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Upturn in Canadian Real Estate Market Ramps Up Housing Anxiety

Bouncing Back: The Canadian Housing Market's Resurgence
Amidst the Bank of Canada's rate hike, the Canadian housing market saw a significant rebound in May 2023, stoking fears of housing affordability as the demand-supply gap widens.

The Canadian housing market showed robust growth in May 2023, adding to the fears of a potential housing affordability crisis in the country. Statistics released by the Canadian Real Estate Association (CREA) indicate a month-over-month increase of 5.1% in national home sales. This trend, however, could spell trouble for potential homeowners, as it fuels the existing worries about home affordability, given the Bank of Canada’s recent interest rate hike.

Local Market Sales: Leading the Recovery

Sales surged in approximately 70% of local markets, with the most notable increases in Canada’s largest markets such as the Greater Toronto Area, Montreal, Greater Vancouver, Calgary, Edmonton, and Ottawa. Moreover, the actual number of transactions surpassed last year’s figures by 1.4%, marking the first national year-over-year sales increase in nearly two years.

The Impact of Historical Low Supply Levels

Nevertheless, the increase in housing activity did not surprise market observers. “A rebound in housing activity this year was never really in doubt because we knew the demand was there,” said Shaun Cathcart, CREA’s Senior Economist. However, he cautioned about the effects of a slow market on existing homeowners unwilling to make moves due to locked-in ultra-low fixed rates during the COVID-19 pandemic.

The Housing Affordability Crisis: A Glimpse into the Future

Meanwhile, the number of newly listed properties in May rose by 6.8% on a month-over-month basis, a welcome sign amidst historically low levels of supply. With sales and new listings up by similar magnitudes in May, the sales-to-new listings ratio was 67.9%, little changed from 69% in April. However, this still reflects an excess demand situation, as the long-term average for this measure is 55.1%.

Bank of Canada’s Rate Hike: The Ripple Effect on Housing Market

While the market shows signs of recovery, it does so in the backdrop of the Bank of Canada’s recent decision to increase its benchmark interest rate to 4.75%, stirring home affordability concerns. This decision brings the central bank’s benchmark to its highest point since 2001, shocking investors and economists who had anticipated a rate hike later in the year. Previously, the Bank had signaled a conditional pause on its campaign of aggressive rate increases, aiming to evaluate its impact on controlling inflation. However, following nine months of decline, the inflation rate took an unanticipated upward swing last month. Concurrently, the Canadian economy has demonstrated robust resilience, with growth exceeding expectations. This complex financial landscape reveals the ongoing tension between economic growth, inflation control, and the quest for housing affordability.


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