Our six roundtable pros on where interest rates will send housing next

In our mid-year roundtable, our all-star panel weighs in on what they see for the fall real estate market during the final months of 2023.


THE SALES PRO: Barry Cohen President, RE/MAX Realtron Barry Cohen Homes Inc.
THE BUILDER: Odeen Eccleston Co-founder, WE Developments; Broker of Record, WE Realty Inc.
THE DESIGNER: Brian Gluckstein Principal, Gluckstein Design; Author
THE PLANNER: Jennifer Keesmaat Partner, Markee Developments; CEO, The Keesmaat Group
THE CONDO KING: Brad Lamb Developer, Lamb Development; President, Brad J. Lamb Realty
THE BANKER: Benjamin Tal Deputy Chief Economist, CIBC World Markets Inc.

­POST: What is your market prediction for the rest of the year? 

Benjamin Tal:  Short-term risk is overshadowing the Bank of Canada and keeping rates elevated for too long. There is mid- to long-term risk via inaction by all levels of governments to dramatically deal with the supply issue and limit demand growth (via the foreign student channel). The most reasonable guess at this point is that the market will move sideways.

Notice that when the Bank of Canada started pausing rate hikes earlier this year, real estate activity started to improve. This means that it’s not only the level of rates but also the direction that impact buyers. With the bank resuming rate hikes in June the market started to slow again. With a third of mortgages resetting in the coming year we will see a modest increase in distress sales.

The bank is at or very close to its terminal rate. 

Brad Lamb: I think prices will move sideways until they start to rise later this year. I think rates will start to fall late 2023.

Brian Gluckstein: I can’t say percentage-wise, but I would say the market will rise as there’s a shortage of product. People are doing what they can to adjust to the interest rates, but there’s still not enough inventory. People can adjust their lifestyles, but only for so long. If they continue to rise, it could be a problem.

Odeen Eccleston: If the rates go up again, I think prices will trend downward. I think we could actually start to see a lot more people on the brink of losing their homes due to unaffordability. This could reduce prices at large by another five to 10 per cent.

Barry Cohen: I expect the second half of 2023 to significantly outperform the second half of 2022, but year over year I think 2023 will finish pretty even with 2022. Last year was the worst second half of the year in a decade. The second half of this year should be very strong with buyers being more confident the rate hikes are nearing the end and confident in the market ahead.

­POST: Is now a good time to downsize? 

Gluckstein: Anytime is a good time to downsize if you don’t feel the need for the space or the burden of a large home. It’s not what I call downsizing, it’s right-sizing. It could also mean changing to a different type of living without sacrificing the size of your home. You could move from a house to a large condo, for example, if you’re looking for less maintenance.

Eccleston: It depends. For first-time buyers or anyone looking to get into the market or upgrade, the rising rates can drive up borrowing costs and make purchasing a new home less affordable. But for downsizers, rising interest rates can actually be an advantage if when selling your home and buying something smaller and less expensive, you likely don’t even need financing, which makes interest rates irrelevant to you. However, you’ll be in an excellent position when searching for your new home, with more options to choose from and less competition from other buyers. 

Lamb: Today is as good a time to downsize as any, if it is what you need to do. Buying and selling in the same market is ideal.

Cohen: Assuming the seller is at a point in their life where less space makes sense, then yes it is a great time to downsize. Lower-priced homes are increasing at a faster rate than the higher-priced homes. Depending on the price point though, people downsizing may find that buying a smaller house is a ­­much more competitive market than the one they are selling their larger house in.  

­POST: With downward pressure on prices, will homes in the 416 hold their value better or worse than areas outside the city?

Cohen: The 416 will definitely perform better due to a lack of inventory and likely an overreaction to moving outside of the city as a result of COVID. During the pandemic the 905 outperformed the 416 because of relaxed working environments and the value being offered to owners. But with increased costs and a more competitive job environment, the 905 likely won’t be seen as attractive. There should also be more supply in the 905, which should lead to softer prices. 

Lamb: I think the 416 prices will hold up well. Prices will rise again very soon, and beyond what they fell by.

­POST: What is the biggest risk to the real estate market this year?

Jennifer Keesmaat: The biggest risk is that we have hit a tipping point where projects are getting put on hold. Nearly a quarter of all projects — already approved in Toronto — are being held in abeyance. This will have repercussions in the years to come — less supply at a time when we need it most presents a significant risk to the city. 

Gluckstein: The biggest risk is to investors that have bought multiple properties (i.e., condos) and are refinancing them at a significantly higher mortgage rate, which would wipe out all cash flow or even give them a negative cash flow.

