April showers usually bring May flowers. For agents in Toronto, they also seemingly brought what appeared to be a treasure trover of home listings, as preliminary data from the Toronto Real Estate Board showed listings surged 47 percent from the same period last year.

According to a Wolf Street Report, this came even as sales dropped 16 percent and the average selling price fell 3.3 percent from April. To add to the confusion, these dominos fell after a 33 percent year-over-year spike in home prices in March and a 25 percent surge in April. This leaves cautious agents to wonder what is up with Toronto’s housing bubble.

Troubles have been bubbling since the country’s largest alternative mortgage lender, Home Capital Group, ran into choppy waters that dried up its funding sources. The industry is worried about a ripple effect. The provincial government in Ontario took action to tame the housing market by enacting a 15 percent tax on purchases by non-resident foreign investors. However, this has left many locals unable to buy even a modest home. Moody’s Investors Service recently downgraded Canada’s six largest banks on concerns over their exposure to the housing bubble. To top it off, Canadian household indebtedness that ranks among the highest in the world.

Agents are starting to feel the impact. Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, told Bloomberg, she didn’t get a single visitor during a recent open house.

“We are seeing people who paid those crazy prices over the last few months walking away from their deposits. They don’t want to close anymore.”

The issues with Home Capital have left many real estate shoppers on edge. They worry that the ripple effect could leave them holding the bag on a home that won’t be worth what they have paid for it. Agents often find themselves on the front lines of this tug-of-war with clients. Toronto real estate lawyer Mark Weisleder told Bloomberg he has seen some clients looking to get out of transactions.

“I’ve had situations where buyers are trying to find another buyer to take over their deal. They are nervous whether they bought right at the top and prices may come down.”

Was it Home Capital? Was it Ontario’s new rules? Weisleder said he believes Home Capital has had the greatest impact. Lorand Sebestyen, an agent with iPro Realty in Toronto, agreed.

“Home Capital is affecting things because people who can’t get mortgages from the banks rely on them and other b-lenders. If you can’t get the mortgage then you obviously can’t buy anything and it’s going to affect the market, especially for the higher-priced properties.”

Canadian real estate agents find themselves in a market where the mentality is that real estate values can never-ever go down in any significant way – on the theory that they always go up – because they didn’t take a big hit during the Financial Crisis that wracked the United States, and because the prior declines have been forgotten. As a result, the current optimism about rising home prices has swelled. Only recently have there been signs of second thoughts. According to a recent survey by Nanos Research, in early May, the share of people saying home prices would rise in the next six months was a record 50.1 percent. By the very next week, it had dropped to 47.7 percent. In the survey’s most recent poll, it was down to 46 percent.

As a result, Canadian real estate agents will need to keep their fingers on the pulse of the real estate market and stay tuned.