Housing affordability: Surprising home sales increase challenging BoC’s effort to control inflation, economist

One economist says that accelerating momentum in Canada’s housing market ahead of potential interest rate cuts could have spillover effects for the broader economy.

Scotiabank Senior Economist Farah Omran said in an interview with BNN Bloomberg on Friday that rising home sales in December were a “surprising jump for everybody” and the trend continued into January. She noted that rises in home sales have taken place ahead of any moves by the Bank of Canada to lower interest rates.

“House prices have not started increasing with the increase in sales that we’ve seen, but that is typical. Typically prices lag, the increase in sales, or the decline in sales,” Omran said adding that price increases could occur in the next few months.

The Canadian Real Estate Association said in January that December was characterized by “surprise” gains in home sales, rising 3.7 per cent compared with the same month a year earlier.

In the Greater Toronto Area, home sales rose 11.5 per cent in December compared to the previous year, according to the Toronto Regional Real Estate Board. Home sales rose to a lesser degree in Vancouver during December, with annual gains coming in at 3.2 per cent, according to the Real Estate Board of Greater Vancouver.

 

 

Omran also highlighted that the increase in buying activity could cause unintended inflationary pressures, and complicate efforts by the central bank to bring inflation back to its two per cent target.

“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 renovation,” she said.

“Therefore, when home sales pick up, economic activity also picks up. And 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.”

 

This article was reported by BNN Bloomberg