Talk Of The Town

Talk Of The Town

The real estate market has been the “talk of the town” in recent months and why shouldn’t it be? Not only does it affect us all, but from the standpoint of owners and renters, it accounts for roughly $141.5 billion in gross domestic product (GDP).

The market experienced price growth at a torrid pace in 2021, with Canadian average housing prices peaking at just over $800,000. In 2023, the MLS® Home Price Index (HPI) climbed 1.1% month-over-month and was down just 1.5% year-over-year.

The Bank of Canada needed to get inflation under control and, in order to do so, they began to raise interest rates—the cost to borrow money. By making it more expensive for businesses and consumers to borrow money, the BoC essentially wanted the general population to stop spending money at the rate we were, which was driving up the cost of goods and services.

However, when rates go up, historically this puts downward pressure on home prices. Since the increase in interest rates, we have surprisingly seen prices hold relative to the increase. The actual (not seasonally adjusted) national average sale price posted a 6.3% year-over-year increase in July


The real problem has been in the number of units sold. With rising interest rates, it takes time for the market (buyers) to normalize and adjust to the rate increases. A recent report by Matthew O’Neil at Connolly Capital Mortgage Solutions shows the number of mortgage originations over the past decade.

O’Neil says, “We are now (once again) waiting for the next pause, or better yet a pivot to the consistent upward pressure on interest rates.”

Since July, the market has seen a pause but with the seasonal fall market around the corner, this is a busy time for buyers and sellers as holidays come to an end and kids go back to school.

Look for the market to pick up steam as we close out the year. Pent-up demand from the pandemic is still there with first-time home buyers itching to enter the marketplace. People are always downsizing, upsizing and job and socio-economic factors are always at play as part of someone’s decision to buy, sell, or invest in real estate.

In the mid-to-long term, elevated rates will put pressure on households who will see a drastic increase in mortgage payments from what they’re used to paying. If you locked in on a fixed mortgage three years ago, that payment could drastically increase in a few years when the renewal comes up—assuming rates stay close to where they are today.

According to Connolly Capital, it is estimated only one-third of mortgage holders have felt the effects of higher rates. For those renewing their mortgages in 2024 and beyond, payment increases are expected to reach at least 15%. In the GTA, these numbers will be even higher due to larger mortgage sizes. As time goes on, these changes will affect more and more mortgage holders simply by default their term coming due and being faced with the reality of higher rates.

The good news for buyers is the market may see more inventory. Tertiary markets will benefit as people may be forced to downsize their homes and move outside the GTA to markets that are more affordable.

Whether all of this reduces the cost of housing is anyone’s guess. We still have pent-up demand, large immigration numbers, and not enough housing to meet demand.