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The national real estate market is recovering just as the Bank of Canada commits to low interest rates for the foreseeable future
Fewer listings and increased demand are fuelling Canadian home sales across the country leading to Canada’s lowest measured months of inventory in 16 years.
Sales-to-new listings went down to 63.7 per cent in June, according to the Canadian Real Estate Association. The summer activity brought the country’s months of inventory down to 3.6. The measure estimates how long it would take to liquidate homes currently listed on the market, and it hasn’t been that low since 2004.
Canadian home sales bounced back from pandemic levels, registering a 63 per cent increase since May and 15.2 per cent year-over-year.
The market is getting a major assist from low interest levels. Interest rates should stay down for a while, according to the Bank Of Canada’s July Monetary Policy Report. The report published July 15 announced that the Bank Of Canada will keep its target 0.25 lending rate until a 2 per cent inflation target is reached. According to the bank’s estimates, that may not happen until 2022.
A sustained run at a low interest rate could fuel the real estate market further. Toronto home prices are on fire, hitting an all-time high in June. Toronto home sales were up 83.8 per cent in June. Montreal climbed 75.1 per cent. Vancouver was not too far behind with 75.1 per cent. The average home price in Canada was $539,000, up 6.5 per cent from June 2019.
Though sales are up, home prices are high and business re-openings are adding jobs to the economy, the Bank Of Canada’s commitment to a low interest rate is a response to an expected downturn.
“We assume there will not be a broad-based second wave here in Canada and that most containment measures are lifted gradually,” Bank Of Canada’s Tiff Macklem told press when presenting the Montary Policy Report. “We also assume that the pandemic will have largely run its course by the middle of 2022.”
According to the report, the Bank Of Canada expects the global economy to shrink by another five per cent in 202. Subsequently, the global economy should grow by five per cent on average in 2021 and 2022.
In Canada, the bank is estimating about 40 per cent of the economic collapse from the first half of 2020 will be made up in the third quarter. But the recovery will slow from there. They estimate a real GDP decline of about 7.8 per cent in 2020, followed by a 5.1 and 3.7 per cent growth in 2021 and 2022, respectively.
The Canadian real estate market could feel the effects from unemployment, lack of immigration and the limits of COVID-19 relief measures in the fall, when the Canada Mortgage And Housing Corporation expects home prices are to start dropping.