Montreal October 16, 2009 - Canada's hot housing market may have more room to run as buyers scramble to lock in at low rates, but a lack of supply is driving up prices.
Never before have listed home sales been as high in the third quarter, the Canadian Real Estate Association said yesterday in a report that also showed the average price rising to a record level.
The report presents a quandary for homebuyers, who must decide whether to purchase in the current seller's market or wait until home listings rise in the months ahead, even as that would likely coincide with higher mortgage rates.
And it also presents a dilemma for the Bank of Canada, whose rate-setting decision next week must somehow balance the needs of exporters squeezed by a higher dollar and an overly buoyant housing market.
"The awe-inspiring rebound in Canada's housing market just keeps rolling along," said BMO Capital Markets deputy chief economist Douglas Porter.
National home sales soared 18 per cent, year-to-year, in the third quarter to a total of 135,182 units, on an unadjusted basis, and average prices rose 13.6 per cent in September from a year earlier to $331,602.
Seasonally adjusted home sales activity now stands 48 per cent above the low reached in the fourth quarter of 2008, CREA said, a fact that might have prompted Canada's major banks to hike mortgage costs this week to a posted five-year fixed rate of 5.84 per cent.
At the same time, September listings of homes for sale posted the largest decline in more than six years and are down 16 per cent from one year ago, CREA said.
"Firming home prices and an improving economic environment should eventually lure back more sellers and restore a healthier market balance," said Scotiabank economist Adrienne Warren, "but for now expect continued upward pressure on prices."
"It is a perverse outcome that when borrowing costs start to rise, one tends to see the greatest flurry of activity," said Eric Lascelles, chief economics and rates strategist at TD Securities, "because people realize 'Oh, that was the low and it's only going to get worse from here.'
"The fact that home prices are rising and borrowing costs are inching up, I think, is actually supercharging this recovery."