Supply of Montreal homes for sale increases for fifth straight month

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High prices and rising mortgage rates have dampened buyer appetite as sales in May dropped for the twelfth consecutive month.

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Home sales fell for a twelfth straight month in May as high prices and rising mortgage rates dampened buyer appetite while supply increased for the fifth consecutive month.

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Some 4,874 transactions were concluded in the Montreal metropolitan area last month, a nine-per-cent drop compared with May 2021, according to the latest Centris database numbers compiled by the Quebec Professional Association of Real Estate Brokers. On the island of Montreal, sales declined 10 per cent. Through five months, property sales in the region are down 15 per cent from a year ago.

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After several years of rising real estate prices, a new hurdle is emerging for prospective homebuyers — rapidly increasing borrowing costs. On Wednesday, the Bank of Canada raised its benchmark interest rate by half a point to 1.5 per cent — with deputy governor Paul Beaudry indicating Thursday that the bank may need to boost rates past 3 per cent to ensure inflation doesn’t become entrenched.

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“Now that prices have reached elevated levels and that mortgage rates are rising, there’s a real problem of affordability. This is what’s slowing down the market,” Charles Brant, head of market analysis at QPAREB, said Friday in a phone interview. “There’s a real change in direction in the market. There are fewer buyers, and there are more properties on the market.”

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Following the latest Bank of Canada rate hike, “it will become increasingly difficult to qualify for a mortgage in the Montreal area,” Brant added.

Median property prices in Greater Montreal have shown signs of tailing off this year. Single-family home prices dropped for a second consecutive month in May, the first such streak since June 2021, QPAREB said. The median price last month was $576,000, down 0.7 per cent from $580,000 in April.

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Even so, single-family home prices are still up 16 per cent compared with May 2021.

The trend also applies to plexes, which are defined as properties with two to five dwellings. The median price of a Montreal-area plex dropped 3.7 per cent last month from April to $750,900 — the first decline since 2016. Prices are still up seven per cent from their May 2021 level.

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Plexes posted the biggest decline in sales last month, shrinking 15 per cent year over year. Condominium transactions fell 10 per cent, while sales of single-family homes dropped seven per cent.

The slowdown comes as more Montrealers are putting their property up for sale. Active home listings rose 0.3 per cent to 11,304, the first time since 2015 that an increase in supply has been recorded in May, QPAREB said.

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New listings jumped 12 per cent from a year earlier to 7,152, accounting for almost two-thirds of the inventory. It’s the first time since 2014 that so many new properties have been put up for sale in the area at this time of year, QPAREB said.

Despite the recent increase, supply “remains at a historically low level,” Daren King, an economist at National Bank of Canada in Montreal, said Friday in a note to clients. Conditions in Montreal “still indicate a market largely favourable to sellers.”

About 60 per cent of property sales in Greater Montreal last month involved overbidding, with about one-third of homes topping the asking price by 10 per cent or more, Brant said. On the North Shore, more than half of homes sold for at least 10 per cent above the asking price.

“The overheating continues,” Brant said. “Prices will remain at these levels as long as the overbidding continues. But as inventory increases and higher mortgage rates start kicking in, we should start to see overbidding levels drop fairly quickly.”

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