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Highlights:

• National home sales rose 3.1% from April to May.
• Actual (not seasonally adjusted) activity stood 2.7% above May 2014 levels.
• The number of newly listed homes was little changed from April to May.
• The Canadian housing market remains balanced overall.
• The MLS® Home Price Index (HPI) rose 5.17% year-over-year in May.
• The national average sale price rose 8.1% on a year-over-year basis in May; excluding Greater Vancouver and Greater Toronto, it increased by 2.4%.

The number of home sales processed through the MLS® Systems of Canadian real estate

Boards and Associations rose 3.1 per cent in May 2015 compared to April. This marks the fourth consecutive month-over-month increase and raises national activity to its highest level in more than five years. (Chart A)

May sales were up from the previous month in about 60 per cent of all local markets, led by increases in the Greater Toronto Area, Calgary, Edmonton, Ottawa and Montreal.

“CMHC announced in April that effective June 1 it was hiking mortgage default insurance premiums for homebuyers with less than a 10% down payment, so some buyers may have jumped off the fence and purchased in May to beat the increase,” said CREA President Pauline Aunger. “It’s one of the factors that could have affected sales last month. That said, all real estate is local, with trends that reflect a combination of local and national factors. REALTORS® remain your best source for information about sales and listings where you live or might like to in the future.”

“Sales in and around the Greater Toronto area played a starring role in the monthly increase in May sales,” said Gregory Klump, CREA’s Chief Economist. “At the same time, the rebound in sales over the past few months in Calgary and Edmonton suggests that heightened uncertainty among some home buyers in these housing markets may be easing.”

Actual (not seasonally adjusted) activity in May 2015 stood 2.7 per cent above levels reported for the same month last year and 5.7 per cent above the 10 year average for the month.

Sales were up on a year-over-year basis in about half of all local markets, led by activity in the Lower Mainland of British Columbia, Greater Toronto and Montreal.

The number of newly listed homes was virtually unchanged (-0.2 per cent) in May compared to April. This reflects an even split between housing markets where new listings rose and where they fell, with little monthly change for new listings in most of Canada’s largest and most active urban markets.

The national sales-to-new listings ratio was 57.6 per cent in May, up from a low of 50.4 per cent in January when it reached its most balanced point since March 2013. The ratio has risen steadily along with sales so far this year as new supply has remained little changed.

A sales-to-new listings ratio between 40 and 60 per cent is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets respectively. The ratio was within this range in about half of local housing markets in May. About a third of local markets were above the 60 per cent threshold in May, comprised mostly of markets in and around the Greater Toronto Area and markets in British Columbia.

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.

The national balance between supply and demand has tightened since the beginning of the year, when buyers had more negotiating power than they had in nearly two years. There were 5.6 months of inventory on a national basis at the end of May 2015, its lowest reading in three years.

The Aggregate Composite MLS® HPI rose by 5.17 per cent on a year-over-year basis in May, up slightly from the 4.97 per cent year-over-year gain logged in April. Gains have generally held to the range from five to five and a half per cent since the beginning of 2014. (Chart B)

Year-over-year price growth accelerated in May in all Benchmark home categories tracked by the index with the exception of one-storey single family homes.

Two-storey single family homes continue to post the biggest year-over-year price gains (+7.18 per cent), with more modest increases for one-storey single family homes (+4.11 per cent), townhouse/row units (+4.09 per cent) and apartment units (+2.91 per cent).

Year-over-year price growth varied among housing markets tracked by the index. Greater

Vancouver (+9.41 per cent) and Greater Toronto (+8.90 per cent) continued to post by far the biggest year-over-year price increases. By comparison, Fraser Valley, Victoria, and Vancouver Island prices all recorded year-over-year gains of about four per cent in May.

Price gains in Calgary continued to slow, with a year-over-year increase of just 1.21 per cent in May. This was the smallest gain in more than three years and the eleventh consecutive monthly slowdown in year-over-year price growth.

Elsewhere, prices held steady on a year-over-year basis in Saskatoon and Ottawa, rose slightly in Greater Montreal and fell by about three per cent in Regina and Greater Moncton.

The MLS® Home Price Index (MLS® HPI) provides a better gauge of price trends than is possible using averages because it is not affected by changes in the mix of sales activity the way that average price is.

The actual (not seasonally adjusted) national average price for homes sold in May 2015 was $450,886, up 8.1 per cent on a year-over-year basis.

The national average home price continues to be upwardly distorted by sales activity in Greater Vancouver and Greater Toronto, which are among Canada’s most active and expensive housing markets. If these two markets are excluded from calculations, the average is a more modest $344,988 and the year-over-year gain is reduced to 2.4 per cent.

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PLEASE NOTE: The information contained in this news release combines both major market and national sales information from MLS® Systems from the previous month.

CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods or account for price differential between geographic areas. Statistical information contained in this report includes all housing types.

MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 109,000 REALTORS® working through some 90 real estate Boards and Associations.

Further information can be found at http://crea.ca/statistics.

For more information, please contact:

Pierre Leduc, Media Relations
The Canadian Real Estate Association
Tel.: 613-237-7111 or 613-884-1460
E-mail: pleduc@crea.ca

The Bank of Canada announced on May 27^th, 2015 that it was keeping its trend-setting overnight lending rate at 0.75 per cent.

Economic growth in the first quarter was weaker than the Bank expected, but it “expects a return to solid growth in the second quarter.” It still believes that exports and business investment will pick up and that the Canadian economy will grow by just under 2 per cent this year.

