To what extent forthcoming tax and mortgage measures end up cooling the Canadian housing market is anybody’s guess, but one of Canada’s biggest banks suggests the impact will be substantial.

The Bank of Montreal has revised its real estate forecast for 2017, and it now predicts national sales will drop 5% year-over-year.

Meantime, benchmark home prices still rise, but at a much cooler 1 or 2 per cent, far from the expected 12% surge this year, says Douglas Porter, BMO’s chief economist.

“We are all along the market watchtower now, though, looking for some broad softening in sales [in the] wake of Ottawa’s new measures,” writes Porter.

The economist is referring to tax and mortgage policy measures that Canadian Finance Minister Bill Morneau announced earlier this month.

These include broader stress testing in the mortgage qualification process and the closing of a tax loophole foreign buyers could take advantage of to skirt capital gains taxes when flipping homes.

“Eventually, this [sales drop] will lead to much more moderate price gains as well,” he adds.

The comments come by way of BMO’s response to September resale housing market figures from the Canadian Real Estate Association (CREA).

The number of homes changing hands in the country inched upwards 0.8% in September, compared to the previous month, according to CREA.

At the same time, the benchmark price of a Canadian home, including condo units, reached $576,100, up about 14.4% from a year before, the association says.

Porter writes, “similar to last month, the big story behind the national figures (which hide as much as they reveal) was well-flagged by the initial releases from the major local real estate boards.”

“That is, Vancouver has turned stone cold, while Toronto remains on a rolling boil,” he continues.

The benchmark price, which is based on transactions involving similar homes, for a home in Greater Vancouver in September was $926,600, having inched down 0.7% from a month ago.

September was the first full month that the BC government’s 15% tax on foreign buyers of residential property in Metro Vancouver was in effect.

Moving in the opposite direction, the Toronto benchmark home price increased about 1.1% month-over-month to $669,600.

More than one observer has speculated non-residents will turn to Toronto real estate due to the tax.

“The only remaining hot spot is now Toronto, and some surrounding cities,” says Porter.

Here’s Why the Big Bank Says Canadian Home Sales to Fall in 2017 by Josh Sherman | Buzz Buzz Home