Rising Interest Rates could hold back Canada's Housing Market recovery

The Canadian housing market has been on a steady upward trend in recent months, with both home sales and new listings increasing across various cities in the country. However, experts warn that the Bank of Canada's (BoC) decision to raise interest rates again could hold back this recovery.

According to a recent report by the Canadian Real Estate Association (CREA), home sales nationwide increased by 5.1% in May 2023. This was the first increase in nearly two years, as the number of sales rose by 1.4%. The national average home price currently stands at CAD 729,000 ($551,082), up 3.2% year-over-year.

The report further shows that there was a 6.8% increase in new homes listed on the market in May 2023. Additionally, the share of sales on new listings increased significantly from 55.1% to 67.9%. This indicates a continued recovery in the housing market.

However, experts suggest that the BoC's decision to raise interest rates again could slow down this recovery. After halting interest rate hikes from January 2023, the BoC recently increased the prime interest rate to 4.75%. This move is likely to reduce demand and cool down the housing market.

Toronto-based broker Toni Martins believes that this recent rate hike will push home buyers out of the market once again. Similarly, Robert Kavcic, an expert from the Bank of Montreal, warns that the BoC's decision to raise interest rates could drive the market down and last through the year. TD Bank economist Rishi Sondhi also predicts a slowdown in home sales growth in the second half of 2023 due to the interest rate hike.

Despite these warnings, some experts insist that house prices are likely to continue rising due to a scarcity of supply caused by slow pace new construction. According to figures from the Housing Authority, the rate of starting new housing construction in May 2023 decreased by 60,000 units from the previous month.

While the Canadian housing market has shown signs of a strong recovery in recent months, the BoC's decision to raise interest rates again could have a significant impact on its growth. As we move forward, only time will tell how this decision affects the Canadian housing market and whether the recovery will continue or not.