Surging sales ahead of interest rate cuts pose unexpected hurdles
Canada’s housing market has seen an unexpected uptick in home sales, presenting a new challenge to the Bank of Canada's efforts to curb inflation, according to insights from a leading economist.
Scotiabank senior economist Farah Omran shared her surprise over the recent surge in home sales during an interview with BNN Bloomberg—an increase that began in December and persisted into January, ahead of any interest rate reductions by the BoC.
Traditionally, a rise in home sales precedes any significant increase in housing prices, a trend that seems to hold true in the current scenario. Despite the uptick in sales, prices have remained steady, though Omran predicts that we might see a shift in the coming months.
Supporting Omran’s observations, the Canadian Real Estate Association (CREA) highlighted a 3.7% jump in December home sales compared to the year before, marking an unexpected boost. This trend was echoed in regional reports, with the Toronto Regional Real Estate Board (TRREB) noting an 11.5% increase in the Greater Toronto Area's home sales in December year-over-year. Similarly, the Real Estate Board of Greater Vancouver (REBGV) reported a 3.2% rise in the same period.
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The burgeoning activity in the housing market could inadvertently stoke inflationary pressures, complicating the central bank’s strategy to steer inflation towards its 2% target. Omran said potential economic ramifications of a surge in home sales will lead to knock-on effects on related industries.
“The other part of how housing impacts the Bank of Canada’s mission is that it increases economic activity. Once sales increase, there are spillover effects on other sectors in the economy that are related to housing, like furniture and renovations,” Omran said.
“Therefore, when home sales pick up, economic activity also picks up. We are in an environment where the Bank of Canada is actively trying to slow down economic activity to create an excess supply and bring inflation back to target.”
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