The Toronto area's choppy real estate market may become fairly placid in July and August, as buyers and sellers each try to gauge the level of desperation in the other.
John Andrew, a professor at Queen's University and executive director of the Queen's Real Estate Roundtable, says sellers and buyers both appear to be hesitating.
The buyers are waiting on the sidelines because they have a perception that prices are going to come down after more than two months of rising listings and plummeting sales. Sellers, meanwhile, won't budge.
"The sellers are not really decreasing their asking price yet and that's why we're seeing this standoff," Prof. Andrew says. "Sellers aren't nearly that desperate yet."
Prof. Andrew predicts the slowdown and standoff will continue into July and August because the real estate market often has a lull in those months anyway. Industry watchers are also keeping an eye on interest rates and the sales-to-new-listings ratio.
Meanwhile, owners who have a strong reason to sell may try to entice buyers with price cuts.
"We'll see a certain percentage of sellers will be desperate enough."
Over all, however, Prof. Andrew is not anticipating a large correction in prices in Canada. He expects prices are more likely to level off or drop by between 5 per cent and 10 per cent.
Prof. Andrew also thinks the Bank of Canada is on the verge of lifting interest rates.
Hawkish comments have been emanating from the central bank, which will hold its next policy-setting meeting on July 12. Prof. Andrew would not be surprised to see the key rate edge up by 25 basis points from its current level of 0.5 per cent.
"I think that will have a pretty significant psychological impact on the market," he says. "It shouldn't, but I think it will."
A whole swath of the population believes mortgage rates around the 3-per-cent mark are normal, he says, instead of a historical anomaly, he points out.
Low mortgage rates have been a huge factor in driving the run-up in Canadian house prices – and not just in Toronto and Vancouver, Prof. Andrew says. In Kingston, which is a city with a significant proportion of public-service workers and relatively low levels of immigration, prices were jumping by 20 per cent or 22 per cent earlier this year from the same period in 2016.
Capital Economics, providing the firm's outlook for the Canadian economy as it heads into the third quarter, points out that housing sales in Toronto plummeted by more than 50 per cent over the past three months. Sales in Vancouver, meanwhile, appear to be faltering again after an uptick.
The turbulence in two such dominant markets spells potential trouble for the country's economy, senior economist David Madani warns. Capital Economics is forecasting that gross-domestic-product growth will slow from 2.4 per cent in 2017 to only 1.2 per cent in 2018.
In the Toronto area, the slump in the sales-to-new-listings ratio points to a sharp slowdown in the rate of annual house-price growth, Mr. Madani cautions, with a possible outright correction in housing prices beginning by the end of the year.
While financial markets are signalling that the Bank of Canada will introduce a rate hike next week, Capital Economics believes the central bank is unlikely to raise interest rates this year. Their economists expect the central bank to cut rates early next year.
They also doubt the central bank could do much to prevent a correction in the housing market by lowering its key rate because there's not much room to cut.
Mortgage rates tend to be influenced by global economic conditions and their impact on the bond market. If U.S. Treasury yields climb higher in response to tightening U.S. Federal Reserve policy, fixed mortgage rates here could move up.