Canada's red-hot housing market continues to defy expectations, with sales in March up 70 per cent compared to a year ago and average prices up by more than 30 per cent.
The Canadian Real Estate Association said Thursday that more than 70,000 homes were sold last month, obliterating the previous record for the month by 22,000 transactions. The figure was 76 per cent higher than the same month a year ago, which saw sales slow because it was the first month of restrictions related to COVID-19.
Those restrictions put a temporary chill on the market, but things started heating up in May 2020 and haven't cooled down since.
On the price side, the average selling price for a home sold on CREA's MLS system was $716,828. That's up by 31.6 per cent in a year, and the biggest annual pace of gain on record.
While sellers and owners are doubtless ecstatic with record selling prices, the torrid pace is causing anxiety among economists and policy-makers who worry that first-time buyers are being locked out of the market unless they take on massive mortgages that they may not be able to afford if interest rates rise.
Last week, Canada's top banking regulator proposed to raise the stress test level on mortgages to make sure that borrowers can afford higher rates. That move would reduce the purchasing power of buyers by about five per cent.
CREA chair Cliff Stevenson said the biggest factor pushing prices higher has been an imbalance between supply and demand, and he said the market is showing signs of finding an equilibirum.
"The shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the price side," he said.
"That said, it will take a lot more than one month of record new listings, but it looks like we may finally be rounding the corner on these extremely unbalanced housing market conditions."
The realtors at CREA argue that prices going up is a natural reaction to what they call an "imbalance between supply and demand" — in other words, there are more people who want to buy houses than there are houses for sale, which drives up the price of those that are.
But economist Doug Porter at BMO says March's numbers show there's a lot more going on. Seasonally adjusted, the number of new listings hit their highest level on record in March, he notes.
"Please keep that simple fact in mind when you hear the inevitable onslaught of rhetoric about how the housing market's imbalance is all about weak supply," Porter said. "The only possible world in which supply can be considered anything remotely in shortage is when stacked up against the extraterrestrial level of demand. "
Economist Rishi Sondhi with TD Bank says the numbers for April and May should be interesting to watch because the move to raise the stress test doesn't come into effect until June, which means it could have the unintended consequence of making the market even hotter in the short term as people rush to borrow and buy before the new rules are in place.
"It's déjà vu all over again [and] with markets remaining historically tight, more near-term gains are in the cards," he said. "This frothy price backdrop could prompt a response from policy-makers in coming months."
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Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, Canadian Business Magazine and — believe it or not — Circuits Assembly Magazine. Twitter: @p_evans Email: email@example.com Secure PGP: https://secure.cbc.ca/public-key/Pete-Evans-pub.asc
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