July 12th, 2023 | Uncategorized

Implications of Bank of Canada’s Interest Rate Hike for Toronto Real Estate Market

The recent interest rate hike by the Bank of Canada, marking the 10th increase since March 2022, has significant implications for both sellers and buyers in the Toronto real estate market. Let’s explore how these changes affect them, shall we? But first, a quick summary of the key takeaways from today’s announcement …

• Bank of Canada raises interest rate for the 10th time since March 2022.
• The policy interest rate hike makes borrowing more expensive.
• Overnight rate reaches 5 percent, the highest since 2001.
• Rate increase aims to slow economic growth and reduce core inflation.
• Core inflation has been persistently high at 3.5 to 4 percent since September 2022.
• Inflation has dropped from 8.1 percent to 3.4 percent since March 2022.
• Bank predicts inflation to remain elevated around 3 percent in the next year.
• Economic growth is not slowing as expected, driven by demand and strong consumer spending.
• Bank’s mandate is to keep inflation around 2 percent.
• Inflation expected to return to 2 percent in the middle of 2025, two quarters later than previously projected.
• Inflation outlook affected by excess demand, high housing prices, and prices for tradable goods.
• Uncertainty exists due to sluggish services inflation and expected inflation.
• Inflation remaining above 2 percent could prolong higher inflation expectations and hinder price stability.
• Higher interest rates expected to slow Canada’s real GDP growth to 1.5 percent in Q2 2023.
• GDP growth to hover around 1 percent in the second half of 2023 and first half of 2024.
• Economic growth projected to pick up in 2025, with expected GDP growth of 2.4 percent.
• No mention of an interest rate pause in the current monetary policy report, leaving room for another hike.
• Next rate decision by the Bank of Canada scheduled for September 6th.

For Sellers:

Higher borrowing costs: The interest rate hike makes borrowing more expensive, which may reduce buyers’ purchasing power. This could potentially result in a longer time to sell properties as buyers adjust their budgets and affordability expectations.

Slower economic growth: The rate increase aims to slow economic growth, which may impact the overall demand for real estate. Sellers might experience a slowdown in market activity, leading to a more balanced or buyer’s market, potentially affecting pricing and negotiation power.

For Buyers:

Increased borrowing costs: With the interest rate hike, the cost of borrowing rises, making it more expensive to finance a home purchase. Buyers will need to re-evaluate their budgets and adjust their expectations accordingly to accommodate the higher costs.

Potential market slowdown: The measures to reduce core inflation and slow economic growth could have an impact on buyer demand. This might provide buyers with an opportunity for more favorable terms and negotiations, as the market may shift towards a more balanced or buyer-friendly environment.

Overall, the interest rate hike by the Bank of Canada introduces both challenges and opportunities in the Toronto real estate market. Sellers should be prepared for potentially longer selling times and adapt their pricing strategies accordingly. Buyers, on the other hand, may find increased bargaining power and opportunities in a potentially more balanced market. Monitoring the Bank of Canada’s future rate decisions, including the upcoming decision on September 6th, will be crucial for both sellers and buyers to navigate the evolving real estate landscape.