The Bank of Canada's Half-Point Cut and What It Did to the Toronto Market

On October 23, 2024, the Bank of Canada held its meeting and cut its policy rate by half a percentage point, after September 2024 inflation came in at 1.6%. In the Toronto area the effect showed up first in detached homes and suburban townhouses, where September 2024 sales were up 10% and 21% year over year, while the condo market barely moved.

I am Moe Asgarian, a Broker in Toronto with RE/MAX, ranked 47th worldwide and in the top 1% in Canada, and part of what follows is what I was seeing in my own deals in October 2024. Below I go through the economic data behind the decision and then what it meant for the Toronto and GTA housing market.

Why the Bank of Canada chose half a point in October 2024

The analysts were split going in. Some looked at the jobs numbers, because labour data is one of the important indicators that moves the Bank of Canada: if the job market is in decent shape, the Bank can afford to bring rates down more cautiously. And the jobs data was not weak. Unemployment in Canada had come down, with 42,000 new jobs created. September 2024 also brought a notable rise in full-time positions, many of them temporary roles that turned into permanent ones. Even so, most experts expected it would not matter enough in the end, and that the Bank would go half a point. The reading that won out was that the labour market is still a weak market despite the improvement, and that the economy needed lower rates. So on October 23, 2024, the Bank cut by half a point rather than a quarter. The September 2024 data also showed that new immigrants were still facing a challenge finding work, a problem that had not gone away.

Inflation at 1.6% was the deciding factor

The real event was inflation coming down. Canada's target was 2% inflation, which it reached in August 2024, and the newer data showed inflation at 1.6% in September 2024. That 1.6% reading was a figure we had not seen since February 2021, when we were at 1.1%. With inflation that low, the Bank could bring rates down with an easier mind, because it knew that lower rates were not going to upset the inflation picture much. That was the balance it was trying for in October 2024: warm up the markets, housing included, and keep inflation under control at the same time.

Low inflation does not mean cheap

I want to be careful here, because people hear 1.6% and think prices fell. The growth of inflation slowed. The level of prices, especially everyday goods for a Canadian household, stayed high. As of the September 2024 data, average food prices were about 22% higher than three years earlier. Average rent was about 21% higher than in 2021. Compared with the year before, the inflation situation was in much better shape, and that improvement was the main thing behind the Bank of Canada's decision to cut in October 2024. Both of those things are true at the same time.

Detached homes and 905 townhouses led the Toronto area

My own experience in October 2024 was that these rate cuts were landing in people's minds day by day. My clients were looking at the market more seriously, getting more active, feeling hopeful, looking to buy and sell. Prices overall were not much different from a year earlier. In some markets there was an increase of one or two percent compared with the previous year as of October 2024, but there was no broad growth in prices. Transaction activity was the better signal. From August to September 2023 we had a 12% decline, and in 2024 that same drop came in at 10%, which is mildly encouraging, and the reason is the rate cuts, which bring good energy into the market. As of September 2024 this was a detached market: detached sales were up 10% compared with September 2023. Townhouse sales grew a little in the 416, meaning the City of Toronto, but the real growth was in the 905, the area around Toronto, where we saw a 21% increase in townhouse sales. The logic behind that number is worth knowing: people want to move out of a condo into something bigger, or they do not intend to buy a condo at all, and the cheapest and most affordable product within reach is a townhouse in the suburbs.

The condo market did not react

If your question is about condos, the honest answer for October 2024 is that nothing much changed. The rate cut did not have much effect on the condo market, and as I had said and predicted repeatedly in the months before October 2024, I did not expect condo prices to shift any time soon or that market to make a big move. What we did know was that there were a lot of condos on the market, with the City of Toronto in somewhat better shape and the 905 worse off. My own view in October 2024 was that the condo market needs another 8 to 12 months before it can set a new peak. The path there is the one above: the price of those suburban townhouses keeps climbing, and buyers come back to the cheapest product, which is the condo. I want to stress that this is not something that happens within a month or two. It could take months to see that shift. For condo sellers in this market, my advice is to work with an agent who has real experience in it, because the competition is strong and anyone who has decided to buy a condo right now has a lot of options in hand. If you are going to get into this lane at speed, you want a professional and reliable driver behind the wheel.

What 2025 and the new mortgage rules point to

Forecasts as of October 2024 pointed to a better market in 2025. The thing that had stalled the market for several years, high interest rates, was slowly going away, and with rates coming down we expected next year to be a better year for the market. The trends were pointing that way and people had a better view of the future of the mortgage market. Canada's housing association was forecasting that Canadians would buy and sell 6.6% more homes in 2025 than in 2024, which is good growth and still below the ten year average. The forecast also had the average Canadian home price going about 4.4% higher in 2025. I think simpler mortgage rules will help a lot in warming the market up. Personally I am very hopeful about the GTA market, and I have my own reasons. One of them is that the new mortgage changes, which let first-time buyers put down less money and take a longer amortization, are a major incentive for buyers entering the market for the first time, and that change takes effect on December 15, 2024, so its real effect lands on the 2025 market. First-time buyers matter more than people assume. To change your home you have to climb a ladder, and the first rung is the condo or the affordable home, and it is first-time buyers who buy those. Once that first step starts moving, you get more activity at the higher prices too. We will have to wait and see when and how the new rate changes work through this market. If you want to look at what the rate path means for your own move in the Toronto area, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.