Despite the soaring mortgage rates to their highest levels in more than a decade, Canadian home prices are still increasing. The continuous rise in prices has led many prospective homebuyers to question why Canadian home prices refuse to slow down. In this blog post, we will explore the factors that are keeping Canadian home prices buoyant, despite the increasing cost of borrowing money for a mortgage.
According to a report by the Canadian Real Estate Association, average prices of homes being resold continued to rise in May, marking the fourth consecutive month of increase. Since January, the average price of a Canadian house (not adjusted for seasonal variations) has gone up by more than $116,000. Almost all provinces saw a rise in monthly prices, with British Columbia, Ontario and Saskatchewan experiencing the strongest increases. When adjusted for seasonal variations, CREA's Home Price Index rose by 2.1% compared to April, but was still down by 8.6% year-over-year. National home sales also increased by 5.1% in May compared to April, with only three provinces - PEI, B.C. and Ontario - experiencing a rise in sales activity. According to Shaun Cathcart, a senior economist at CREA, the increase in housing activity this year was expected due to the existing demand. The only uncertainty was the timing, which was resolved this spring. However, the reluctance of current homeowners to sell their properties due to the low fixed rates they secured during the pandemic was an unexpected factor in the 2023 housing market. CREA reported that the months of inventory decreased to 3.1 months in May, which is below the long-term average of five months. Although new listings increased by 6.8% from the previous month, they remain historically low. Randall Bartlett, Senior Director of Canadian Economics at Desjardins, noted that a growing population, a tight labor market, falling price-to-rent ratios, and the expectation of lower interest rates have all contributed to the high demand for housing in the first five months of 2023. The Canadian housing market is currently experiencing high demand due to various factors, but the only thing that could potentially cool it down is an increase in interest rates. Although the recent rate hike by the Bank of Canada and the possibility of more hikes in the future may slow down resale activity, the trend of slowing housing starts and the current lack of demand to meet supply will only worsen the affordability crisis, leading to higher home prices and rent. Until there is significant progress in inflation reaching the Bank of Canada's 2% target, the bank will likely continue to raise rates, with a possible hike in July and further hikes as needed. TD Economics' Rishi Sondhi adds that higher rates may result in weaker sales growth in the latter half of the year, coupled with a softening job market.
0 Comments
Leave a Reply. |
By: Sarah ColucciSenior Mortgage Agent, Lic. M14000929 Categories |