Canada home sales rise again in May
Canada’s housing data shows recovery accelerating before rate hike
Following a year-long slump, the Canadian housing market continued to show signs of recovery in May, according to data released on Thursday. This development may support future interest rate increases by the Bank of Canada.
According to the Canadian Real Estate Association, home sales in Canada increased by 51% from April to May and by 14% year over year, marking the first annual increase since June 2021.
The industry group’s Home Price Index increased 21% on the month but decreased 86% annually, while the average selling price nationwide increased 32%.
The “healthy job market, robust population growth, and a jolt to buyer psychology from a Bank of Canada that was previously on pause,” according to Rishi Sondhi, an economist at TD Economics, have all contributed to monthly sales increases from February through May.
The information does not account for the Bank of Canada’s decision last week to increase its benchmark interest rate to a 22-year high of 4 percentage points, the first increase since January.
One of the indications that excess demand was more persistent than expected, according to the central bank, was a pick-up in housing activity. The likelihood of it tightening further next month is estimated by the money markets to be about 60%.
After lenders temporarily increased the length of time over which the debt of variable-rate borrowers is amortized, helping to shield those borrowers from higher interest rates, a lack of forced selling has contributed to a recovery in the housing market.
However, the rise in borrowing costs has caused a recent slowdown in residential construction activity. That might prevent government initiatives to address the housing shortage and support the uptick in home prices.
Housing starts decreased by 23% in May compared to the prior month to a seasonally adjusted annualized rate of 202,494 units, far below the 235,000 level of starts that economists had anticipated, according to data released by the Canadian Mortgage and Housing Corporation (CMHC) on Thursday.