Fixed Mortgage Rates Soar! What Higher For Longer Means for Toronto Homeowners

Fixed Mortgage Rates Soar! What Higher For Longer Means for Toronto Homeowners


We’ve got some more news to talk about that could further impact the Toronto real estate market. 

Last week, bond yields made another major move, so we’re here to break down what happened and what it means for the Toronto real estate market. Let’s get started.

What Happened To Bond Yields?

So, what exactly happened? 

Last week, Canada’s government bond yields experienced some pretty big shifts. The 5-year bond yields jumped by 30 basis points – hitting 16 year highs, and the 3-year bond yields surged by a similar amount. 

Because fixed mortgage rates are based off bond yields, what we’re likely going to see is a similar bump on fixed mortgage rates over the next weeks.

Now if the first thought that comes to your mind is more rate hikes, I’d have to say not this time. 

All of this happened after the US Fed rate meeting last Wednesday and the Fed actually held overnight rates at 5.25% to 5.5%. On top of this, the FOMC consensus is that it won’t go higher than 5.6%. 

But even thought the short end of the yield curve has likely peaked, the big shift was the change in the longer term interest rate projections by the FOMC – where rates are now expected to be higher for longer. 

Now, 2024 show an increase of 50 basis points compared to June’s projections, the same goes for 2025, and 2026’s projections seem to be higher than expected too.

Impact On Mortgage Rates

This is the big reason why bond yields experienced the big jump last week, which in turn will also push fixed mortgage rates up by a a similar amount. 

What this means is that basically no matter which way you go in terms of fixed or variable mortgages, the rates are going to be close and higher than what they were before this shift.

Toronto Real Estate Implications

Taking it back to Toronto real estate, there will be some impacts. 

Higher rates continue to affect affordability and in turn bring real estate prices down – but it’s probably not as much as you think. A 30 basis point increase in rates could translate to around a 3% drop in property prices. 

The big benefit for buyers is that with all of this negative news and volatility, we are in a strong buyer’s market now so you get a lot more bargain power lately. 

What this means is that even before the mortgage rate increase, it’s been very possible to score deep discounts of 10% or more if you come across the right motivated seller. So if you think about it, if you got a great deal before the rate hike, you still end up buying at a better price compared to getting an average deal with the extra 3% discount.

The positive sign is that the short end of the yield curve is stabilizing now, and that points to central bank target rates likely holding at these levels. So what this means is that we’re also close to a point where real estate prices will soon stabilize too, and confidence will follow from that.

Don’t get me wrong – rates are likely going to be held high for longer, which points to a more balanced market. 

The biggest difference though is that you don’t see as much bargain power later on once more confidence comes back so the discounts won’t be as big later on.

How We Can Help

If you want to learn more about what’s going on in today’s market or what the best deals look like, just reach out to our team. We’re a real estate sales brokerage that focuses on investing in freeholds in Toronto, and we’re happy to chat more about this. Just take the first step to book a Zoom discovery call with us!

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