September was the busiest month for home sales ever
The average price of a home sold on the Canadian Real Estate Association’s MLS service went for $604,000 in September, an all-time record and an increase of more than 17% in the past year.
The group that represents 130,000 Canadian Realtors said that in addition to smashing the previous record on the price side, it was also the busiest September ever in terms of the volume of homes sold, with an additional 20,000 transactions logged on top of the previous record.
Thursday’s numbers are the latest eye-popping figures to come out about Canada’s housing market, which has defied expectations since March.
The pandemic caused home sales to crater in March and April because of widespread lockdowns but has come out on fire every month since.
Impact of lower rates
In addition to pandemic-induced demand for space, the housing market has been buoyed by record low interest rates, which can make more expensive homes feel more affordable.
A simple look at the numbers can show how. With a $120,000 down payment in hand, a would-be buyer can afford to buy a $500,000 home and pay $2,210 a month on a standard 25-year mortgage at 5%.
But if the borrower’s rate comes down to 2.8%, that same buyer can now afford a home that costs $600,000. That’s an extra $100,000 worth of purchasing power, but all it would cost the buyer is an extra $12 a month.
With forces like that at play, the housing market’s counterintuitive rise amid a pandemic starts to make a bit of sense.
“But the question now becomes whether this momentum is sustainable,” TD Bank economist Rishi Sondhi said.
He chalks up a big part of the current boom to pent-up demand after a muted spring selling season. But that’s largely in the past now, so “home sales are set to cool from their unsustainable third quarter pace over the next few quarters,” Sondhi said.