Inflation and mortgage renewals cloud an otherwise modest rebound in sales and construction
Canada's housing market posted modest gains in April, but a growing chorus of warnings around inflation, rising mortgage rates, and renewal risk is casting a shadow over any recovery narrative.
Home sales rose 0.7 percent month-over-month in April, though they remained 4 percent lower on an annual basis without seasonal adjustment, the Canadian Real Estate Association reported Thursday.
The MLS Home Price Index edged 0.1 percent lower month-over-month and was down 4.2 percent year-over-year.
Newly listed properties rose 4.1 percent month-over-month, while the sales-to-new listings ratio slipped to 45.6 percent from 47.1 percent in March, moving further below the long-term average.
“The previously expected rebound in housing markets this year will continue to be muted,” CREA senior economist Shaun Cathcart said, adding that some upward momentum remains possible despite global uncertainty and higher mortgage rates.
On the construction side, the six-month trend in housing starts rose 3.2 percent to 256,777 units in April, according to Canada Mortgage and Housing Corporation.
The monthly SAAR for all areas climbed 17 percent to 279,317 units from 239,747 units in March, CMHC reported, though actual starts in centres with a population of 10,000 or more fell 1 percent year-over-year to 21,805 units.
Among the three largest census metropolitan areas, Toronto posted a 34 percent year-over-year increase driven by multi-unit activity, Montréal rose 21 percent on higher multi-unit starts, and Vancouver fell 30 percent on lower multi-unit and single-detached starts.
CMHC deputy chief economist Kevin Hughes said April's modest uptick in housing starts follows several consecutive months of decline, pointing to uneven construction activity across the country.
Despite the modest April uptick, Financial Post columnist Robert McLister argued the market faces a more serious threat forming beneath the surface.
McLister pointed to inflation metrics trending sharply higher over the past two months — with Wednesday's US producer price print coming in at nearly triple estimates — raising the prospect that the Bank of Canada could hike rather than cut.
A 100 basis point increase in mortgage rates would reduce buying power by roughly 8.5 percent, he noted.
The concern echoes the “renewal cliff” fears that circulated ahead of the Bank of Canada's first rate cut in June 2024, when RBC Capital Markets analyst Darko Mihelic estimated six in 10 bank mortgages would renew through 2026 with payments rising as much as 48 percent.
That cycle did not produce a default spiral, but McLister warned conditions are shifting.
OSFI superintendent Peter Routledge has estimated that between 30,000 and 150,000 households could be particularly vulnerable at renewal, the Financial Post reported, against a current arrears count of just 13,749 bank mortgage holders, per the Canadian Bankers Association.
McLister also noted that 36 percent of homeowners already report difficulty making mortgage payments, and a portion of that group faces renewal within the next 12 months.
Longer term, McLister cited factors that could support values, including eventual immigration normalisation, urban demand concentration, low owner-occupied homebuilding, aging-in-place trends, elevated construction costs, and restrictive zoning.
He cautioned, however, that one more rate shock remains possible if core inflation runs well past 3 percent and compels the Bank of Canada to act.
