The Bank of Canada Held Its Rate at 5%: What It Meant for the Toronto Market

As of February 2024, the Bank of Canada had held its policy rate for a fourth consecutive time, leaving it at 5%. For Toronto housing that meant no immediate relief on mortgage costs, a central bank sounding more confident about the economy, and a market slowly gaining confidence while still sitting a long way from its boom days.

I am Moe Asgarian, a Broker in Toronto, and my job here is to take the central bank's language and turn it into what it actually meant for people buying and selling homes around Toronto in February 2024.

The hold itself, and the wording that changed

As of February 2024, the Bank of Canada had announced for the fourth time in a row that it was not changing interest rates: not raising them, not lowering them. The policy rate stayed at 5%. None of that was a surprise. In earlier updates I had pointed to the forecasts and the charts and said a change in the opening months of 2024 was unlikely.

The language is where it got interesting. Earlier statements talked about a temporary pause, a chance to see what happened and how conditions developed. This one said plainly that economic conditions left no room for doubt that rates should be held, and it pointed to the positive forecasts being published about the Canadian economy. What does that mean in practice? It means the prediction we had already made was holding: the charts and the numbers suggested the Canadian economy was more likely than not heading toward better days in 2024, and the Bank's own choice of words showed it. The statement said conditions were clear, and indirectly it sent the message that if the economy kept on this path, the rate cuts people had been forecasting would arrive. I will stress it again: the Bank still said nothing directly about cutting. But calling the improvement obvious was, to me, a sign that 2024 could be the year several cuts begin.

Why the US central bank was part of the story

The second point is what happens south of the border. Every day the news and the analysis out of the United States pointed in the same direction: American interest rates were eventually coming down. When that happens, the Bank of Canada has little choice but to follow the US central bank and lower rates here too. That is a large part of why, as of February 2024, I did not treat 5% as a permanent setting.

What the Toronto market looked like in February 2024

We should also look at the market itself. As of February 2024 the picture was encouraging compared with January, and you could see it in houses going into multiple offers, which told me demand had picked up noticeably from January 2024. My own call at that point was that prices would rise over the course of 2024 and the market would get busier, but that the number of transactions would not climb anywhere near the same proportion. Overall, better than 2023, with the early months of the year still only just behind us.

Why I kept the optimism in proportion

There is another side to this, and it matters. We were still talking about a market a long way from its busy days. Yes, there was optimism, and it rested on something real. But as of February 2024 the sales numbers were still down, inflation was still high, and most important of all, the rates lenders were actually offering were not at a level where you could say everyone was able to put money into this market, or that first-time buyers could get a cheap mortgage on a first home. So the size of the optimism about 2024 was worth estimating carefully. Not too optimistic, while recognising that the market was, on the whole, getting its confidence back. The market looked at the central bank's forecast, saw that language about the future of the economy, and decided to move forward.

The way I explained it at the time was a highway. The speed limit is 100 kilometres an hour, and all the cars used to travel at 100. Then the traffic got heavy, the highway filled up, and the cars slowed to 10 kilometres an hour. Now imagine all that good economic news and the central bank's forecasts open things up a little, the traffic thins out, and the cars are moving at 40 kilometres an hour. Better. Still a very long way from the 100 they used to do. That is what was happening in the Toronto market in early 2024, which is why the market's own capacity to absorb change deserves attention. It is an important part of the reality.

The renewal question hanging over 2024

Here is the question I found most interesting looking at the rest of 2024, because the early months of the year had only just started and there were plenty of unanswered questions. There is a group of households that took a five-year fixed mortgage five years earlier at an extremely low rate compared with the mortgages on offer in early 2024, and their renewal was coming due. The new rates were several times what they had been paying. So the real question is the financial state of those families. Can they hold on to the home, or does renewing at a multiple of the old rate force them to sell? As of February 2024 that answer was still ahead of us, and it was one of the things I most wanted to see resolved.

Toronto is not one single market

Before I finish, the point I most want people to take away. The Toronto housing market, like most markets, is not uniform. When we say something is going to happen, it does not mean every product in this market feels that change to the same degree. If we say rates come down in the summer and house prices go up, the price increase on condos is never the same as the increase on houses, and property inside the City of Toronto never changes by the same amount as property in the suburbs around it.

So studying the market section by section matters. Yes, a rate hold or a rate cut affects every property. But if you can study each segment on its own, you can make a better purchase, a better investment, and a better sale too. Reading the market this way, breaking it apart and taking each piece separately, is what our team has done successfully for years, and it has helped our sellers and our buyers a great deal. There have been plenty of times a client asked us to buy them a house and we told them it was better to wait. There have been times our seller wanted to sell and buy, and we told them to buy first. There was a seller who wanted to buy a house in downtown Toronto and we suggested a townhouse instead, because the return would be better.

Alongside following the news and the analysis, bring us your own situation and the capital you want to put into this market, and we will put together a plan designed for you, because we usually design them one person at a time. Fill out the form at the bottom of this page or book a free consultation. Stay well and take care.