In a surprise to economists, Canadian home sales "defied gravity" in April, rising double-digits despite a significant lack of supply.
Up 11.3% on a monthly basis, it marks the third, and largest, consecutive monthly increase in sales. Meanwhile, listings rose just 1.6% in April following back-to-back months of decline. The tightening market conditions -- the sales-to-new-listings ratio rose to 70.2% -- pushed the MLS Home Price Index (HPI) up 1.6%, the second straight monthly increase after nearly a year of drops.
While a bottom was expected sometime this spring, the rate of the housing market's recovery came as a surprise to economists. And, although it signals the end of the year-long correction, the rapid rise in activity and coinciding price increases spells trouble for the Bank of Canada (BoC), inflation, and interest rates, experts say.
"We have been expecting a stabilization in housing activity and an eventual uptick in demand and prices, driven by pent-up demand and strong immigration combined with limited supply, however the magnitude and speed in which this seems to be happening surpass our previous expectations," Scotiabank Economist Farah Omran said in a Housing News Flash.
Robert Hogue, Assistant Chief Economist at RBC, echoed Omran's thoughts in a Monthly Housing Market Update, writing that April's "widespread vigour" defied expectations that it would "take a while for the heat to return" to the housing market.
While the market's unexpected recovery "points to resiliency and strong household finances, it also poses additional challenges for the Bank of Canada as it tries to slow down the economy and bring inflation back to its 2% target," Omran continued.
Hélène Bégin, Principal Economist at Desjardins, drew the same conclusion in a housing market update, noting that the rebound "isn't good news for the BoC."
"The restrictive effect of past interest rate hikes isn't stopping the housing market from recovering well," Bégin said. "The economic slowdown hasn't done enough to soften the labour market, and rapid population growth is just adding fuel to the housing market."
With a significant loss of affordability weighing on many prospective purchasers, particularly first-time buyers, soaring immigration levels may be becoming one of the primary driving forces behind demand, Hogue said. If so, prices may continue to rise in the months to come, further straining affordability.