Key Developments
- Interest Rate Reduction: The Bank of Canada cut the policy interest rate by 25 basis points to 4.25% on September 4th, 2024. This is the 3rd consecutive rate cut since June 2024. Their next upcoming meeting is on October 23rd, 2024.
- Inflation Watch: Inflation decreased to 2% in August from 2.5% in July. This kept inflation inside the Bank of Canada’s target range (1-3%) for the 8th consecutive month and marks the first time we’ve hit the Bank of Canada’s target since 2021. September’s inflation report will be released on October 15th before the next BoC meeting.
- Mortgage Rates Check: For those in the house-hunting phase or considering a refinance, the best 5-year fixed mortgage rate from the Big 6 Banks is currently sitting at 4.59% (source: ratehub.ca).
The fall market officially kicked off last week, but it doesn’t quite feel like it yet. Maybe it’s the lingering heatwave that feels more like July than September playing tricks on me, but the market feels a bit slow despite listings being up from July and August levels.
It’s not that we have an inventory issue—new listings are somewhat in line with what we saw last September, and inventory continues to build. But offer nights have been somewhat uneventful, and it seems we may be seeing a shift from offer dates to “offers anytime,” depending on the property type.
With October typically being the busiest month, there’s still plenty of time for things to pick up as we move further into the fall market.
It feels like the market is in a place very reminiscent of September/October 2023, however, a mix of macroeconomic factors and some new federal policies seem to have the spring 2025 market primed for a rebound:
1) Inflation Hit 2% Target Sooner Than Expected
In August, the inflation rate dropped to 2%, which was a big milestone considering the Bank of Canada wasn’t expecting to hit that target until the second half of 2025. In fact, the drop was even steeper than the 2.1% that economists predicted.
One month at 2% doesn’t mean we’re in the clear just yet, but we’ve still got three more inflation reports before the end of the year to see if we’re actually trending at or below the target.
If inflation keeps falling and the job market continues to cool, the Bank of Canada may feel pressured to speed up rate cuts to avoid a recession. Some economists are already predicting a larger 50 basis point cut in October, with a total of 75 basis points by the end of the year.
If they do cut rates faster, that’s the first key factor that could drive a spring market rebound.
2) Higher Price Cap for Insured Mortgages
Starting December 15th, 2024, the federal government is raising the price cap for insured mortgages from $1 million to $1.5 million.
Right now, if you’re buying a home priced above $1 million, you need a 20% down payment. That’s a lot of liquid cash to have ready—for example, $300k for a $1.5 million home—before you even factor in other costs like land transfer tax.
With the new cap, buyers with strong incomes and good credit but smaller down payments (e.g., 10%) will be able to qualify for a mortgage without needing years to save the extra $150k. This change could bring a lot of new buyers into the market sooner, and that’s the second factor fueling a stronger spring market.
3) 30-Year Amortizations for First-Time Buyers
The government also announced that 30-year amortizations for first-time homebuyers will now apply to all home types, starting December 15th, 2024. Previously, this extended amortization was only for new builds (as of August 1st, 2024).
The key here is that stretching a mortgage over 30 years lowers monthly payments, which helps offset the impact of larger mortgage balances from putting down a smaller downpayment. This should allow more first-time buyers to qualify, adding even more competition to the spring market—our third major catalyst.
What’s Next: A Recipe for a Spring 2025 Rebound
With inflation and rates dropping faster than expected, we’ll likely see two more rate cuts before the spring market kicks off. Lower rates, combined with the new price cap and extended amortization rules, will make mortgages more affordable just as a wave of new buyers enters the market.
The big question is: How many new buyers are we talking about? Thousands? Tens of thousands? More?
For buyers who already have their down payment and finances in place, fall might be a good opportunity to get ahead of the competition before these new rules take effect.
That said, inventory could be tight this fall if sellers decide to wait until 2025, hoping for a larger pool of buyers to push up their home prices.
All of this is part of a bigger picture. The Toronto real estate market is complex, and what works for one buyer or seller might not work for another. If you’re trying to figure out what’s best for you, feel free to reach out—I’m happy to help navigate the specifics.
As always if you have more specific questions, need advice, or want to talk about what I’m seeing out there, get in touch. I’m always happy to talk shop!
