Canadian Housing Market Keeps Defying Expectations with Average Prices Increasing 17% This Year
As per data gathered from the MLS service offered by the Canadian Real Estate Association, the average house price in September hit $604K, which is over 17% higher compared to last year
This group represents over 130000 Canadian Realtors from whom the data is gathered. It stated that aside from hitting all-time average home price highs, the market also saw its busiest ever month, with September’s property sales volume being 20000 transactions more than the previous sales volume record.
Canada’s property market is on an unprecedented roll as it continues to defy performance expectations despite the pandemic breaking out in March, as supported by these latest figures.
Home sales cratered during the first few months of the pandemic due to widespread government lockdowns. However, the succeeding months have recorded monumentally high transaction volumes.
With the pandemic causing more people to stay in their houses, buyers are hunting for homes with more space. Detached properties located in suburbs near major cities are commanding sky-high premiums right now. Shaun Cathcart, the chief economist at CREA stated that the lockdown meant that people were restricted to their houses, for the most part, causing them to prioritize personal space.
CREA cautioned that the housing market’s performance may not be accurately represented by the average price since this figure can get skewed easily by transactions of expensive properties located in Vancouver and Toronto. If the figures from these two cities get filtered out, the average price of Canadian houses sold during the last month dipped to $479K. However, even this figure is a staggering 20% higher compared to the average price seen during the previous year at this time.
It isn’t just suburbs in Vancouver and Toronto that are experiencing an unprecedented rise in sales. Real estate brokers reported that properties located outside major cities in bedroom communities were also experiencing a spike in demand. More than 2405 homes were sold last month in Calgary alone, which is 30% more than the previous and 10% more than the previous month.
Low Interest Rates Driving Demand
Aside from the pandemic, the run in the housing market can also be attributed to the low mortgage interest rates, which are making expensive homes seem cheaper.
For instance, a homebuyer who can make a down payment of $120K is able to afford a $500K house by making a monthly payment of $2210 on a 25-year mortgage with a 5% interest rate.
However, reducing the interest rate to 2.8% allows the same buyer to afford a $600K house with a mere $12 increase in monthly payments.
These factors are causing the housing market to rise to record highs despite a recession in virtually every other corner of the Canadian economy.
It may not be sustainable in the long run though. Economists are chalking up the demand to pent-up market pressure due to a slow spring season. However, as this factor has almost run its course, property sales are expected to slow down again for the next few financial quarters.