How Do Better Inflation Numbers Change Toronto’s Real Estate Market in 2024?

How Do Better Inflation Numbers Change Toronto's Real Estate Market in 2024?


This week, there’s a lot of important data that will affect the Bank of Canada’s decision about interest rates next week. 

On Monday, we got the Business Outlook survey, which tells us what to expect. Then, on Tuesday, we got the CPI data, which shows us how inflation has already been changing. I

f you want to know how all of this will influence the Bank of Canada’s decisions, stick around – let’s get started.

Bank of Canada’s Business Outlook Survey

On Monday, Bank of Canada’s Business Outlook quarterly survey come out that gives us a peek into how things are changing up. 

Right off the bat, you can see that sentiments have dropped to its lowest in 14 years, if you take out the short blimp that we saw at the start of the pandemic in 2020. 

When you dive in, you can see that concerns are shifting. Up until recently, concerns were centred around supply issues – price pressure, labour challenges, supply chain problems. But these concerns are easing, which is a promising sign for inflation.

You can see that even though labour was still a big concern earlier this year despite huge immigration growth, businesses now think staffing isn’t as bit of an issue. They aren’t planning to lay off employees but also not looking to hire more, and the intent to hire next year is definitely below the historical average. 

On the other hand, the spotlight is shifting towards demand concerns because of softening demand this year and expectations for softening next year too depending on how long it takes inflation to come down. 

Inflation is still on the radar and the concern now is that even though most businesses feel that we will return to the 2% target, the timing is even more uncertain that before, which is why we continue to have to keep an eye on where CPI is going.

Canada CPI For September 2023

And the latest lagging September CPI data that just came out tells us that price growth is now experiencing broad-based deceleration which is hopeful. 

Numbers came in lower than expected from both headline inflation even when we have 

  • gas prices accelerate high due to base effects on an annual basis 
  • mortgage interest seeing massive 30% gains on a year over year basis. 

Food inflation is still higher than BoC would like it to be but you can actually see that prices are coming down for three months straight, which is also good news. 

Bank Interest Rate Forecasts

With inflation hopefully easing but still not crystal clear, most banks haven’t made big changes to their forecasts from before the September hike with the exception of 

  • CIBC revising its projections downward because we didn’t hit the 5.25% rate they expected in September and now they no longer think will happen.
  • BMO adjusted slightly, now expecting high rates for longer, which is a common theme in the market these days. And the general market consensus is for no rate change or, at most, a 25 basis point increase. 

I think that the base case is that the BoC doesn’t have to hike anymore, and BoC might end up using the 25 basis point possibility as a verbal tactic to prevent markets to bouncing back too quickly. 

But even if it happens, the actual impact of a 25bps increase won’t be as big as before. A 25bps hike on a 6% interest rate results in a 4% increase, which is a lot less than the same hike on a 1.5% interest rate, which would have been a much bigger 17% jump.

CREA Real Estate Projections

In this market, how long it stays high for is the bigger concern, which is why buyers these days continue to be in wait and see mode. People want more clarity before making a purchase, and many still prefer to buy in an upswing rather than during our current uncertain times which might become more and more certain s we approach next Spring. 

And based on the current base case, confidence will gradually come back into 2024 and because of that, CREA now expects almost an 11% increase in sales activity in Ontario for 2024. 

At the same time, because interest rates are still expected to be high for 2024, CREA doesn’t expect big jumps in prices. CREA projects that will be 6% less by year-end 2023 compared to the year-end 2022. Into next year, prices will likely stay more or less unchanged.

Today's Best Opportunities

And so based on this outlook, you might think there’s not much of a benefit to buy today – but here’s another way to look at it and I’ll walk you through the reasoning through this example. 

A buyer recently swept up this property in prime Toronto a few years ago, which turned out to be an amazing deal. Here’s the back story. 

  • The sellers tried listed at $1.35M with an offer date in mid September, in hopes to sell for over $1.4M. Unfortunately, that didn’t work out as expected with listings floating the market and bond yields doing a big jump up as well.
  • So they needed up relisting at closer to ask at $1.44M and the house continued to sit on the market.
  • After a few weeks, there was a big price drop to $1.35M.
  • A few days later, it eventually sold close to $1.3M – that’s almost a 10% discount!

The numbers look great at $1.3M with a huge with $800 in positive cash flows when you split it into three units. 

But what really sets this house apart is the big laneway potential here. You can build a massive 3-bedroom laneway suite here that might give you another $4,500 in rents. When you do this, cash flows jump up to over $5,000 per month.

With today’s higher uncertainty, the huge advantage is the chance for deep discounts on individual properties that won’t be around when confidence returns. 

You also end up getting a better choice of options, and it might end up being easier to find something that checks all of your boxes. Houses with huge laneway suite potential are rare and always more desirable for obvious reasons. 

Once the market bounces back, they might not be readily available. And even if you do find one, there will be a lot more competition for it so the buying experience will definitely not be the same as today.

How We Can Help

So if you’re interested in taking a closer look at today’s market and what the best real estate investment opportunities are, just reach out to our team. 

We specialize in investing in freeholds in Toronto, and we’re more than happy to chat with you. The first step is as simple as booking a Zoom discovery call with us!

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