Rising Interest Rates Fail to Slow Red Hot Home Sales Market

Canada’s residential home sales market continues to defy expectations of a slowdown, according to the latest housing data from the Canadian Real Estate Association (CREA). National sales of existing homes remained steady in February even as the Bank of Canada raised interest rates for the fifth time since last spring. With demand outstripping supply in most major markets, real estate agents are advising buyers seeking to take advantage of low inventory levels to act quickly before prices climb higher.

CREA figures show that overall home sales held flat on a month-over-month basis in February. On a year-over-year basis, transactions were down slightly by 0.5% compared to February 2018. However, the national average price of a home sold was up 5.3% from the same month last year to $496,000. With interest rates now three-quarters of a percentage point higher than a year ago, economists had predicted home sales activity would start to cool. But buyer demand has proven remarkably resilient in the face of rising borrowing costs.

Rising Prices Drive Urgency

In Canada’s largest housing markets, the intensity of buyer competition showed no signs of easing. The number of home sales in the Greater Toronto Area was up 12.3% year-over-year in February, fuelled by declining new listings. In Greater Vancouver, sales rose 4.5% on an annual basis last month. With the gap between supply and demand continuing to widen, realtors say home prices will climb even higher unless more properties come on the market. This urgency to secure a home before values increase further is sustaining buyer activity despite rate hikes.

Looking ahead, CREA forecasts that national home sales and prices will moderate later this year as higher borrowing costs gradually cool demand. However, the group notes that housing markets are local, so the timing and extent of any softening will vary significantly depending on conditions in individual cities and towns. Overall, February data reinforces the view that Canada’s real estate sector remains resilient for now in the face of higher interest rates. But economists say the risk of overheating in some major markets is rising as affordability challenges intensify.