Canada’s housing data shows recovery accelerating before rate hike

CANADA’S housing market showed further signs of recovery in May following a yearlong slump, data on Thursday (Jun 15) showed, a factor that could support additional Bank of Canada interest rate hikes.

Canadian home sales rose 5.1 per cent in May from April and were up 1.4 per cent year over year, the first increase on an annual basis since June 2021, the Canadian Real Estate Association said.

The industry group’s Home Price Index edged up 2.1 per cent on the month and was down 8.6 per cent annually, while the national average selling price was up 3.2 per cent on the year.

Monthly sales gains from February through May have been helped by “a healthy job market, robust population growth, and a jolt to buyer psychology from a Bank of Canada that was previously on pause,” Rishi Sondhi, an economist at TD Economics, said in a note.

The data doesn’t reflect the Bank of Canada’s move last week to raise its benchmark interest rate to a 22-year high of 4.75 per cent, the first hike since January.

The central bank said that a pickup in housing activity was among the factors that showed excess demand was more persistent than anticipated. Money markets see a roughly 60 per cent chance that it will tighten further next month.

A lack of forced selling has contributed to a recovery in the housing market after lenders temporarily extended the period over which the debt of variable-rate borrowers is amortised, helping to shelter those borrowers from higher interest rates.

But the increase in borrowing costs has contributed to a slowdown in residential construction activity in recent months. That could thwart government plans to reduce a housing shortfall and add to the recovery in home prices.

Data on Thursday from the Canadian Mortgage and Housing Corporation (CMHC) showed that housing starts fell 23 per cent in May compared with the previous month to a seasonally adjusted annualised rate of 202,494 units, much less than the 235,000 level of starts that economists had expected. REUTERS