Canada’s housing market recovery gathers momentum in May

By Fergal Smith

TORONTO (Reuters) – Canada’s housing market showed further signs of recovery in May following a year-long slump, data on Thursday showed, a factor that could support additional Bank of Canada interest rate hikes.

Canadian home sales rose 5.1% in May from April and were up 1.4% on an annual basis, according to data from the Canadian Real Estate Association.

The industry group’s Home Price Index edged up 2.1% on the month and was down 8.6% annually, while the national average selling price was up 3.2% on the year.

The Bank of Canada last week raised its benchmark interest rate to a 22-year high of 4.75%, its first hike since January, saying that a pick-up in housing activity was among the factors that showed excess demand was more persistent than anticipated.

Money markets see a roughly 60% chance that the central bank will tighten further next month.

A lack of forced selling has contributed to a recovery in the housing market after lenders temporarily extended the period over which the debt of variable-rate borrowers is amortized, helping to shelter those borrowers from higher interest rates.

But the increase in borrowing costs has contributed to a slowdown in residential construction activity in recent months. That could thwart government plans to reduce a housing shortfall and add to the recovery in home prices.

Data on Thursday from the Canadian Mortgage and Housing Corporation (CMHC) showed that housing starts fell 23% in May compared with the previous month to a seasonally adjusted annualized rate of 202,494 units, much less than the 235,000 level of starts that economists had expected.

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