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Canadian home prices rise in May

Canadian housing market continues to surge as resale prices rise for fourth straight month

Average resale home prices continued to climb in May, marking the fourth consecutive monthly increase, the Canadian Real Estate Association reported today.

Since January, the average Canadian house price (not seasonally adjusted) has jumped over $116,000. Monthly price gains were posted in nearly every province, with the strongest increases seen in British Columbia (+5.1% month-over-month), Ontario (+3.3%) and Saskatchewan (+3.2%).

In seasonally adjusted terms, CREA’s Home Price Index was up 2.1% compared to April, but remains down 8.6% year-over-year.

National home sales were also up 5.1% in May compared to April, posting a fourth-straight monthly increase. The gain in sales activity was limited to three provinces, however, including PEI (+13.4% year-over-year), B.C. (+10.1%) and Ontario (+10%).

“A rebound in housing activity this year was never really in doubt because we knew the demand was there—the only question was around timing and that was answered this spring,” said senior CREA economist Shaun Cathcart.

“The 2023 housing puzzle piece that was less obvious was the reluctance of existing owners to take advantage of a slower market to make a move because they don’t want to mess with the ultra-low fixed rates they locked in during the COVID-19 pandemic,” he added.

CREA reported that months of inventory continued to slide to 3.1 months in May, down from 3.3 in April and 3.9 in March. The long-term average for this measure is five months.

New listings were up 6.8% from the previous month, but still remain historically low.

“Surging population growth, a tight labour market, falling price-to-rent ratios and, at least until recently, the hope of lower interest rates on the horizon all provided a tailwind to housing demand in the first five months of 2023,” noted Randall Bartlett, Senior Director of Canadian Economics at Desjardins.

“And with housing starts trending lower, a dearth of new supply should mean further support to prices and erosion of affordability ahead,” he added.

Cross-country roundup of home prices

Here’s a look at select provincial and municipal average house prices as of May.

LocationAverage PriceAnnual price change
New Brunswick$279,500-5.4%
Greater Vancouver $1,188,000-5.5%
Greater Toronto$1,164,400-6.8%
Barrie & District$821,300-13.1%
Greater Montreal$517,600-5.8%
St. John’s$324,600+3.5%

*Some of the movements in the table above may be somewhat misleading since average prices simply take the total dollar value of sales in a month and divide it by the total number of units sold. The MLS Home Price Index, on the other hand, accounts for differences in house type and size.

Bank of Canada rate-hike implications

Observers say the continued momentum in Canada’s housing markets supports the Bank of Canada’s decision last week to restart its rate tightening.

“With so many fundamental factors pushing up demand, the only thing that could put a chill on the red-hot Canadian housing market is higher rates,” Bartlett wrote in a research note.

But while last week’s Bank of Canada rate hike, and the potential for more hikes to come, is likely to slow resale activity in the months ahead, Bartlett says the slowing trend of housing starts and the current lack of demand to meet supply “will only worsen the affordability crisis, putting upward pressure on home prices and rent alike.”

“If all you have is a hammer (the Bank of Canada’s policy rate), everything looks like a nail,” he added. “As such, until we see meaningful progress in inflation moving toward the Bank of Canada’s 2% target, bumper housing market data provides further support to our view that the Bank is likely to hike again in July and keep the door open to further rate hikes as needed.”

Those higher rates “should manifest into weaker sales growth in the back half of this year, reinforced by a jobs market that should also be softening,” said Rishi Sondhi of TD Economics.