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The Bank of Canada’s Recent Announcement:

What Does This Mean for Toronto Real Estate?

Navigating the current Toronto real estate environment can often feel like attempting to predict the unpredictable. But a recent announcement from the Bank of Canada has thrown many in the industry – and indeed, the general public – a welcome lifeline.

Back in January 2023, the Bank of Canada announced they were going to pause rate hikes, and buyers and sellers felt a base level of certainty with which to make real estate decisions with confidence, and as a result, the market shot up. Then, in June, the BOC threw a curveball and did the unexpected: they raised rates by 25bhp in June and then again in July.

Over the summer, there was a lot of uncertainty, and the media and market bears all piled on the Toronto real estate market with apocalyptic-like predictions. All eyes were on the Bank of Canada’s September 6th meeting; when they paused, the entire Toronto real estate market and industry collectively gave a sigh of relief – at least for now.

And while there’s no certainty about the Bank of Canada’s future rate decisions, the consensus from market analysts and economists is that they are done for this cycle.

Many, including Jason Friesen, Mortgage Broker and partner at Outline Financial, saw this coming. With the economy slowing and GDP figures revealing an unsettling trend, this decision seemed increasingly inevitable.

The Bank’s forecast was way off – projecting a 1.5% increase in GDP; the Statistics Canada report at the end of August showed that it actually contracted by .2%. The entire economic landscape is currently so unpredictable that even seasoned experts struggle when thinking about what lies ahead in the short term. This uncertainty has led to a significant shift in market participants’ psychology.

In this new environment, Bank of Canada meetings have suddenly become must-watch events, with everyone from seasoned financial analysts to everyday Canadians hanging on to every word. A further increase could have sent our fragile economy and markets spiralling.

A year ago, many predicted that increasing the overnight lending rate by 500bhp in such a short term would have tanked the Toronto real estate market, but that never materialized. However, many are beginning to question whether the latest round of hikes would be the straw that broke the camels (Toronto real estate markets) back; this still remains to be seen.

Ian Busher, Fox Marin’s VP of Sales, observes it’s not just buyers who are affected, “The balance has shifted, with more sellers than ever being attuned to these announcements. Today’s sellers aren’t just concerned about listing their property; they’re keenly interested in how potential buyers feel.” which for Toronto real estate standards is unusual.

As September marks the kick-off for the fall market, the BOC decision not to increase interest rates has left many asking: OK, great, “what’s next?”.

The top economists from CIBC and BMO are predicting that there will be no more rate increases this cycle. However, there are no assurances as The Bank of Canada’s latest statement has taken a ‘wait and see’ approach.

While the Bank of Canada’s mandate is to maintain pricing stability and bring inflation back down to 2%, the challenge remains: can this be possible without shaking the confidence of investors and homeowners or tipping the economy into a recession by overtightening?

In this current environment, Jason Freissn’s advice to his clients looking to acquire a property remains pragmatic. “While I hope for lower rates, I make decisions based on the present scenario.”

Interestingly, more of his clients are leaning towards short to medium-term fixed-rate mortgages with the belief that interest rates will drop by 0.75 to 1.5% by 2025. Opting for a longer fixed rate could result in clients paying a higher penalty to break out early, especially if rates drop, as many are starting to anticipate.

Jason Friesen notes that prior to 2022, the distribution of his book of business was 60% fixed and 40% variable; however, today, the vast majority of his clients have opted for fixed mortgages, which is a huge shift.

With many predicting that we are nearing the end of this rate cycle, some of his clients are starting to see a potential window of opportunity by going with the variable rate option. Friesen highlights that over the past few weeks, there’s been a surge in inquiries about variable rates.

If you would like to watch this discussion in its entirety:

Shifting Mortgage Perspectives Amidst Market Uncertainty:

Several years back, when interest rates hovered at 1.99%, and money was almost free, Overleveraging made a lot of sense when you get a 6 or 7% return. However, today, in this environment, with rates coming in at over 6%, this strategy no longer applies. In this environment, it makes a lot of sense to come in with as strong of a down payment as possible, with the strategy of refinancing at some point when rates eventually come back down.

If someone is considering acquiring a property, now is the time to be conservative and avoid taking unnecessary risks. Having a good sense of your monthly budget and having access to emergency funds is a great strategy. For any potential buyers out there, you should proceed, but it’s important to tread carefully.

Despite market jitters, the Toronto real estate market remains robust and continues to churn along. Many market analysts and bears had anticipated huge inventory being unleashed with rising interest rates, but that hasn’t materialized as of yet. Homeowners and investors recognize the intrinsic value of owning an estate in Toronto and remain reluctant to sell it, even if they are underwater or under duress. While in the short term, there may be a softening in the condo market, do not expect to see an apocalyptic market crash anytime soon.

While the immediate future of Toronto real estate may experience short-term headwinds, Toronto’s real estate future remains an exceedingly bullish picture.

In conclusion, while market dynamics may shift, this is not a market for the faint of heart, so be sure to exercise caution, prioritize budgeting, and rely on expert guidance to help you navigate these unpredictable times. The key is not to panic. If you zoom out and see the long-term trendlines and fundamentals block out all the noise and surround yourself with the right team, your best course of action will become clear.

This article was written by Ralph Fox, Broker of Record and Managing Partner here at Fox Marin Associates. Ralph is a Torontonian native who recognized from an early age that the most successful people in life apply long-term thinking to their investments, relationships, and life goals. It’s this philosophy, along with his lifelong entrepreneurial drive and exceptional business instincts, that help to establish Ralph as a top agent in the real estate market in downtown Toronto.