Get ready to buy, sell, or…
Canada’s housing market may be approaching a turning point after the Bank of Canada held its benchmark overnight rate steady at 2.25% on June 10, extending a pause that began late last year. The decision reinforces growing expectations that the era of rate cuts is over and that borrowing costs have likely bottomed out.
For prospective homebuyers who have spent the past two years waiting for lower rates, the message is becoming increasingly clear: the window of opportunity may not remain open forever.
With inflation easing and firmly within the central bank’s target range and the economy growing at a robust pace, the need for further rate cuts has reduced significantly.
The Bank of Canada has already slashed rates by 275 basis points since mid-2024, one of the most aggressive easing cycles among advanced economies. With inflation remaining within the Bank’s target range and the labour market showing surprising resilience, policymakers are now taking a wait-and-see approach rather than signalling additional cuts.
Many economists now expect rates to remain unchanged for an extended period, with some forecasting no further moves until 2027.
Despite massive rate cuts from the BoC, the housing market has broadly struggled this year with home prices declining around 3.2% so far.
But that fall is likely to stall soon, with prices forecast to rise 1.8% and 3.5% on average next year and in 2027, respectively, according to medians from a separate Reuters survey of 14 analysts.
The psychology of interest rates on the housing market
The anticipation of a BoC rate hold can influence both buyer sentiment and market dynamics. Historically, lower interest rates stimulate the housing market by reducing the monthly carrying costs associated with mortgages, thereby improving affordability for a greater number of potential buyers.
However, the recent series of cuts did not immediately trigger a massive surge in demand due to factors like lingering high home prices and poor overall affordability. A pause by the BoC, which keeps rates steady at the current lower level, offers a degree of certainty.
This stability can be a strong signal for those who believe the market bottom has been reached, encouraging them to enter now before increased competition drives prices up again.
This influx of renewed buyer interest, coupled with the continued pressure of a structural housing shortage in many urban centres, could create the upward momentum for prices. While some regions still face elevated inventory levels and buyer-friendly conditions, the underlying supply-demand imbalance remains a potent factor.
If more buyers return to the market simultaneously, the available supply, even if recently robust, could quickly be absorbed. This competition—particularly in high-demand areas—will likely translate into a rebound in home sales activity, which typically precedes or accompanies a recovery and increase in average home prices across the country.
Will the Toronto Condo market recover soon?
In sharp contrast to the potential rebound for freehold homes, the vast condominium market, especially in Toronto, is not expected to start booming anytime soon, despite the stability offered by the Bank of Canada.
Why? The condo segment faces a unique confluence of challenges, including a massive inventory overhang from a record number of recent completions and buyer apathy.
This abundant choice, coupled with diminished sentiment, means prices are likely to remain flat for the foreseeable future, compared to the broader housing market.
That does not mean condos are doomed. Far from it.
Toronto remains one of North America’s fastest-growing metropolitan regions, and long-term demand for housing has not disappeared. Over time, population growth and improving affordability should help rebalance the market.
Time is the name of the new waiting game in the nerve-wrecking condo market.
Read more