The Bank thinks the economic fallout from low oil prices will be neatly limited to the first quarter. If it proves to be longer lasting, the Bank may downgrade its economic outlook again and further delay raising interest rates. Financial markets currently expect the Bank to start raising interest rates in the second half of 2016.

The Bank sets interest rates so that inflation stays around 2% (plus or minus 1%). Economic growth plays an important role in the Bank’s assessment of the outlook for inflation. Its announcement said, “seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy.” This makes clear the Bank has little reason to raise its trend-setting Bank rate anytime soon.

The Bank’s announcement ended by saying “a number of complex adjustments are under way.” and suggested “their net effect will need to be assessed as more data become available in the months ahead.” In the meantime, interest rates will remain supportive for Canadian home sales and prices.

As of May 27^th, 2015, the advertised five-year lending rate stood at 4.64 per cent, unchanged from the previous Bank rate announcement on April 15th and down 0.15 percentage points from one year ago.

The next interest rate announcement will be on July 15th, 2015 and will be accompanied by an update to the Monetary Policy report.

(CREA 05/27/2015)

In a surprise move, the Bank of Canada announced on January 21^st, 2015 that it was lowering its trend-setting overnight lending rate from 1 per cent to 0.75 per cent. This marks the first change to the Bank’s key interest rate in more than four years.

The decision to cut rates was the result of the recent sharp drop in the price for oil, which the Bank said “will be negative for [economic] growth and underlying inflation in Canada.”The Bank’s new Canadian economic forecast assumes that oil prices will average around US$60 per barrel, which means the Bank believes oil prices will rise from the mid-to-high $40 range where they stood at the time of the announcement.

The Bank said that total CPI inflation was already starting to reflect lower oil prices and that inflation was expected to drop below the lower bound of its target range for inflation of between one and three per cent before returning to the target range in the fourth quarter of this year. “This points to interest rates staying lower over the rest of the year,” said Gregory Klump, CREA’s Chief Economist.

The Bank said “the oil price shock is occurring against a backdrop of solid and more broadly-based growth in Canada in recent quarters. Outside the energy sector, we are beginning to see the anticipated sequence of increased foreign demand, stronger exports, improved business confidence and investment, and employment growth.”

The cut to the Bank’s key interest rate will act as another shoulder against the wheel pushing Canada’s economy in this direction while helping put a floor under falling inflation.

Even before the surprise rate cut, a rising spread between bond and mortgage rates was already putting downward pressure on five year fixed interest rate mortgages.

As of January 21st, 2015, the advertised five-year lending rate stood at 4.79 per cent, unchanged from the previous Bank rate announcement on December 3rd, 2014 and down 0.45 percentage points from the same time one year ago. The Bank of Canada’s next policy interest rate announcement is March 4^th, 2015 and the next update to Canadian economic forecast will be published in its Monetary Policy Report on April 15^th, 2015.

(CREA 01/21/2015)

The Bank of Canada announced on September 3^rd, 2014 that it was holding its trend-setting overnight lending rate at 1 per cent.

The overnight rate has not moved in four years. It’s likely that it will remain where it is for some time yet.  Why?

1. Inflation is on target — Inflation recently increased and is tracking close to the Bank’s 2 per cent target. However, the Bank believes the increase reflects temporary factors and cited evidence in support of this in its policy rate announcement. As a result, it does not see interest rate hikes as being necessary to rein it in. Instead, the Bank thinks inflation will keep itself in check as temporary factors dissipate.
2. Uncertainty remains high — While the U.S. economic recovery appears to be back on track after a dismal first quarter, European economic growth has faltered due in part to its trade sanctions with Russia. This means low interest rates are still needed to support Canadian economic growth while questions marks loom about the outlooks for global economic growth, demand for Canadian exports, and Canadian economic growth.
3. Canadian exports need help from the currency exchange rate –The Bank rate announcement noted that “Canadian exports surged in the second quarter”. The reasons cited were strengthening U.S. investment and “the past depreciation of the Canadian dollar”. Hiking interest rates too soon would result in a stronger loonie and dampened Canadian exports. The Bank is counting on stronger exports to lift business investment and economic growth.
4. Higher exports have not yet translated into stronger investment or hiring:The Bank was pleased to see the pickup in exports but noted, “While an increasing number of export sectors appear to be turning the corner toward recovery, this pickup will need to be sustained before it will translate into higher business investment and hiring.” As such, interest rates will need to remain stimulative in order to entice firms into increased investment and hiring even if exports remain strong.

With these reasons in mind, interest rates are unlikely to rise in the near future.

One notable change in language in the September 3^rd announcement was the removal of any references to a soft landing in the housing market. This Bank said that the housing market has in fact remained stronger than previously anticipated and that risks associated with household imbalances have “not diminished”.

That said, it is possible that stronger U.S. growth, a surge in exports, and the current strength of the housing market could all reflect a rebound from weak performances this past winter, which was unusually harsh.

As such, the Bank said that it remains “neutral with respect to the next change of its policy rate”, and will wait for new information as regards their outlook and assessment of risks to economic growth and inflation.

As of September 3^rd, 2014, the advertised five-year lending rate stood at 4.79 per cent, unchanged from the previous Bank rate announcement on July 16^th, 2014 and down 0.55 percentage points from the same time one year ago.

The next interest rate announcement will be on October 22^nd, 2014, and will be accompanied by an update to the Monetary Policy Report which contains the Bank’s outlook for the economy and inflation, risks to its economic projections, and an update to its estimate for potential Canadian economic growth.  

(CREA 9/3/2014)