Toronto home sales rallied to a record for the third-straight month, underscoring the conundrum the central bank faces as some economists predict it will cut interest rates to fight a slump in the wider economy.
Sales in Canada’s largest city rose 18 percent to 11,992 transactions in June from a year ago, a record for the month, the Toronto Real Estate Board said in a statement on Tuesday. The average price to buy a home jumped 12 percent over the same period to C$639,184 ($501,517), while the average price of a detached house in the core surged 14 percent to C$1.05 million.
“Arguably another rate cut would be the equivalent of throwing another log on an already raging fire,” Douglas Porter, chief economist at Bank of Montreal, said by phone.
Low mortgage rates have spurred the hot housing market in the city of 2.8 million people. The Toronto data come as the Bank of Canada prepares for its July 15 interest-rate meeting. Five of 23 economists in a Bloomberg survey forecast the central bank will cut rates for a second time this year after the economy unexpectedly contracted for the fourth month in a row in April as oil’s slump continues to weigh on growth.
Canada’s merchandise trade deficit widened to C$3.34 billion in May, the second-largest on record, as exports fell for a fifth month.
“The home sales gives a very strong argument against the rate cut but the trade numbers give a strong argument in favor,” Porter said. The economist is still waiting for Friday employment data to make a rate call. “Unless we get a surprisingly strong figure on Friday I’d have to lean towards the view that the Bank of Canada will cut rates next week.”
Detached home prices in Canada’s financial capital crossed the C$1 million mark in February when they rallied 9 percent to C$1.04 million. Prices have hovered above that level for the last five months, reaching as high as C$1.12 million in May.
“The annual rate of sales growth continues to far outstrip listings growth, which means that there remains a lot of willing buyers in the marketplace who haven’t found a home,” Jason Mercer, the board’s director of market analysis, said in the statement. “As long as this situation persists, expect home prices to trend strongly upward.”