The economy and inflation are still too strong for the Bank of Canada's liking, according to Benjamin Tal from CIBC. As a result, the Bank of Canada has increased its target for the overnight rate to 4.75%, with the Bank Rate at 5% and the deposit rate at 4.75%, and this will undoubtedly have a ripple effect on the housing market.
The primary driver of Canada's latest yield spike was the disappointing CPI data on May 16. That data from Statistics Canada revealed that the consumer price index ticked up in April, ending a five-month deceleration trend. Headline inflation rose to 4.4% in April, up from 4.3% in March, and was primarily driven by rising rents and higher mortgage interest costs.
The results signalled that the Bank of Canada may have a more difficult time than expected in bringing inflation back down to its 2% target."Multiple inflation measures sped up, putting the BoC on edge and boosting hike probabilities," McLister added. "Just as important was the jump in U.S. yields, which took Canadian rates along for the ride."
But Tal points out that recessions in the past are most often caused or helped along by monetary policy errors, and we are getting closer to such an error in Canada now.
However, seeing more typically cyclical activity this spring was encouraging before the interest rate increase. “Inventory has been trending upwards since December 2022, providing more choice, which in turn will hopefully spur on even more listings,” said FVREB CEO, Baldev Gill. With inflation tracking at elevated levels, the potential for further rate hikes is genuine.
Detached home prices are in line with August 2022 and December 2021. Prices have risen 11.6% since May 1. Sales have marginally increased, as has inventory. We still have historically lower inventory levels over the past 10 years, which is driving up the sale price as the demand for housing exceeds the supply of it. We did enter again into a strong sellers' market in May from a buyer's market in the last half of 2022.
The Worst Kept Secret Is Out: Canada's Housing Market Is the Most Undersupplied in the G7. While it does not take a market expert to know that we have a supply problem, the quantum and dire shortage compared to our G7 colleagues might. Scotiabank's Chief Economist Jean-Francois Perrault has pioneered in analyzing G7 housing data; his findings are alarming. The supply of Canadian housing has not kept up with population growth pointing to a near-record imbalance between the supply and demand.
As time progresses, I expect the housing market to get more competitive, and if you are planning a move, call me to discuss your options to create a plan that will work to help you achieve your dreams.