Home sales in May, first yearly rise in prices as real estate market heats up

The Canadian real estate market continued to rise in May, with home sales showing their first rise since June 2021 and the average price rising year-on-year for the first time in a year.

Findings released by the Canadian Real Estate Association (CREA) on Thursday show a marked reversal from the weak sales and falling prices that have been seen in the Canadian real estate market since last year.

“At this point, a recovery has been evident for months, but May really brought it to a close,” CREA Chairman Larry Cerqua said in a press release.

The association said the number of home sales in May was 54,241, up 1.4% from the same month last year.

Seasonally adjusted sales for May were 40,220 units, up 5.1% from April.

The rally came after months of buyers sitting on the sidelines waiting for a house price bottom. But while they waited, the Bank of Canada raised its key interest rate, causing mortgage rates to rise. After a pause earlier this year, the central bank raised rates again on June 7 in an attempt to tame inflation.

In recent months, sellers have been as reluctant to enter the market as most buyers, citing that they will get much less for a house than neighbors when the market was still bubbling in the midst of the COVID-19 pandemic.

Now both buyers and sellers seem ready to buy or list homes for sale, and this is pushing prices up again.

According to CREA, the actual national median home price in May was $729,044, up 3.2% from May 2022.

Despite the increase indicating a rebound, Cerqua believes that some aspects of the reversal have yet to be assessed.

“The extent to which a recovery can be reflected in sales rather than price will depend on supply, which remains fairly low,” he said.

The volume of new supply (new listings) in May amounted to 59,237, which is 6.8% more than in April. The actual number of new listings was 87,037, down 13.6% from May 2022.

Robert Kavcic, senior economist at BMO Capital Markets, interpreted the figures as a sign that the new listings are “showing a slight beat of life,” but he also warned that it was still about 16% below the three pre-pandemic year average.

Housing activity has picked up sharply in recent years after the Bank of Canada cut rates to historic lows, but as rates began to rise, activity waned, he said.

When the central bank halted the rally in January, it “virtually told Canadians the worst was behind us” and housing activity quickly began to recover.

“Following this complex logic, it goes without saying that the Bank’s latest rate hike of 25 basis points will dampen some market psychology again and dampen recent activity a bit.”