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House Prices Increase In Canada As Interest Rates Remain High

Interest Rates Remain High

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In Canada, house prices are on the rise while interest rates remain high, according to the latest data from Statistics Canada.

The most recent New Housing Price index reveals a slight increase of 0.1% in average prices month-over-month in May. This marks the first increase since August 2022. 

Among the 27 surveyed census metropolitan areas (CMAs) in May 2023, prices increased in six CMAs, decreased in eight, and remained unchanged in the remaining 13.

The index takes into account the prices of newly constructed homes across Canada. Despite the recent increases in several CMAs, prices were down by 0.6% compared to May 2022.

Changes in pricing during May Overall, 19 CMAs experienced a year-over-year decrease in new home prices, up from the 14 recorded the previous month.

Victoria saw the largest year-over-year decline in new home prices in May, with a decrease of 2.7%. St. Catharines–Niagara and Edmonton also reported 2.4% and 2.3% reductions, respectively.

In contrast, the largest year-over-year increases in May 2023 were reported in Québec at 4.1% and Charlottetown and St. John’s at 1.1%.

The largest month-over-month decreases were observed in Greater Sudbury, down 1.2%, and Sherbrooke, Quebec, down 0.7%. According to home builders, the report cited weak local market conditions as the reason for the decline.

Prairie provinces offer affordability for homebuyers. 

A report released by Point2homes on June 19 indicates that affordable housing, particularly for renters and first-time homebuyers, is more likely to be found in Regina, Calgary, Edmonton, Saskatoon, and Winnipeg. These cities are located in the prairie provinces of Alberta, Saskatchewan, and Manitoba.

The Statistics Canada New Housing Index also reveals a year-over-year price decrease of 0.8% in the prairie region.

These findings align with a recent Canadian Mortgage and Housing Corporation (CMHC) study, which determined that housing is more affordable in the prairie provinces. 

The CMHC report attributes this affordability to a smaller decline in the number of privately owned homes under construction in 2023 compared to other regions.

The CMHC report further predicts that the housing supply will soon fail to meet demand on a national level. Although homeownership costs have decreased over the past year, higher mortgage rates and persistently elevated price levels will make it less affordable.

Bank of Canada raises mortgage interest rates. 

High-interest rates contribute to the prohibitive cost of housing in many Canadian cities. The Bank of Canada (BoC) recently raised interest rates for the second time in 2023, reaching a high of 4.75%. This is the highest level since 2021.

The BoC explains that it had to increase interest rates to curb spending, causing high inflation in the cost of goods and services, thus making life less affordable in Canada.

This higher rate directly impacts individuals seeking loans from financial institutions, such as mortgages. By making it more challenging for Canadians and newcomers to afford significant purchases like homes and cars, the aim is to slow down spending and encourage saving theoretically.

However, the BoC reports that Canada’s economy continues to grow due to ongoing high spending, and raising the interest rate was deemed necessary.

Statistics Canada states that higher interest rates affect housing market activity. According to the CMHC, there has been a 64.1% year-over-year increase in unabsorbed inventory (houses built but not sold) between May 2022 and May 2023.

Conclusion

The housing market in Canada is experiencing a rise in prices while interest rates remain high. The most recent data indicates a slight increase in average house prices, marking the first upward movement since August 2022. 

However, when compared to the previous year, prices are still lower. Different metropolitan areas have witnessed varying trends, some experiencing price declines while others have seen increases.
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