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How Did the Toronto Real Estate Market React to the Surprise Interest Rate Hike?

How did the Toronto real estate market react to the surprise rate hike in June?


Our inflation has slowed to the lowest level in almost 2 years, does that mean inflation is well under control now?


But everything still seems to be so expensive!


And most economists predict that the Bank of Canada is going to hike the interest rate again on July 12, taking the overnight rate to a new 22 year high.


What the heck is going on?




I’m going to break down our discussion into 3 parts: the real estate market, the inflation rate and the interest rate.


#1 The Toronto Real Estate Market


Like I said in the surprise rate hike episode, I would be expecting a psychological impact on potential buyers.


They would become hesitant, wait and see before they buy.


Indeed, this is reflected in the decrease in sales volume in June.


There were 7,481 sales in June, down 17% from May.


In terms of prices, the average price is roughly 1% down across all home types.


But if you read headlines with the seasonally adjusted selling price or the MLS home price index, they are slightly up compared to a month ago.


Don’t worry about one month of pricing data, they are not too meaningful at this point.


Just treat prices as more or less flat right now, we will need to observe a few more months, let the rate hike effect play out and see which way the trend is going.


My prediction is that the market is going to be quiet, with prices staying more or less flat for the next few months to come.


I think it is unlikely for another big drop because the fundamental market dynamics, high population growth with low housing inventory, have not changed.


In fact, if we look at the average price in June compared to a year ago, we are actually 3% up even after all that rate hikes.


#2 The Inflation Rate


Canada’s latest inflation rate is at 3.4% in May, the lowest level we have seen in almost 2 years.


You are probably feeling like…


Really? Everything still seems so expensive.


Indeed, grocery prices are still going up at a 9% pace.


And mortgage costs are up because of all the interest rate hikes.


These are directly affecting our cost of living.


So how did the inflation rate come down to 3.4%?


It was because of the huge drop in gasoline prices.


They are roughly 18% down from the record highs.


If we take out gas prices from the inflation rate equation, then the inflation rate will be around 4.4%.


It is still a downward trend, but is probably not yet at the level that the Bank of Canada wants to see.


And that brings us to


#3 The Interest Rate


The market generally predicts that the Bank of Canada will hike the interest rate by another 25 basis point, bringing it up to 5% on July 12.


Yes, for those of you with variable mortgage rates like me, hang tight!


I do believe this will be the peak interest rate we see.


CIBC has been calling me to convert my variable mortgages to fixed, which is a hint for me that they are also predicting that rates will be coming down within 12 months.


If I lock in to a high fixed rate and the variable rate starts to come down below that, then the bank will be making more money.


That’s just purely my own interpretation.


So I will be holding onto my variable mortgages.


I will of course keep you posted with the latest updates on the real estate market, inflation and interest rates.


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