We’ve just seen a significant rate cut from the Bank of Canada (BoC), with the target for the overnight rate dropping by 50 basis points, bringing it down to 3.75%. Earlier this year, the rate peaked at 5%, so this is a noticeable shift—and it’s bound to have an impact on the real estate market.
Why This Matters for Mortgage Rates
With this rate cut, mortgage variable rates are now closer to 5%, and the gap between variable and fixed rates has narrowed, with fixed rates around 4%. Looking ahead, we’re anticipating that the BoC will cut rates even further, likely into the mid-2% range by mid-2025. This makes a strong case for going with a variable rate mortgage now.
We ran the numbers, and the three-year average rate could land just below 3.85%. That’s not far off from the current three-year fixed rate of 4%, but variable rates offer more flexibility. Depending on who you listen to—RBC’s predictions, for example—the variable rate is looking even more appealing given the greater discount.
The BoC isn’t too worried about inflation anymore, which has dropped below its 2-3% target. In fact, inflation is now sitting at around 1.6%, largely held up by high shelter costs (mortgage interest is still up 17%). Outside of housing, though, we’re seeing some deflation in other sectors—especially if you look at more recent monthly data.
The Relationship Between Rates, Prices, and Rents
When you look at how rates interact with prices and rents, there’s a clear pattern. Higher interest rates tend to push more people into the rental market, which drives rents up as landlords pass on their higher costs. Meanwhile, house prices often fall because higher rates make homeownership less affordable.
Now that rates are dropping, the reverse could happen. We’ve already started to see rents decline, and as rates fall, we expect more real estate investment. This should add more rental stock, which could help lower rents even further. For real estate investors, this balance between lower rents and lower borrowing costs should ease some of the pressure.
On the flip side, affordability improves when rates drop, which could push home prices higher. That said, we’re not claiming to have a crystal ball—these observations are based on past trends and current fundamentals.
Toronto’s Buyer’s Market: Is Now the Time to Jump In?
What we do know for sure is that right now, it’s a buyer’s market in Toronto real estate. Falling rates are already encouraging sellers to list their homes, with a 44% jump in new listings last month. Buyers, however, aren’t rushing in yet.
When you dig deeper into the Toronto market, there’s a noticeable difference between freeholds and condos. Condos always face more new supply, and with a flood of new units expected between 2024 and 2026, prices in this segment could stay flat. On the other hand, freehold properties have been quietly recovering since early 2023, and we expect this trend to continue into 2025 as rates drop further.
As we move through the fall of 2024, we’re at a unique point where both prices and rates are lower. The ball is in your court as a buyer, putting you in a prime position to enter the market.
How We Can Help
If you’re looking to make data-driven investment choices, our team at Elevate Realty is here to help. Our real estate sales brokerage specializes in multifamily properties, whether you’re looking for a ready-to-go multiplex or want to convert a single-family home.
Here’s what it’s like to start as a client with us:
- Initial Consultation: We’ll talk with you to understand your needs and teach you how to invest wisely in Toronto real estate.
- Market Search: We’ll search the market to find the perfect property for you.
- Renovation Support: If the property needs renovations, our trusted contractors are ready to help, and we’ll support you through the whole process.
- Leasing and Management: If you need help renting out and managing your property, our leasing and management team is here for you.
Ready to get started? Click on the link below, and let’s start working together!
What Toronto Real Estate Investment Is Right For You?
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