Greater Victoria’s hot real estate market appears ready to cool off as mortgage rates go higher and rules on borrowing tighten.

Real estate sales and prices were up in Victoria in March compared with the previous year but the sector is headed for more balance as the Royal Bank and the Bank of Nova Scotia tossed another bucket of water by raising mortgage rates for the second time in two weeks and new buyers braced for tighter mortgage rules that come into effect this Monday.

“What I’m seeing is a levelling off,” said Randi Masters, president of the Victoria Real Estate Board president.

The capital region’s sales-to-active listing rate was 25.6 per cent last month, the highest among the jurisdictions measured in a new B.C. Real Estate Association Report. That’s up from 19.1 per cent the previous year.

The year started as a seller’s market but Masters expects balancing through the summer with fewer multiple offers and more listings.

The average price of capital region homes in the first quarter of this year is up 14.9 per cent year-over-year, to $505,260 from $439,765 for the same months last year, the provincial real estate report said.

Greater Victoria’s average for all types of homes, including townhouses and condos, was $521,917 last month, up by 18.2 per cent from $441,380 in March 2009.

Sales numbers in Victoria jumped by 41.3 per cent in the first quarter to 1,706, compared with 1,207 in the same months in 2009. Total sales in March were up 27 per cent year-over-year, to 739 from 582.

The recent market momentum was partly fuelled by new federal rules in effect this Monday tightening mortgages insured by the Canada Mortgage and Housing Corp., Masters said. The July 1 implementation of the harmonized sales tax in B.C. is also believed to be spurring some home buyers.

Buyers were also aiming to beat rising mortgage rates.

The Royal Bank and Scotiabank hiked residential mortgage rates by 25 basis points across the board today, the second rate hike in two weeks. As of April 14, a five-year closed fixed-rate mortgage will carry an annual interest rate of 6.1 per cent.

Canadian banks have been raising their rates in recent weeks anticipating the Bank of Canada will raise its benchmark rate this summer. The country’s real estate market has been booming since the Canadian economy emerged from recession last year.

Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank’s TD Securities unit, said investors are now factoring in a 50 per cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank’s benchmark rate unchanged through June, “conditional” on the outlook for inflation.

The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.

The Bank of Canada says the total of mortgages outstanding has risen steadily since the start of the decade and is today sitting close to $1 trillion, of which about $450 million is held on bank balance sheets.

A Statistics Canada report yesterday said the price of a new home in Canada had risen 0.1 per cent in February, less than the 0.4 per cent economists had forecast. On a yearly basis, new-home prices were up 0.9 per cent in February.

In Victoria, new home prices held steady from January to February. But prices were down 5.7 per cent year-over-year in February, the federal agency said.

On Cook Street, 20 new units remain unsold in the 41-condo/townhouse Essencia Verde, closing in on its occupancy date after starting several years ago. The project stalled part-way through for a number of reasons, including a changing real estate market.

Amadon Group owner Max Tomaszewski said the first owners are expected to move in by month’s end. The three-storey project, covering 50,000 square feet, is at the corner of Cook and Sutlej streets.

Prices for remaining units range from $350,000 to $850,000 for the top floor units with private rooftop patios.

Cameron Muir, BCREA chief economist said that the provincial picture shows home sales have moderated since the beginning of the year. He cited waning pent-up demand and eroding affordability.

“Despite an improving provincial economy, higher mortgage interest rates and tighter credit conditions for low-equity homebuyers and investors will squeeze some prospective buyers out of the market this spring,” Muir said.

On a seasonally adjusted basis, multiple listing sales rose six per cent in March compared with February, Muir said. However, March home sales were 20 per cent lower than December on a seasonally adjusted basis.

The value of B.C. home sales rose by 95 per cent to $9.2 billion in the first quarter of the year, compared with the same months last year.

The average price for a home in B.C. was $516,970 in March, up by 21.4 per cent from the average of $425,708 in March 2009, the provincial association said. Last month, a total of 7,710 homes sold, an increase of 42.7 per cent from 5,403 a year earlier.

— With files from Canwest News Service

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