March 2

How Rate Hikes Will Affect The Toronto Real Estate Market


With the consumer price index now at a soul-crushing 5.1 per cent, the BoC has decided to raise it's overnight rate from 0.25 per cent up to 0.5 percent in response to sky-high inflation.

This is the first increase to the mortgage-influencing overnight rate since 2018, ending a period of record-low rates that were brought in to support economic recovery during the COVID-19 pandemic.

What Will This Do Toronto’s HOT housing market?

As current and future rate hikes are announced there will be effects felt in the housing market to be sure:  

  1. Cost of borrowing will go up so price appreciation should stabilize in the face of significant overnight rate hikes.
  2. Incentive to refinance will diminish which is a major source of the funds that have caused the rapid price growth over the last 2 years.  

The market in 2022 should react similarly to the way it did in 2018 when the last rate hikes were announced.  Back then, we were still feeling the effects the Fair Housing Plan.  Once the foreign buyers tax was announced sellers rushed their homes to market and it became a buyer's market in only a few weeks.  In areas like Richmond Hill, prices dropped by nearly 20% in a matter of months because of the Wynne Government's Fair Housing Plan.

By 2019, a year after the rate hikes were implemented, sales volume had declined year-over-year while price growth was positive and outpaced both inflation and CPI.  I would expect something similar to happen in 2022.

Rate hikes are a sign of economic change.  The uncertainty associated with them seems to cause potential buyers and sellers to wait before getting into the market – leading to a reduction in sales, but not necessarily a reduction in average price.  

Summing Up

Don't expect prices to go down unless there are multiple rate hikes which will significantly impact buying power.  

You can expect price growth to slow somewhat in the GTA.  That's not to say markets outside of the GTA that saw prices increase by as much as 70% during the pandemic aren't at risk of a major correction;  they are.  I mean, average prices in Guelph are over $1 Million dollars for Pete's sake. 

Consider that immigration targets for Canada predicts more than 432,000 new permanent residents each year for the next 3 years.  I can tell you right now, we're not building anywhere near enough homes for all these people.  A large portion of those new residents will be landing in the GTA, so more rapid price growth is not out of the question either.    

Unless we see multiple rate hikes I would bet against prices coming down.  Sales decreasing?   I'll buy that because history has shown that if Seller's can't get their price now, they'll just pull their homes off the market and wait.  

Do you have something to add? 

Let's talk real estate. 


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