Canada’s real estate market doesn’t seem to respond to interest rate hikes

Last month, housing prices in some of Canada’s most populated cities went up, showing resilience against higher interest rates.

According to the latest report by Keefe, Bruyette & Woods, home prices rose by 8% in Toronto and by 7% in Vancouver during the previous four months.

“Canada’s real estate market showed more signs of recovery in May; prices kept growing, sales activity moved closer to more normal levels, and the lack of supply means that Canadians are not yet feeling any significant influence of the higher interest rates,” – the report says.

As you know, right now, the central bank’s key lending rate is 4.50% and the next rate meeting is scheduled for this Wednesday.

The report shows that total sales of existing properties in Canada’s six largest cities went up by 5% annually, which is roughly in line with the previous 10-year average for the month of May.

The market remains strong due to restrained supply, which was down modestly from already low levels in April.

A hike in home prices and sales is considered to be good news for Canada’s Big Six banks, which will benefit from the increase. Nevertheless, the report warns that continued interest rate rises may cause challenges for mortgage renewals.

The report authors predict at least one rate increase this year and maybe even two.

“In our opinion, higher rates in the nearest future may slow the latest pace in housing, in case mortgage rates follow,” – it noted.