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

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.

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.