Prior to the implementation of the new mortgage rules, the number of active listings in the Centris® system had already been trending upward for several months and has continued to do so since then. The decrease in sales which began in August 2012 in conjunction with this increase in supply has, of course, led to an easing of market conditions (see column (D) of Table 1). While real estate markets in the Montréal, Québec City, Gatineau and Saguenay CMAs formerly favoured sellers, they are now balanced. In the Trois-Rivières CMA, market conditions have essentially remained the same (balanced). Finally, the Sherbrooke CMA market has shifted in favour of buyers since the mortgage tightening. Accordingly, none of the province’s CMAs have market conditions that give sellers the upper hand.
Along with more relaxed market conditions, the average selling time is now longer (see column (C) of Table 1). For the province as a whole, the average selling time, all property categories combined, has jumped from 92 days before the tightening to 102 days afterwards. Five of the six CMAs recorded an increase in average selling time (Gatineau +10 days, Montréal +7 days, Quebec City +13 days, Saguenay +8 days and Sherbrooke +24 days). Once again, the Trois-Rivières CMA is the exception (-4 days).
Condominiums Most Affected
Let’s now examine real estate market performance by property type since the last mortgage tightening. Table 2 shows the evolution of specific real estate market indicators by property category for the province before and after the reduction of the maximum amortization period.
Sales of condominiums (Column (A)) which had the wind in its sails before the mortgage tightening (7 per cent growth during the period from August 2011 to July 2012) decreased by 15 per cent after the tightening. The other two property categories registered slightly lower decreases in sales, ranging from 9 per cent for single-family homes to 12 per cent for plexes. Condominiums also saw average selling times (column (C)) increase slightly more than the other two property categories (+15 days vs. +9 days for single-family homes and +3 days for plexes). Table 2 also shows that the pace of price increases (column (B)) slowed down for all three property categories during the period that immediately followed the introduction of the new rules.
Note that in the three major condominium markets of the province, Montréal, Québec City and Gatineau CMAs, sales for this property category fell by 16 per cent, 20 per cent and 18 per cent respectively since the implementation of the more restrictive mortgage rules.
Table 2: Evolution of specific real estate market indicators by property category before and after the July 2012 reduction of the maximum amortization period — Province of Québec
In the three major condominium markets of the province, the Montréal, Québec City and Gatineau CMAs, sales for this property category fell by 16 per cent, 20 per cent and 18 per cent respectively since the implementation of the more restrictive mortgage rules.
Thus, although all property categories have been affected by the tightening, the condominium market seems to have suffered the largest setback, which is consistent with the fact that condominiums are more popular with first-time buyers than single-family homes or plexes.
Lower Price Ranges are Most Affected
Since first-time buyers are the ones most affected by the new measures that reduced the maximum amortization period, it is plausible to believe that sales decreased primarily in the lower price ranges. In contrast, it is not certain that the tightening has had an impact in the higher price ranges where fewer buyers require the use of mortgage loan insurance. These are the two assumptions that we want to confirm.
Due to the significant difference in price levels between certain metropolitan areas, it is best to use price ranges that are specific to each CMA in order to properly diagnosis these assumptions. Table 3 shows the variation in sales in the lower and upper price ranges for each CMA.
Although all property categories have been affected by the tightening, the condominium market seems to have suffered the largest setback, which is consistent with the fact that condominiums are more popular with first-time buyers than single-family homes or plexes.
According to Table 3, the largest decreases in sales occurred in the lower price ranges of the Gatineau, Montréal, Québec City, Saguenay and Sherbrooke CMAs, which supports our hypothesis. However, there is nothing conclusive in this regard for Trois-Rivières which is by far the most affordable market among the six CMAs. Note also that in the Sherbrooke CMA, if we chose the price range of $300,000 and more, sales actually increased by 10 per cent which, in turn, explains the acceleration in the rate of price increases in this CMA (see column (B) of Table 1), which was contrary to the results of other regions.
In summary, variations in sales by price range seem to demonstrate that sales decreased more in price ranges that are most affordable for first-time buyers.
Following the reduction of the maximum amortization period from 30 to 25 years in July 2012, the real estate market slowed down, resulting in a significant decrease in sales, a moderation in price growth, longer selling times and an easing of market conditions. Although the deterioration of these real estate market indicators cannot be fully attributed to the mortgage tightening, it is probably the main reason. In this sense, it was an important turning point for the real estate market in Québec.
This publication is produced by the Market Analysis Department of the QFREB
Camille Laberge, Economist Mathieu Fort, Analyst
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