Will Toronto House Price Go Down After Key Interest Rate Raised?

Mar 7, 2022 | 0 comments

With inflation in the U.S. and Canada remaining high since the start of the year, many analysts expect a more significant rate hike this year. If interest rates are raised in rapid succession, there is a high probability that assets will depreciate. However, the situation in Eastern Europe has changed dramatically, which has primarily changed the trajectory of interest rate hikes this year.

More than a week ago, according to data from the futures market, the market believed that the Fed would raise interest rates 7 or 8 times this year. However, since the situation in Eastern Europe has boosted oil prices and significantly increased the production expenditure of enterprises, which in turn affects the economic environment, the market believes that the Fed may not raise interest rates so aggressively. At present, according to the reverse of the futures market, the Fed has a high probability of raising interest rates by 0.25% in March, and the likelihood of raising interest rates by 0.5% is zero. The number of interest rate hikes is expected to be no more than 5 times throughout the year!

So how do these changes affect Toronto’s housing market? Will the price correction in the freehold market still happen this year?

  • The impact of the interest rate hike on housing prices is a gradual process. This time the interest rate hike is only 0.25%, and it will not affect the market in the short term. The deciding factor depends on how many times this year is added and how fast it is added. At present, due to the situation in Eastern Europe, the rate of interest rate hikes is likely to slow down, so the probability of a significant house price decline this year is actually reduced (not to say that it is impossible, but the possibility is indeed reduced). In a survey released by Reuters, 10 of 13 real estate analysts responded that Canadian house prices will continue to rise this year, with an average increase of 9.2%.
  • After entering the second half of February, with the increase in listings, the freehold market has become exhausted, the number of people grabbing offers has decreased, and the proportion of unsold offers has dramatically increased. But at present, sellers have high expectations for house prices and are not so anxious, so house prices have stabilized recently. The condo market is still hot due to the speedy digestion of listings.
  • Because many sellers are worried about the uncertainty of the freehold market later this year, they have listed their houses in advance, resulting in an increase in recent listings. However, this may cause the listing to be insufficient again in the next few months, and there may be a “flop” like in April and May 2020, and then it will become popular again.
  • When the new policies proposed by Liberal will be implemented is also the key to determining the following market trend. The sooner they are implemented, the greater the possibility of a freehold callback this year. If it comes out too late and the house price is solid and fully digested by the market, then the chance of a callback is minimal.

To sum up, the uncertainty in the freehold market is still very high at present, but due to the situation in Eastern Europe, it is likely to delay the speed of subsequent interest rate hikes.

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Written by Ghazal Jessani

Ghazal has extensive experience in pre-construction developments, serving as a guest blogger to CondoOutlet.ca. Before entering the real estate industry, she worked as a manager in a global accounting firm. Ghazal holds an MBA degree from the Rotman School of Business at the University of Toronto.