Canadian home sales maintained their upward trajectory in May, defying elevated interest rates and reduced purchasing power. According to the Canadian Real Estate Association (CREA), national home sales increased by 5.1% compared to the previous month. While this gain was lower than April’s growth, it marked a significant milestone as actual monthly activity surpassed transactions recorded in May 2022, indicating the first year-over-year increase since June 2021. The housing market recovery was observed in 70% of local markets, including major areas like the Greater Toronto Area, Montreal, Greater Vancouver, Calgary, Edmonton, and Ottawa.
Recovery on the Horizon: Larry Cerqua, Chair of CREA, highlighted that the rebound in the housing market has been evident for several months, and May’s data confirmed positive year-over-year comparisons in both national sales activity and average home prices. However, Cerqua emphasized that the extent of the recovery will depend on the supply side, which remains constrained due to low inventory levels.
Inventory Challenges: Shaun Cathcart, Senior Economist at CREA, echoed similar sentiments, noting that while the housing market rebound was expected, the challenge lies in the reluctance of existing homeowners to list their properties amidst a slower market. Many homeowners are hesitant to move and disrupt their ultra-low fixed rates secured during the COVID-19 pandemic. This reluctance to list new properties poses a potential challenge to meeting housing demand, which may contribute to further price increases.
Limited Supply and Increased Demand: Although the number of newly listed homes experienced a 6.8% increase between April and May 2023, inventory levels remain historically low. The sales-to-new listings ratio, which measures the balance between supply and demand, saw little change on a month-over-month basis, reaching 67.9%. This level is significantly above the long-term average of 55.1%, indicating continued high demand relative to supply. CREA reported a national inventory level of 3.1 months, down from 3.3 months in April and significantly below the recent peak observed in January. The long-term average for this metric is approximately five months.
Price Trends: The Aggregate Composite MLS Home Price Index experienced a 2.1% month-over-month increase in May, demonstrating significant growth for a single month. This increase was widespread, with price gains observed in the majority of local markets. The index is now 8.6% below year-ago levels, indicating a smaller decline compared to previous months. The national average home price reached $729,000 in May 2023, representing a 3.2% increase from May 2022. This marks the first year-over-year gain in the national average price in 12 months and reflects a recovery of over $116,000 since January 2023. CREA attributes the price growth, to a large extent, to strong sales rebounds in the Greater Toronto Area and the BC Lower Mainland. Excluding these regions, the national average price indicates a decline of nearly $150,000.
Canadian home sales continued to surge in May, with gains observed in 70% of local markets. Despite challenges posed by elevated interest rates and limited supply, the housing market demonstrated resilience and recovery. Low inventory levels and increased demand contributed to upward pressure on prices, leading to the first year-over-year gain in the national average home price in 12 months. Continued monitoring of inventory levels and buyer-seller dynamics will be crucial in assessing the sustainability and future of the Canadian housing market.