Bank of Canada Holds Interest Rates In September: Your Move Next, Toronto Real Estate!

Bank of Canada Holds Interest Rates In September: Your Move Next, Toronto Real Estate!


We’ve got a lot to cover because there’s been some big developments affecting the Toronto housing market just as September rolls around. 

The big one, of course, was the Bank of Canada’s rate announcement this morning. The consensus was that there would be no rate hike, and they were right this time. 

But there’s more to it than that. We’ll be diving into changes that’s happening in our economy and policy, and weigh all of these effects on Toronto real estate in this video, so stick around and keep watching.

Bank of Canada September Interest Rate Decision

After weakness in the US jobs data and Canada GDP last week, the chances of a rate hike dropped down to just 7%. This comes in after stronger than expected CPI that previously raised rate hike expectations but if you drill it down, you’ll see that a big part comes from housing inflation, which is a direct effect of rate hikes. 

This ends up also showing in the GDP data, with the biggest downside to GDP coming from housing investment, including both new construction and renovations.

Basically, with higher home expenses and weaker spending, things seem to be moving in the right direction for the BoC and we might continue to see delayed affects show up in data in the coming months. 

On top of this, both the BC Premier and Doug Ford in Ontario have called for a halt to rate hikes. So all of these factors are supporting a potential peak in interest rates.

In fact, 31 out of 34 economists also predicted no rate hike in September, and as we’ve seen, they were correct. 

Looking ahead, 26 out of 36 economists say there will be no rate hikes for the rest of this year, with only 8 predicting otherwise.

Negative Impacts Of Economy & Interest Rates On Toronto Real Estate

So, how do these changes negatively affect the housing market? 

Well, high-interest rates have a delayed impact, and we don’t know the full extent of their effect yet. Cracks take time to show, especially as holding power weakens with extended periods of higher rates. 

There’s also the fact that mortgage renewals are still pending, and we will continue to see these mortgage payments switch over to higher rates throughout 2024 and 2026 if they entered the market with rock-bottom rates in 2020 or 2021.

Next, we’re seeing gloomy GDP data and weaker jobs numbers. So if this ends up in a recession, this will naturally affect buying power.  So it’s not just about how high the rates are, but whether buyers can actually afford to buy. 

And on top of this, we’re seeing more tightening on the lending front and we expect it to be more so targeted for investors. What we’re seeing lately is that banks are lower loan-to-value ratios for some investors from 80% to 75%. If investors can’t borrow enough to invest, this will further limit price growth.

Positive Impacts Of Economy & Interest Rates On Toronto Real Estate

On the flip side, there are also a lot of positives for our housing market. 

We’ve witnessed slow new housing growth from the GDP data and that’s going to keep putting upward pressure on home prices given our immigration targets, and the quickest way to see this is from how rents have been ballooning over 25% the past year.

On top of this, if we are close to peaking rates, then this is typically good news for real estate prices since they tend to move in opposite directions as interest rates. The market has already adjusted down approximately 20% from its peak due to these high rates. 

So from an investment standpoint, new investment purchases in Toronto look pretty good even at current interest rates because prices are much lower and rents much higher.

Fall 2023 Toronto Real Estate Outlook

If history repeats itself, as it did in March when rates held stable for the first time in a year, we can expect to see support for real estate prices. 

I think our market would still be relatively balanced – nowhere as strong as it was in 2020 to early 2022 when rates were at an all-time low but we should still likely see more buying momentum for Toronto real estate this fall. 

The price recovery is probably going to be uneven, with better upside in the freehold rental market in Toronto because the numbers just work so well. Right now, you can get cap rates close to 7% and over $1,000 in positive cash flows even at 6% interest rates.

The key takeaway here is that investing in freeholds aligns with the government’s goal of the need for more affordable housing. Keep in mind that the government isn’t focused on keeping home prices low, but rather making rents more affordable. 

Making more smaller units in a house can help with this and it ends up being a win-win situation for everyone.

How We Can Help

What we’re seeing these days is more investors wanting to do this come to Toronto because of better multi-family home policies and just a better growth outlook in the city. 

And if you want to explore investing in multi-family homes in Toronto too, we’re your team.

We’re a real estate sales brokerage that focuses on investing in freeholds in Toronto, and we’d love to help you learn more about these opportunities. 

Just take the first step to book a Zoom discovery call with us!

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