Renewed Rate Hikes Impact Housing Forecast

Since the Bank of Canada unexpectedly ended its pause on interest rate hikes in June, raised the rate again in July, and has signalled another potential hike in September to bring inflation down, a major source of uncertainty has returned to the Greater Toronto Area (GTA) housing market.

As a result, the prognosis for home sales for the remainder of 2023 has been downgraded, along with the direction for prices. That doesn’t mean either are necessarily expected to return to declines on a month-to-month basis, but rather to level off or rise at a more gradual pace than they have in recent months.

Royal LePage is still forecasting positive price gains — the aggregate price of a home in the GTA will increase 11% in the fourth quarter of 2023, compared to the same quarter in 2022. This is the result of the strong activity and price appreciation in the first half of the year, despite the anticipated market slowdown.

Home sales came flying out of the gates in April, due to a surge in demand as buyers who had been sitting on the fence responded to the signal that interest rates looked like they were at a top. Limited available inventory resulted in a rise in home prices, which was seen in May, too. The average price surged more than $40,000 in April, and again in May.

New listings are now catching up to sales, although this isn’t expected to translate into further big gains in activity since some buyers will likely move back to the sidelines due to the rate increases, as they did in 2022. Looking further out, there’s growing consensus that rates will not just be higher but likely for longer — well into 2024.