Canada’s real estate market continued to heat up in May with home sales posting their first year-over-year increase since June 2021 and the average price seeing its first year-over-year gain in a year.
The findings released by the Canadian Real Estate Association on Thursday suggested a marked shift away from the sluggish sales and slumping prices the country has seen since last year.
“The rebound has been evident for a number of months at this point, but May really drove the point home,” CREA chair Larry Cerqua said in a news release.
The association said the number of home sales in May totaled 54,241, a 1.4 per cent gain compared with the same month last year.
Seasonally adjusted sales for May were 40,220, up 5.1 per cent compared with April.
The increase came after months of buyers sitting on the sidelines awaiting a bottom for home prices. But as they waited, the Bank of Canada hiked interest rates, helping push up mortgage rates. After pausing earlier this year, the central bank hiked rates again this month in a bid to tame inflation.
In recent months, sellers have been as reticent as most buyers to wade into the market, reasoning that they would fetch far less for a home than neighbors had, when the market was still roaring during the height of the COVID-19 pandemic.
“Consumer confidence has risen sharply since March,” said Sherry Cooper, chief economist of Dominion Lending Centres, in an email to investors.
“But with household debt-to-income levels at near-record highs, the sensitivity to interest rates is extreme.”
However, more buyers and sellers appear to be ready to buy or list homes than the market saw earlier in the year.
Sales were up in about 70 per cent of all local markets, including Canada’s largest markets: the Greater Toronto Area, Montreal, Greater Vancouver, Calgary, Edmonton, and Ottawa, Cooper said.
Prices are moving upward too.
The actual national average home price was $729,044 in May, up 3.2 per cent from May 2022, CREA said.
The seasonally adjusted average home price was $715,290, up 2.7 per cent from April.
Despite the increase in pointing to a rebound, Cerqua feels some aspects of the turnaround are still yet to be determined.
“The degree to which a recovery will be able to play out on the sales side as opposed to the price side will come down to supply, which remains quite low,” he said.
The number of newly listed properties totaled 59,237 in May, a 6.8 per cent rose from April. The actual number of new listings amounted to 87,037, still down 13.6 per cent from May 2022.
Robert Kavcic, senior economist with BMO Capital Markets, interpreted the figures as a sign that new listings are “showing a bit of life,” but he warned they are still about 16 per cent below the three-year pre-COVID average.
“So, while there are some very early signs of better listings flow, the dearth to this point has tightened up the market,” he wrote in a note to investors.
Housing activity ran “wild” in recent years when the Bank of Canada cut rates in recent years to historic lows but when rates started to rise, activity went “dark,” he said.
When it paused rates in January, the central bank was “effectively telling Canadians that the worst is over” and housing activity has risen quickly from the ashes.
“Following this sophisticated train of logic, it stands for the reason that the Bank’s latest 25 basis point rate hike will again dampen market psychology somewhat and take some steam out of recent activity.”
This report by The Canadian Press was first published June 15, 2023.