How Will the Recent Bank of Canada Interest Rate Reduction Affect the Toronto Housing Market?

The Bank of Canada recently announced two interest rate cuts in March, which has led the big 6 banks to lower their prime rates that drive mortgage rates. Lower rates make it easier for Canadians to apply for a mortgage, but with a pandemic on our doorstep, these are no ordinary times. How will these reduced rates affect the Toronto housing market during a crisis? Let’s look at some of the scenarios we’re likely to see over the next few months.

Lower interest rates would normally create a big opportunity for those who are otherwise unable to qualify under the new Canadian mortgage rules. A sudden improvement in affordability would spur demand for housing in hot markets like Toronto, which would, in turn, fuel home prices and accelerate listings. 

However, with COVID-19 on the forefront, the fear of a market downturn will have an overall effect on market confidence. Many buyers and sellers will wait patiently on the sidelines until the virus concerns ease and the conditions improve before making any big decisions. 

If the effect is moderate in the short term, those who have money to buy and job security will be in a good position to take advantage of the low rates once social distancing measures are lifted and brokerages are back in full swing. On the flip side, those who experience a drop in their income because of the pandemic would likely delay purchasing until their finances improve. A combination of factors that is likely to create balance in the Toronto housing market.

If you look at SARS as an indication, Toronto was one of the first places to experience a slowdown in market activity. But despite the challenges, housing sales during 2003 barely suffered. In fact, growth in the housing market managed to stay in line with long-term trends.  

The Canadian housing market is also more likely to become attractive to investors who are looking to move their capital from markets with major health risks. Canada is generally viewed as a safe environment and will be a place to turn to even during a slight slowdown. Developers and investors are likely to see more interest in real estate here in the coming months. 

From a development standpoint, construction will likely be impacted in the interim. Normally a lower interest rate would push builders to increase supply. However, with a pandemic at hand, some builders are likely to face delays and may slow down operations until the situation improves. Once the virus is under control and people head back to work, construction activity should resume in full and start to stabilize. 

Even during a pandemic, the need for housing and professional property management doesn’t change. If anything, it becomes even more important. If you need assistance or advice, contact us at Medallion Capital today.