How Rate Hikes are Affecting Detached Home Prices in the Golden Horseshoe

By: Soni Chachad

How Rate Hikes are Affecting Detached Home Prices in the Golden Horseshoe

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When a real estate market is going through significant shifts, it's inevitable that everyone begins
keeping a closer eye on it. And this is exactly what buyers and sellers alike in the Golden
Horseshoe are doing who have been affected by the rate hikes implemented by the Bank of
Canada (BoC) earlier this year. Traditionally, rate hikes and inflation are linked, with both
affecting real estate markets, but the relationship between the two isn't always straightforward.
So, let's take a look at how these rate increases are affecting detached home prices in the Golden
Horseshoe area and what you can expect for the market in the coming months.

Bank of Canada Rate Hikes

Most of you are already probably aware of the significant rate increases that the BoC
implemented earlier this year. Starting off 2022, the rate was 0.25%, and at the time of writing
this article, it currently sits at 2.5%. This means that the BoC has raised its overnight lending rate
by 2.25 basis points since March of this year, which has significantly increased mortgage lending
rates while slowing the real estate market in the Golden Horseshoe. But how much have these
rate hikes truly affected the price of detached homes in the area?

Detached Home Price Fluctuations

The Golden Horseshoe area encompasses several regions, all of which have experienced a
pricing rollercoaster since the beginning of the year. For example, the price to buy a detached
home in the Golden Horseshoe area peaked in February of this year but has since fallen in all
cities and towns in the area. Let's look at this graph detailing the price point changes that the
Halton District has experienced as an example.

Even in the Halton region alone, you can see that detached home prices have fallen at different
rates, but they have all, in fact, taken a hit. This has slowed the rapid market in the Golden
Horseshoe that we were experiencing at the beginning of 2022. The Toronto Regional Real
Estate Board (TRREB) pointed directly to the BoC's rate hikes to explain the drop in both sales
and prices across the Golden Horseshoe since the market price peak earlier this year. TRREB
President Keven Crigger commented, “Home sales have been impacted by both the affordability
challenge presented by mortgage rate hikes and the psychological effect wherein home buyers
who can afford higher borrowing costs have put their decision on hold to see where home prices
end up.”

The Effect of Inflation

Inflation in Canada hit a new 39-year high of 8.1% in June 2022, and the BoC Governor Tiff
Macklem said inflation is likely to remain ‘painfully high'  and above 7% for the rest of 2022. He
also indicated that even higher interest rates might be necessary to bring it under control. “We
continue to expect that interest rates will need to rise further to cool demand and achieve the
inflation target. How high our policy rate needs to go will depend on how the economy and
inflation evolve,” stated Macklem in the wake of the BoC's full basis point hike. In other words,
experts will need to wait and see how the market changes over time before they’ll adjust the
rates, for the better or the worse.

So, what can buyers and sellers do in the meantime? Well, as Crigger pointed out, many are
trying to wait the market out and time their move perfectly, and this strategy is being seen
throughout the entire Golden Horseshoe region. “The [Greater Toronto Area (GTA)] along with
many secondary cities in the Golden Horseshoe, have seen housing demands slow in recent
months as many buyers take a step back in an attempt to time the market,” said Karen Yolevski,
chief operating officer at Royal LePage Real Estate Services Ltd. “Buyer behaviour has shifted.
They are in a wait-and-see pattern, assessing the impact of further expected interest rate hikes
and rising inflation. For the first time since the start of the pandemic, the real estate market is
experiencing a more normal summer slowdown in activity.”

Moving Forward

So, what can buyers and sellers in the Golden Horseshoe expect moving forward? Well, as the
experts have pointed out, it is a bit of a ‘wait-and-see’ game for consumers. Speaking
specifically on Toronto, Yolevski goes on to say that “the fundamentals of Toronto’s housing
market have not changed. While inventory has been creeping up due to consumers moving to the
sidelines, the housing supply crisis in Toronto remains a significant long-term challenge.”
Therefore, Yolevski expects that prices will remain flat throughout the remainder of 2022, which
is a welcome prediction for sellers looking to get top value for their highly sought-after

However, the softening of the current market also allows for new buyers to emerge that were
previously priced out of these areas. This slowed climate has provided a rare opportunity for
first-time buyers and current renters to break into markets they were unable to in the past. At the
same time, many sellers testing out the market are finding that the bidding wars and frenzied
pace experienced in the first half of the year have dissipated, leading some to even terminate
their listings and take advantage of the hot rental markets in the Golden Horseshoe. Either way,
prospective buyers are holding out for further drops they and brokers anticipate could materialize
in the fall, while sellers are debating whether to make what they can from their home now or
wait for the market to turn in their favour again.

Final Thoughts

Although the rate hikes have reached record-breaking new highs, this is not the first time, and it
won't be the last time that the real estate market has sailed through stormy seas. History has
shown that the markets always eventually stabilize and that periods of fluctuations are normal
and to be expected. Regarding the rest of 2022, we anticipate that current market conditions will
remain the same during the slower summer months and once home prices stabilize, buyers will
re-enter the market despite higher borrowing costs. Many will be holding out with the 'wait-and-
see' mentality until the real estate market in the Golden Horseshoe reveals itself and what's next
for the market.