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An aerial view of housing in Calgary is shown in June, 2013. That city’s market is not as hot as those of Vancouver or Toronto.

Jonathan Hayward

A raft of new data on Canada's housing market this week will likely show yet another month of surging price gains in July, mainly driven by Vancouver and Toronto. But beneath the eye-popping figures are signs that the country's housing market might be primed for a slowdown.

The Teranet-National Bank House Price Index, out Friday, will offer an updated look at national house prices, while new data on housing starts and building permits offer a glimpse of things to come.

In Greater Vancouver, house prices have continued to soar more than 32 per cent from last July.

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But sales dropped nearly 19 per cent. It was the fourth successive month that sales came in below comparable levels from the previous year. It also comes at a time when the number of houses on the market has started to rise.

Local realtors have pointed to the cooling market as one reason why the B.C. government's new 15-per-cent tax on house purchases in Metro Vancouver by buyers who are neither citizens nor permanent residents was a poorly-timed move.

There were more than 9,200 applications made to B.C.'s land title registry on July 29, the last business day to register house sales before the tax kicked in on Aug. 2. That was more than double the number registered on July 29 last year. Applications have returned to more normal levels since then, averaging about 4,000 a day.

Vancouver realtor Steve Saretsky blamed the new tax for "a painfully slow week" in the Vancouver housing market. There were 20 purchases of detached houses trading hands in Vancouver, Richmond and Burnaby, down from 113 two weeks prior, Mr. Saretsky wrote on his blog.

Vancouver is not the only hot market showing signs of returning to normal after an extended rally.

Sales of detached houses also fell in the City of Toronto, down 6.5 per cent last month from a year earlier, while those in the suburbs were essentially flat – up 0.8 per cent.

The figures mirror a trend of falling or flattening annualized sales for houses in the city that began in April. The local real estate board has put the blame on a severe shortage of listings that has constrained sales even as it has sparked fierce bidding wars that continue to drive up prices.

While Canada's two most expensive markets may be starting to slow down, struggling markets in the oil patch have yet to pick up steam. In Calgary, sales of detached houses in July fell to levels not seen since 1996. The Realtors Association of Edmonton said sales in that market fell more than 16 per cent from the previous year.

The Canadian Real Estate Association expects those trends will become more pronounced. It predicted national house sales to slow in the second half of the year and start to fall next year in Ontario and British Columbia as more potential buyers are priced out of the market and demand wanes for expensive luxury houses.

While analysts are banking on Canada's housing market to eventually run out of steam on its own, the market is also getting a helping hand from federal regulators.

In July, Canada Mortgage and Housing Corp. introduced new restrictions on how lenders use portfolio insurance – a type of insurance that lenders can take out on uninsured mortgages, or those where the buyer has a down payment of at least 20 per cent. The changes are complex and technical, but the end result is that it will likely mean higher costs for banks and mortgage lenders. That could potentially mean higher costs for mortgage borrowers, or less money to make new loans.

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More importantly, last month, the Office of the Superintendent of Financial Institutions announced a plan to require lenders to hold more capital against mortgages in cities where the regulator feels house prices are unaffordable compared to incomes. Toronto, Vancouver and Victoria are all markets that OSFI considers to be risky – but so are the struggling markets of Calgary and Edmonton.

Last month, Royal Bank of Canada analysts Darko Mihelic, Brendon Sattich and Vanessa Wan estimated the change will affect 23 per cent of all mortgages. While the analysts expect the change to be "modest to immaterial" for the major banks, they are likely to affect smaller lenders whose mortgages are more concentrated in overheated markets, particularly if their customers had relatively little equity in their houses.

The changes also apply to mortgage insurers and could prompt them to raise premiums when the rules kick in next January, officials from Genworth MI Canada Inc., the second-largest mortgage insurer after CMHC, told analysts last week.

All told, the new rules could potentially mean higher rates for many borrowers already grappling with Ottawa's hikes to minimum down payments that took effect in February.

While there seems to be little threat of an impending house price correction, there are ample signs that Canada's sky-high housing market may be getting ready to come back down to earth.

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