Bank of Canada's expected rate hike could further cool GTA real estate, experts say

With the latest figures from the Toronto Real Estate Board showing home prices and sales down, would-be sellers and buyers are now wondering how next week's widely expected Bank of Canada rate increase will affect the market.

Observers expect the central bank to hike its trendsetting rate for the 1st time in 7 years

A sold sign is shown in front of west-end Toronto homes Sunday, April 9, 2017. Most observers expect the Bank of Canada to hike its trendsetting interest rate next week, and some expect it to have an impact on the real estate market in the Greater Golden Horseshoe. (Graeme Roy/The Canadian Press)

With the latest figures from the Toronto Real Estate Board showing home prices and sales down, would-be sellers and buyers are now wondering how next week's widely expected Bank of Canada rate increase will affect the market.

Next Wednesday, Bank of Canada will announce its trend-setting interest rate, and the signals from governor Stephen Poloz are strong enough that economists are nearly unanimous in predicting the rate will rise, likely by 0.25 per cent.

 It would mark the first increase in seven years.

Such a move can't help but have some impact on house prices in the GTA. The question is: how significant will that impact be?     

A quarter-point increase is "not huge," but would contribute to the real estate slowdown, said Sherry Cooper, chief economist of Dominion Lending Centres.

"It was inevitable that rates were going to rise," Cooper said Thursday in an interview with CBC Toronto.  "Longer term, the impact will depend on how many more rate hikes and how quickly they happen."

She predicts a further bank of Canada rate hike later this year and perhaps three rate hikes in 2018.  

Lauren Haw, CEO of real estate brokerage and website Zoocasa, headquartered in Toronto. (Martin Trainor/CBC)

The average price of all homes sold in the Greater Toronto Area in June was $793,915, according to TREB's monthly statistics released Thursday. That's down 13.8 per cent from its peak in April of $920,791. 

It was April when the Wynne government announced a new tax of 15 per cent on foreigners' purchases of residential real estate in the Greater Golden Horsehoe, an area stretching as far from the GTA as Peterborough, Barrie, Wateloo and Niagara Falls. 

Observers also point to a sharp increase in listings and tougher requirements to qualify for mortgages as other factors that have helped cool the market.

"The benchmark rate going up shouldn't affect the housing market any more severely," Lauren Haw, CEO of Toronto-based online real estate brokerage Zoocasa.

Even if the Bank of Canada's move next week pushes mortgage rates up by as much as half a percentage point,​ "it's still an incredibly inexpensive lending market," Haw said Thursday in an interview with CBC Toronto.

Mortgage rates in Canada have been at historical lows since starting to fall after the 2008-2009 recession. Those rates remain  "a few more hikes away" from having a substantial impact on home purchasers, said Haw.

Average sale prices in Toronto (June) 

  • Detached: $1,386,524
  • Semi-detached: $987,404
  • Condo: $552,679

Average sale prices in 905 (June) 

  • Detached: $948,099
  • Semi-detached: $653,936
  • Condo: $436,097