The situation will become particularly difficult for first-time home buyers
Robust sales performance for newly built homes across the Greater Toronto Area (GTA) might end up getting threatened by the Bank of Canada’s most recent rate hikes, according to a report from the Building Industry and Land Development Association.
The region saw 3,109 new home sales in May, up by 22% annually while remaining 10% below the market’s 10-year average for the month.
Benchmark prices declined for both new condominium apartments (down by 6.7% annually to around $1.098 million) and new single-family homes (down by 4.3% to $1.736 million).
However, the BoC’s policy rate hike to 4.75% in June is fomenting “challenges” for the region’s first-time home buyers, said BILD president and CEO Dave Wilkes.
“What I saw in these numbers, from May, is really the industry responding to market forces,” Wilkes told the Toronto Star. “What I’m worried about tremendously is that the market is incredibly fragile.”
Should the central bank raise its interest rates yet again on July 12, Wilkes said that the BoC and the federal government should strongly consider other measures like adjusting the stress test to compensate for the elevated-rate environment.
“I think that the Bank of Canada and overall impact of federal monetary policy is in very grave danger of overshooting its target and really causing, exaggerating, the affordability challenges that we’re finding at least in the GTA market,” Wilkes said. “The fragility of the market is being exposed with further hikes.”
The BoC rate reaching a multi-decade high of 5% next month remains a distinct possibility, market observers have warned.
“We see signs pointing toward a rate hike, and the markets are already ready for it,” said TD Bank deputy chief economist Derek Burleton, while also emphasizing that “it’s a close call on whether the Bank of Canada will hike after that.”
