Toronto homes with a garden out front

Rate cut still not enough to entice Toronto buyers back into the market

The day after the Bank of Canada cut its overnight rate for the first time in four years, Toronto realtor Mark Savel saw a flurry of interest from potential homebuyers.

“I had three listings up — they all saw a spike the next day of showings,” he said. 

Since then, though, it’s been stagnant. “After that, I’d say it’s actually gotten a hell of a lot quieter than it has in recent months,” said Savel, who works in the Dufferin and Eglinton area for Sage Real Estate Ltd. 

While some may have thought the central bank’s decision to trim the overnight rate by 25 basis points to 4.75 per cent on June 5 would have jumpstarted Toronto’s real estate market, realtors on the ground say that just isn’t happening. Most potential homebuyers are waiting to see more rate cuts before acting, experts suggest, whether due to strained affordability or even market psychology.

“It’s not a flip of a switch, it’s a process and a cycle,” Karen Yolevski, CEO of Royal LePage, said.

Yolevski expects further rate cuts from the Bank of Canada to more substantially impact sales activity looking ahead, though she adds a single cut is enough to have a marginal effect on the market. “It’s still early days to see the impact of the first rate hike,” she added.

Similar to Savel’s experience, realtor Laurin Jeffrey saw an immediate spike from Toronto homebuyers in the days following the rate cut, and then it was radio silence. 

“I don’t know what everyone’s waiting on at this point. Is it just too damn expensive, so nobody’s buying?” he wondered. “Once the first-time buyers are shut out, the whole thing grinds to a halt,” he said. 

A nationwide poll conducted by Ipsos in the immediate wake of the rate cut underscores how the high cost of housing remains a barrier regardless of the central bank’s latest policy move. Among respondents who don’t own a home already, 45 per cent said that no amount of rate cuts would make ownership affordable.

The poll also supports the idea that would-be homebuyers are holding out for even lower rates before dipping their toes in the market again. Some 63 per cent of all respondents, including existing homeowners and renters, say they’re still standing on the sidelines because of high interest rates.

However, Savel warned, these homebuyers may get burned later when they get caught in bidding wars as droves of homebuying holdouts enter the market at the same time. “The prices will be $100,000 more than they are today,” he said. 

SIf a potential borrower is worried about missing out on an additional 25-basis-point discount, Savel doesn’t understand why they wouldn’t just sign on for a short-term, fixed-rate mortgage and capitalize on today’s more favourable conditions for buyers.

Yolevski says it’s a “distinct possibility” that multiple interest rate cuts could heat up the housing market to the point where runaway home prices could erase any relief from lower monthly mortgage-carrying costs. 

“Typically, as interest rates decrease, the prices of homes increase,” she said. “We’ll have to watch that carefully to see what unfolds.”

Article exclusive to STREETS OF TORONTO