Canada’s Red Hot Housing Market—Still Heating Up or Cooling Down?

·1 min read

This week Canada released several stats on the red-hot housing market. What did the data tell us?

Similar to countries all over the world, the pandemic prompted a dramatic and record-breaking housing market in Canada. Boosted by ultra-low interest rates and a desire for more living space, demand has outstripped supply in most regions. Additionally, Canada was witnessing increased demand pre-pandemic, thanks to record immigration and a jump in new home purchases from millennial buyers.

For May, the Teranet-National Bank Composite House Price Index posted the largest monthly rise in the history of the data set. The index tracks repeat sales of single-family homes in 11 major Canadian markets and is up 13.7% annually from a year earlier. Meanwhile, housing starts (which measure the six-month moving average of the monthly seasonally adjusted annual rates) remained elevated in May, registering a slight increase from April.

In fact, the housing market is so hot that it was the cause behind a 3.6% rise in inflation (as defined by the consumer price index) in May, driven by rising housing costs.

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How long can this trend continue? Other data prints showed that activity is tapering — Canada's average home selling price fell 1.1% in May from April, according to Canadian Real Estate Association (CREA), but jumped 38.4% from the same period a year earlier. CREA data also showed that national home sales declined by 7.4% on a month-over-month basis in May.

Now, the government is getting involved, making it harder to get a mortgage. Beginning June 1, homeowners will be stress-tested, and the rate for uninsured mortgages will be set at either the mortgage contract rate plus 2% or 5.25% — whichever is greater.

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