VANCOUVER—B.C.’s real-estate market has gone from being one of the strongest in the country to the weakest as the number of sales drops sharply in comparison to other provinces.

The B.C. Real Estate Association (BCREA) is forecasting a 21 per cent drop in sales in 2018. Meanwhile, the number of sales in July was 24 per cent lower than the previous July, according to Douglas Porter, chief economist and managing director of BMO Financial Group.

That stands in contrast to the small net gain in real-estate sales seen in the rest of Canada.

“Compared to the rest of the country we are noticing that it’s especially weak, which is quite a turnaround from what we’ve seen over much of the past 10 to 15 years,” Porter said. “It’s quite unusual for Vancouver to stick out.”

Prices have also started to slide, with detached houses in Greater Vancouver dropping by 1.1 per cent and condo prices declining 0.3 per cent over the past three months, according to the Real Estate Board of Greater Vancouver. However, realtors have pegged price declines in some specific markets at between five and 15 per cent.

The turnaround follows several years of heated activity that resulted in Vancouver having the third highest housing prices in North America — but the biggest gap between home prices and incomes, a dynamic that alarmed both the federal and provincial government.

The B.C. Real Estate Association blames the slowdown solely on tougher new mortgage rules imposed by the federal government that came into effect this January. The new rules mean that even buyers who have a 20 per cent down payment must also meet an additional test to ensure they can afford their mortgage if interest rates rise.

“It pulls out as much as 20 per cent of the purchasing powers out of those buyers, and if we add in higher interest rates as well, it’s no surprise that we see fewer homes being sold,” said Cameron Muir, chief economist for the BCREA.

Still, Muir added that the long-term outlook for B.C.’s housing market is good because the province’s economy is booming, with low unemployment and rising wages.

This February, the B.C. government introduced several new policies targeted at real-estate speculation: increasing the foreign buyer tax from 15 to 20 per cent; a new tax on second homes; and increasing property tax on homes worth over $3 million.

But Muir said those policy changes weren’t factors in the softening market.

“I would say that almost the entire decline in sales is directly attributable to the stress test,” he said.

Other economists who study the real-estate market don’t agree with Muir’s emphasis on tighter mortgage rules.

“You’ve got the foreign buyer tax, you’ve got economic uncertainty, you’ve got the fact that the market might just be tired of high prices. There’s a collective psychology that there’s a switching point,” said Tsur Somerville, a professor of economics at the University of British Columbia.

“It’s essentially impossible to differentiate between those things when you have one data point, which is: ‘Oh, the market turned.’”

Vancouver’s very high housing prices are one reason higher interest rates and stricter lending rules could have an outsized impact, Porter said.

“Markets like Vancouver and Toronto we thought ahead of time were going to be the most affected by the stress test, but this decline is even bigger than that,” said Porter.

“There’s something else going on here, and I just have to assume that some of the measures the provincial government undertook have had a fairly visible effect, especially in combination with the (mortgage) stress test and the (interest) rate hikes.”

Whether the market slowdown is a good thing depends on your position in the market, Porter said.

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“If you’re an investor who has a number of properties beyond your personal needs, this is not welcome. If you’re a buyer who wants to get in, this is extremely welcome,” he said.

Yet Muir believes the tighter lending rules have led to “a very sharp decrease in affordability for Canadians.

“It’s unclear as to whether the magnitude of the change was necessary,” he said.

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