Rising borrowing costs, coupled with economic uncertainty, left many potential GTA homebuyers on the sidelines in 2023.
But slow Toronto home sales may not be the story for 2024 if the Bank of Canada delivers on expected interest rate cuts this year, industry analysts say.
“If history is any guide, once people accept the idea that interest rates are going to go down, you will start to see a noticeable movement back into the market… even speculation about rate cuts has an impact on the market,” Toronto Regional Real Estate Board (TRREB) chief market analyst Jason Mercer told CP24.com.
“So when we actually see real, tangible rate cuts, I think we’ll see an initial wave of people who have been putting off buying a home starting to come back into the market.”
According to the latest data available from TREBB, home sales in the Greater Toronto Area fell six per cent in November 2023 compared to November 2022. That was down 8.7 per cent from October.
In fact, sales hovered around their lowest level in 20 years for much of 2023, aside from a brief surge in activity in the spring.
The median home price in Toronto in November was $1,082,179, virtually flat year over year.
The median home price across all property types in Toronto peaked at $1,334,062 in February 2022, before the Bank of Canada’s first interest increase.
In December, the Bank of Canada kept its key interest rate at five per cent for the third consecutive time after 10 rate increases as part of a campaign to combat inflation. Forecasters expect the central bank to begin cutting rates in 2024, but opinions differ on the exact timing.
“Inflation and high borrowing costs have taken their toll on affordability. This has been no more evident than in the interest rate-sensitive real estate market. However, it appears relief is on the horizon,” said Toronto Regional Real Estate Board (TRREB) chair Paul Baron in a news release issued last month.
“Bond yields, which underpin fixed-rate mortgages, have been trending lower and a growing number of forecasters anticipate rate cuts from the Bank of Canada in the first half of 2024. Lower rates will help to alleviate affordability issues for existing homeowners and those looking to enter the market. .”
A recent report from Re/Max suggests that home sales in the GTA will increase more than 10 percent in 2024 as interest rates begin to fall and more buyers return to the market.
According to a market study forecast by Royal LePage, housing prices in the GTA are expected to increase six percent in 2024. The report states that prices will remain relatively unchanged in the first half of the year, but will recover In the second half. 2024, when interest rates are expected to fall.
The brokerage predicts that single-family detached homes will see a seven percent price increase this year, and condos will see a five percent increase.
“I think a very small rate cut by the central bank, by the Bank of Canada, will unleash a lot of that pent-up demand that we’ve had in recent years, which, by the way, is the longest slowdown in Canadian and Ontario real estate in 25 years,” Phil Sopher, president and CEO of Royal LePage, told CP24 in December.
“Although the great recession was only nine months, we are going to be here for two years. So there is a lot of pent-up demand.”
Cameron Forbes, a real estate broker with Re/Max Realtron, admits it may take more than that to convince buyers to return to the market.
“We may very well need to see a couple of moves from the Bank of Canada to revive some of this pent-up demand,” he told CP24.com.
He said the current interest rate environment has had the biggest impact on those trying to enter the market.
“With the stress test it is difficult for people to qualify for higher mortgages,” he said. “I think, honestly, first-time buyers are the people most affected right now. The capital for the initial payment is being challenged.”
He added that while two percent interest rates won’t be returning anytime soon, homeowners will see a break in rates in the not-too-distant future.
“I think people didn’t understand that two percent interest rates are not normal,” he said.
“That was very abnormal and I think people got used to it because it lasted a while.”
Forbes said it doesn’t see a big rebound in market activity until the fourth quarter of the year.
“I think the governor of the Bank of Canada has communicated to everyone that there is still inflationary pressure… so my instinct is that third quarter rates fall and the fourth quarter market obviously has a pretty big impact at that point.” with buyers coming in and buying,” he said.
Forbes said that while long-term fixed mortgage rates have already started to fall to as low as five per cent, it will likely be another six months before there is any movement in variable and short-term rates.
Leah Zlatkin of LowestRates.ca said she expects homeowners to get a rate reduction sooner than some predict.
“We see potentially a soft recession right now or a recession looming next year and because of that, I think the Bank of Canada will do everything it can to help alleviate that pressure on people,” Zlatkin said. , who works as a licensed mortgage broker, he said.
“As long as holiday spending stays in line and inflation doesn’t become rampant, I predict that early in the year we will start to see cuts, as long as the US Federal Reserve maintains or begins to cut itself.”
While some will have to wait for rates to drop to qualify for a mortgage, Zlatkin said now may be the best time for well-qualified buyers to make a purchase.
“For someone who believes rates are going to start going down soon and it’s a buyer’s market right now, this is the opportune time to buy, get a deal and ride that wave down in the future. years,” he said.
For homeowners who can stomach a little “volatility,” Zlatkin said a variable-rate mortgage may be the right move given anticipated rate cuts.
“Obviously that didn’t work for people who chose variable rates in recent years,” he said.
“If you believe in the powers that be and you believe rates are going to go down and you believe the analysts are right, then, I mean, it’s a good bet. “If those analysts are wrong, then it’s obviously a bad bet… but no one here has a crystal ball.”