Lamb: The biggest risk to real estate is interest rates remaining high longer.

Cohen: Continued interest rate increases. Every time the Bank of Canada raised rates activity paused for a few weeks, took some buyers down a peg and made buyers more cautious.  Conversely, when they announced they were holding rates a couple of times, there was a flurry of activity and strong sales.

Eccleston: The biggest risk to the real estate market continues to be inflation and continually rising interest rates.

­POST: Do you see this as one big real estate market or are houses and condos different and how? 

Lamb: Houses are rare since there are not many new houses being built.  Condos have a consistent supply of new builds. The freehold market is always tighter.

Cohen: The freehold market and condo market are performing very differently. Because of the lack of houses that are available or even exist, the freehold market is a lot tighter. The condo market is a lot more investor driven. Due to the high interest rates, it is very hard to find units that are cash flow positive or even carry. A lot of investors that have seen good price appreciation are cashing out because the rents no longer justify the mortgage payments. The high-end condo market, however, has performed incredibly well, because similar to the freehold market, there is a dramatic shortage of large units that exist. This market segment also has very few investors and is a popular choice for downsizers. I believe both of these trends to continue.  

Eccleston: They are different markets that strongly affect each other. Condos are still generally more affordable.

­POST: What new trends do you see emerging in the condo sector in terms of amenities and design? 

Gluckstein: We’re going to see more spaces geared toward children and families — whether that’s play areas or education areas — hopefully even integrating schools into the neighbourhoods as there aren’t enough being built now. It’s about encouraging families to live in the city, since condos are one of the few affordable options here. They’re also great for families who want to socialize.

­POST: What do you think Olivia Chow’s new influence will mean to the market? 

Keesmaat:  Financial markets are going to have a bigger impact on the future of the housing market than planning policy — which is the key area that the City of Toronto has jurisdiction over, in part because we are now well into the liberalization of land use planning initiated by the province. Borrowing costs are making it harder to buy and harder to build. Institutions are tightening their lending, which is affecting construction costs. It’s a bit of a flip from the low-interest rate era, but today banks are the ones playing an outsized role in impacting housing delivery. 

Lamb: Olivia Chow will be a negative to all businesses in Toronto, including real estate.

Cohen: She does seem to be focused on taxing the real estate market, which obviously isn’t great. It’s unlikely her plans will have a meaningful impact on the market though because of the shortage of homes available, under construction and the large amount of immigration. There has been talk of her implementing an increased land transfer tax for higher priced homes. That would cause the high-end market to pause for a short while, but as was the case with GST, land transfer tax, foreign buyers tax, eventually people will just accept this as the cost of home ownership in the city. 

Gluckstein: She can’t do anything about the cost of homes, that’s market driven. I think her focus will be on affordable rentals, but it will be about how quickly she can execute on that. People have been talking about it for a long time, but we haven’t seen significant change.

­POST: What impact did the last interest rate hike have on the market? 

Cohen: The last interest rate hike didn’t seem to have much of an impact on the market. But the one before it did. Everyone seemed to think the Bank of Canada was done raising rates after a period of pausing. There were strong sales and a lot of activity during this time, but since they started raising again, demand has been tempered somewhat. Hopefully they will not be too aggressive as another rate hike would further hamper sales activity. But that would also contribute to greater pent-up demand down the road.

Eccleston: It made buyers that much more apprehensive to participate in the purchasing market. Immediately following the release of the news, showings slowed and bidding wars were halted. I think, whenever there is a hike, people pause what they are doing to contemplate how this affects them, then they recalibrate after they’ve assessed and adjusted what this means for their equity and/or purchasing power accordingly. 

Keesmaat: Higher borrowing and construction costs make housing less accessible and more unaffordable. Hard to believe, but the affordability crisis continues unabated. 

­POST: What is your comment regarding the news of Premier Ford and the Greenbelt? Will it impact the province’s housing plan?

Keesmaat: Opening the Greenbelt for development was never about housing — it was always a get-rich-quick scheme for a handful of political donors. What it has done is distract from the real work of getting housing built in existing areas that have Infrastructure and services already in place. Think of parking lots at GO transit stations — we could be building housing quickly for newcomers, students and seniors in walkable, transit-oriented places, which is the direction espoused in provincial policy. But we are not. The RCMP will now litigate the affairs of the government with respect to the Greenbelt. In the meantime, we need to get back to building housing on government-owned land, which should be, in theory, the easiest place of all to get new housing delivered quickly. 

Lamb: I think the current Greenbelt issue is a non-issue and it will fade out over time. To my knowledge, no one has a housing plan that has any chance of succeeding. Home prices in Canada are just going to keep rising.