Will the Bank’s Rate Cut Spur Yet Another Toronto Housing Market Boom?

Some prominent real estate industry figures are predicting boom times will return to the Toronto housing market - what can home buyers and sellers really expect?

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Royal LePage president, Phil Soper, made his rounds in the media last week, arguing that the Bank of Canada’s quarter-point rate cut on June 5th would lead to a “material lift” in sales and “accelerated home price appreciation.”

His public relations push struck a chord with the public — several of our own clients reached out to me asking if they needed to buy as soon as possible to avoid paying significantly more in the future if prices accelerate. 

But I’m not as convinced as Soper that the Bank’s rate cut will have much of an impact on the housing market this year. 

The first thing to keep in mind is that buyers' behaviour will depend on how quickly consumers expect the Bank to make additional rate cuts over the next 6 to 12 months. 

For example, if a buyer believes that a total of four interest rate cuts are expected in relatively quick succession, they may take the first cut as a signal to get into the market ahead of more market demand and potential price increases. But this type of rapid rate decline would likely happen under very weak economic conditions, making the cuts a negative or bearish economic signal that may not result in the real estate demand surge anticipated if job losses and other metrics are similarly trending negatively. 

However, given some lingering concerns about inflation risks stemming from the US, some are also suggesting that the Bank of Canada may only cut one more time this year, which would leave the policy rate at 4.5%.

This was the same rate we saw in January 2023, when the Bank of Canada signalled that they were effectively done raising rates, leaving most buyers with the impression that the next move would be a rate cut. While this shift in market sentiment did cause some buyers to rush into the market, it was not widespread — the number of home sales in the first half of 2023 was still the lowest volume in 20 years, outside of the COVID lockdowns in 2020. 


While home prices did accelerate in the first half of 2023, this was largely driven by the collapse of a US bank which had led to a fall in bond market-driven fixed rates as well as a record-low number of new listings coming on the market for sale.


And while the volume of condo listings is currently at an all-time high (for reasons preceding the rate cut as I've recently described), the number of listings for houses is in line with historical trends. 


Given all of this, I am not as convinced that the Bank of Canada’s modest rate cut will result in a sudden flurry of buying activity large enough to spike home prices this year. 


Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn

John Pasalis is President of Realosophy RealtyA specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).

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