver area last month. June is normally high season for home sales, and that is the lowest level of sales recorded in the city for that month since the year 2000.
Tom Choy, a real estate agent with Sutton West Coast Realty, who has been in business since 1992, said he has noticed the slowdown. One customer backed out of a condo purchase after new mortgage rules were announced last month, saying his bank had told him that the new maximum debt-service ratios meant his planned purchase wouldn't work unless his wife also earned an income.
Other customers who are close to the federal government's new maximum debt ratios have also stepped away from purchases, Mr. Choy said. At the same time, he has had homeowners who are looking to sell reduce their asking prices.
"Conditions are favouring buyers, which means that buyers are going to have some negotiating leverage, increased selection, and an opportunity to get better terms," said Eugen Klein, president of Vancouver's real estate board.
"Vancouver has had about 10 years of it being a record-setting sellers market, so it's a change."
While sales decline, fewer people are listing their homes on the market. New listings in June were 18.9 per cent below those of May, and three per cent lower than a year ago.
A composite benchmark measure of house prices in the region suggests that prices are still higher than a year ago, but fell 0.7 per cent over the course of the month.
CIBC deputy chief economist Benjamin Tal agreed that the slowdown that's underway in Vancouver will soon begin in Toronto.
"We see less investment activity in Vancouver, and less Chinese money entering the city," he said. "This is just the beginning of a downward trend in Vancouver. There is a bit of housing market fatigue."
Economists also say that the recent round of mortgage insurance changes that Finance Minister Jim Flaherty unveiled last month will accelerate softening in real estate markets across the country. The new rules, which kick in on Monday, will, among other things, cut the maximum length of insured mortgages from 30 years to 25.
Mr. Klein said he expected to see indications of a rush in activity prior to the changes taking effect, but hasn't seen any so far.
"We thought that people would see a fervour of activity from people trying to get in under the line of the due date, but members haven't been telling us that that's the case," he said. "So we don't know if the information is really out there, if consumers really understand it."