Canada’s housing market continued heating up in May, but experts say the Bank of Canada’s return to interest rate hikes might stunt the rebound.
The Canadian Real Estate Association said Thursday that sales were up in 70 per cent of local markets last month.
Sales activity increased 5.1 per cent month-to-month, CREA said. The number of sales was also up 1.4 per cent year-over-year, which CREA noted was the first annual increase in almost two years.
Sales prices were also up year-over-year. The national average home price was $729,000 last month, up 3.2 per cent from May of last year.
The number of newly listed homes on the market was up 6.8 per cent in May compared with April. While there was an uptick in sellers in the market, the sales-to-new-listings ratio of 67.9 per cent is still well above the long-term average of 55.1 per cent, CREA said.
Sophie Chen, real estate agent with Keller Williams Empowered Realty in the Greater Toronto Area, tells Global News that more sellers came off the sidelines in recent months, driven by the belief that they could get better prices for their homes than in the winter.
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CREA chair Larry Cerqua said in at statement that the housing rebound is evident with both home sales and prices back in “positive territory.” But he cautioned that the ongoing lack of supply could limit the volume of sales even as prices continue to recover.
Rate hikes put uncertainty back in housing market
The May housing report does not capture the impact of the Bank of Canada’s surprise rate hike earlier this month, which raised the cost of borrowing and further limited how much home prospective buyers could afford.
Randall Bartlett, Desjardins’ senior director of Canadian economics, said in a note to clients Thursday that the strong housing market data from April and May supports to the Bank of Canada’s decision to come off the sidelines and take more steam out of the economy with a rate increase last week and increases odds of another rate hike in July.
Chen says that the Bank of Canada’s pause “injected confidence in the buyer” amid signs of stability in the market. The June 7 rate move and forecasts of additional hikes is changing the conversations Chen says she’s having with buyers.
Some are still happy to jump into the market, she says, because of the belief that they can handle higher mortgage rates if they get a depressed price.
Chen advises investors to check their calculations to make sure they can handle additional rate increases before jumping in, but also cautions buyers from trying to time the market, as the next few months will be difficult to forecast.
BMO’s Robert Kavcic said that the quarter-percentage-point rate increase last week should “dampen” demand and “take some steam” out of the housing market. Rather than spurring a new housing correction, he said in a note that additional tightening activity from the Bank of Canada means “recent momentum will settle down and stabilize through the rest of the year.”
TD Bank economist Rishi Sondhi said in a note Thursday that he also expects the return to rate hikes will cool home sales growth in the latter half of 2023. He maintained, however, that prices will continue to rise amid tight supply levels.
Concerns about a lack of new supply hitting the housing market come as the Canada Mortgage and Housing Corp. reports the pace of homebuilding slowed in May.
CMHC says the annual pace of housing starts in May dropped 23 per cent compared with April as new construction of apartments, condos and other types of multi-unit housing projects in Vancouver, Toronto and Montreal fell.
The national housing agency says the seasonally adjusted annual rate of housing starts was 202,494 units in May, down from 261,357 units in April.
— with files from The Canadian Press
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