By Fergal Smith
TORONTO (Reuters) - Greater Toronto Area (GTA) home prices increased in May from April and sales rose sharply, adding to evidence that the housing market is recovering after a year-long slump, a factor that could support additional Bank of Canada rate hikes.
The average price of a GTA home rose to nearly C$1.2 million ($892,193) in May, up 3.7% from April, Toronto Regional Real Estate Board (TRREB) data showed on Friday.
It was the fourth straight month of gains, while the nationwide market has also picked up in recent months.
Signs of recovery in the housing market could fuel inflation. The BoC has left its policy rate on hold at a 15-year high of 4.50% since January but says it is prepared to tighten further to return inflation to its 2% target.
Money markets see a roughly 40% chance that the central bank will hike rates when it makes its policy decision next Wednesday.
On a year-over-year basis, the average home price remained lower, but the pace of decline slowed to 1.2% from 7.8% in April. The average price was 10.3% below the February 2022 peak.
Meanwhile, higher borrowing costs for developers have contributed to a slowdown in Canada's residential construction activity, which could thwart government plans to reduce a housing shortfall.
"The supply of listings hasn't kept up with sales, so we have seen upward pressure on selling prices during the spring," said Jason Mercer, chief market analyst at TRREB.
New listings fell 18.7% year-over-year in May. In contrast, sales rose 24.7% on an annual basis and were up 20% from April.
"The demand for ownership housing has picked up markedly in recent months," Mercer said. "Many home buyers have recalibrated their housing needs in the face of higher borrowing costs and are moving back into the market."
($1 = 1.345 Canadian dollars)