January is usually a pretty quiet month for homebuying. Not so this year as sales have surged well ahead of the spring home hunting season.
One Bay Street economist, bemused by the early activity, took a stab at figuring out why that’s happening. What Bank of Nova Scotia‘s Farah Omran came up with is that potential homebuyers are trying to take advantage of still-falling home prices, while at the same time choosing variable-rate mortgages on the assumption that the “short-term pain” of higher rates will be worth it for the “long-term” gain of lower rates when the Bank of Canada finally makes its cuts.
“The housing market has seen a surge in sales in recent months, even though the Bank of Canada has not yet started cutting its policy rate or even signalled that a cut is imminent as many have been expecting,” she said in a note on Feb. 14. “This surge in activity is sooner than we expected, particularly as it well precedes the spring season, which is typically a hot season for the housing market.”
Canadian home sales rose 22 per cent in January, signalling a possible “turnaround” in the sector, according to the Canadian Real Estate Association (CREA). The jump came on the heels of an 8.7 per cent increase in December. Despite the increase in activity, national benchmark prices in January fell 1.2 per cent from the month before, with CREA noting that prices continued to drop in areas where sales rose the most.
Omran said she believes more Canadians are taking out variable-rate mortgages and swallowing higher interest rates in the early going on the assumption that the Bank of Canada will cut rates later this year. Variable rates rise and fall with the prime rate, which is based on the central bank’s benchmark overnight
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