In May, Canada’s housing market experienced continued growth, but experts believe that the Bank of Canada’s decision to raise interest rates could slow down the rebound.
The Canadian Real Estate Association (CREA) reported that sales increased in 70% of local markets last month.
Compared to the previous month, sales activity rose by 5.1%, and there was a 1.4% increase in sales compared to the same time last year, marking the first annual increase in nearly two years, according to CREA.
Additionally, the average national home price in May was $729,000, a 3.2% increase from the previous year.
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In May, the number of newly listed homes on the market increased by 6.8% compared to April. Despite more sellers entering the market, the sales-to-new-listings ratio of 67.9% remains significantly higher than the long-term average of 55.1%, according to CREA.
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Sophie Chen, a real estate agent with Keller Williams Empowered Realty in the Greater Toronto Area, stated that more sellers have entered the market in recent months, driven by the belief that they can fetch better prices for their homes compared to the winter season.
CREA chair Larry Cerqua acknowledged the rebound in the housing market, with both home sales and prices returning to positive territory. However, he cautioned that the ongoing lack of supply may limit sales volume even as prices continue to rise.
Rate hikes put uncertainty back in housing market
It’s important to note that the May housing report does not reflect the impact of the Bank of Canada’s unexpected rate hike earlier this month. The rate increase raised borrowing costs and further constrained the purchasing power of prospective home buyers.
In a note to clients, Randall Bartlett, Desjardins’ senior director of Canadian economics, highlighted that the strong housing market data from April and May supported the Bank of Canada’s decision to raise rates and increased the likelihood of further rate hikes in July.
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Chen mentioned that the Bank of Canada’s pause in interest rate hikes has injected confidence in buyers, especially as market stability becomes more evident. However, she advises investors to carefully calculate their financial capabilities before jumping into the market. Chen also warns against attempting to time the market, as the coming months may pose challenges in terms of predictability.
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Despite the rate hikes, some buyers are still willing to enter the market with the belief that they can handle higher mortgage rates if they can secure a better price. Chen advises investors to carefully assess their financial situation before making a decision, as the market outlook for the next few months is uncertain.
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BMO’s Robert Kavcic stated that the rate increase should “dampen” demand and take some steam out of the housing market. However, he believes that the ongoing tightening measures from the Bank of Canada will lead to a stabilization of recent momentum throughout the rest of the year, rather than triggering a new housing correction.
TD Bank economist Rishi Sondhi predicts that the return to rate hikes will cool down home sales growth in the latter half of 2023. However, he maintains that prices will continue to rise due to
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