By Paul Vieira
OTTAWA--Canada's sizzling housing market shows no signs of slowing down as sales in March set a fresh record by a significant margin.
The strength in housing is prompting warnings from the Bank of Canada, while some senior economists believe the extraordinary monetary policy launched since the start of the pandemic might now be inappropriate.
Data released Thursday from the Canadian Real Estate Association indicated home sales across Canada climbed 5.2% in March. The more than 76,000 residential properties that were bought and sold in March marked the highest level of activity of any month in history, the association said, adding that it beat the previous record set last July by 14,000.
The association's house-price index, on a nonadjusted basis, rose 20.13% from a year ago, to 713,700 Canadian dollars, or the equivalent of $569,000. The actual national average sale price, also not seasonally adjusted, climbed more than 31% in March to a record C$716,828, according to the association's data. The national average price is heavily influenced by sales in Canada's two most expensive markets, Toronto and Vancouver, British Columbia.
Canada is experiencing a housing craze triggered by the Covid-19 pandemic and demand for more space, rock-bottom interest rates, and demographics, with millennials moving into their prime-buying years. Yet Canada has seen a more dramatic price runup than all Group of Seven countries, according to housing data collected by the Federal Reserve Bank of Dallas.
"The pace of Canadian home sales and prices is simply in unchartered territory," said Doug Porter, chief economist at BMO Capital Markets. He said sales in March were more than 80% above the March 2019 level, and 66% above the average monthly pace of the past decade, based on available data.
The real-estate data also indicted new listings in March hit their highest level on record in seasonally adjusted terms. However, inventory across Canada remained at a record low of 1.7 months. The long-term average for this inventory gauge is just over five months.
Last week, the Bank of Canada said that Canadian housing vulnerabilities have increased in recent months amid sharp growth in single-family house prices and rising mortgage debt. Among the concerns the central bank identified was the rapid rise in the share of newly issued mortgages with loan-to-income ratios above 450%--to levels last seen in 2017, when Canadian authorities introduced tougher mortgage-financing rules meant to cool activity.
"Canadians don't shy away from housing debt because more and more people see it not just as an ownership opportunity and store of value, but as a path towards wealth creation that carries less volatility than investing in the stock market," Beata Caranci, chief economist at TD Bank, said in a research report to clients Thursday ahead of the housing-data release.
She said the quickest route to cooling the market and squeezing out speculation comes down to the interest rates. The Bank of Canada has previously signaled its main policy rate, at 0.25%, will remain unchanged for the foreseeable future. Given the steep drop in mortgage rates in Canada, which is helping fuel housing, the Bank of Canada's "current monetary stance may no longer be appropriate for this segment of the market," she said.
Another economist, Derek Holt at Bank of Nova Scotia, has also called for a reset in central bank policy, in part because of the country's strong recovery.
The Bank of Canada is scheduled to issue its next rate decision and economic outlook on April 21. Traders are watching closely for news that Canada's central bank will outline plans to scale back, or taper, its large-asset purchases that were initiated at the start of the pandemic to help financial markets, and any further commentary or concern about the state of Canadian housing.
A number of high-profile economists have called on the Canadian government to introduce measures and consider other potentially controversial policies--including a new regime that no longer exempts the sale of principal residences from capital-gains taxes--to cool real-estate activity, arguing affordability is deteriorating across the country. Canada's finance minister, Chrystia Freeland, is scheduled to release the Liberal government's 2021 budget plan on Monday.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
04-15-21 1041ET
