90s MARKET VS NOW

The Bank of Canada raised mortgage interest rates went from 1.0 per cent in April 2022 to 5.0 per cent in July of this year.

Seasoned real estate professionals and homeowners compare the situation with the 90’s market when between February 1994 and January 1995, the central bank raised rates from 7.25 per cent to 10.5 per cent. The cooling effect was immediate back then with average price dropping from $209,000 to $198,000 in 1996 in Ontario.

The same financing factors are at play today with the difference being the average Ontario home price is $832,370.00. However, the market is still afloat due to the lack of inventory currently listed for sale. According to TREB, listings in the GTA are down by about 20 per cent, although more listings are coming onto the market this fall.

“Back in the 1990s, you saw a scenario where there was a lot of panic selling,” he said. “Whereas this time around, what you’re seeing is that as interest rates moved up, we went from a very constrained supply in the marketplace and remained there because, quite simply, with higher borrowing costs, people weren’t prepared to list their existing home for sale to move into something different.” said Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board.

The forecast is challenging, but what we know is that housing starts do not even approach half of demand in Ontario. Meanwhile, the federal government has increased immigration targets to about 500,000 immigrants annually. This increase in immigration combined with the current shortage of inventory are the major differences from the market 30 years ago.

On October 25, the Bank of Canada decided to hold its benchmark interest rate at 5.0 per cent amid signs of a cooling economy. However, in a statement, the Bank said that it was “prepared to increase the policy interest rate further if needed” as it “remains concerned about the persistence of underlying inflationary pressures.