When Lower Interest Rates Will Move Toronto Home Prices

As of November 2024, here is my answer. Toronto housing responds to interest rates much faster than the Canadian economy does. The 12 to 18 month lag you keep reading about describes the whole economy, not this market. In 2022 prices moved within six months. Condo inventory, not time, is the brake now.

I am Moe Asgarian, a Broker in Toronto, ranked 47th in the world at RE/MAX, and I want to answer this one with numbers rather than opinion.

The 12 to 18 Month Lag Is About the Economy, Not Housing

One line shows up constantly in analysis, in newspaper columns and in commentary from Canadian economists: when interest rates change, whether they go up or come down, it takes roughly 12 to 18 months for the full effect to show in the economy. Listen to that sentence precisely. It is about the Canadian economy, meaning financial markets, services, investments and all kinds of goods, and the buying and selling of homes is only one important piece of that. So when you see a chart saying the effect of a rate change arrives a year or a year and a half later, understand that it is describing the whole economy and not the housing market.

Some People Use That Line to Tell You to Wait

Now that rates are coming down, as they were through 2024, some people cite the economists and say the cuts will not reach the market for a year or a year and a half, so home prices and market conditions will not change yet. The conclusion they draw is to wait, stay out of the market, let prices come down over one or two years, and then buy. I do not think that is right. The main reason is simple: the condition of the Toronto housing market is not the same thing as the condition of the Canadian economy.

What Actually Happened After the 2022 Rate Hikes

To answer the question properly, look at what we lived through in the last few years. The first rate increase came in March 2022, and the next big one arrived in July 2022, an unexpected 1 percent increase and the largest jump of these recent years. Did prices take a year to react? The average price in March 2022 was around $1,300,000, and in the space of just six months that average was about $1,100,000. It did not take 12 months or 18 months for the market to deliver a drop like that.

The City of Toronto and the Suburbs Both Moved Fast

Take the City of Toronto on its own. In March 2022, when the first rate increase landed, prices came down quickly to about $1,180,000, and by July 2022 they were at $957,000. Then look at the suburbs around Toronto, the places many people chose for investment during the pandemic and which are still a good place to invest. Those areas peaked in February 2022 at roughly $1,200,000, and less than six months later the number had fallen to $901,000. The declines were far faster than most people expected.

Housing Is a Forward Looking Market

What I know from working in it every day is that housing is a forward looking market. It picks up the signals well before the broader flow of markets does, and swings in rates along with government rules, federal and provincial, have a heavy effect on it. That is the lesson in those 2022 numbers: the Toronto housing market does not necessarily line up with what everyone expects from the Canadian economy as a whole.

Why I Do Not Expect Every Price to Jump in a Month or Two

All of this is only part of the story. I am not saying that because Toronto housing is forward looking, prices here must swing quickly in both directions. Rates matter, but in some parts of the market, condos in the City of Toronto for example, inventory is so heavy that as of November 2024 the rate cuts do not look able to move prices much over the next few months. So my conclusion is this. Lower rates reach Toronto housing faster than they reach the Canadian economy, but because of market conditions, and because the economy and the job market are still short of standard, it does not look like every price will suddenly rise in the next month or two. Market differs from market and product differs from product, which is why I go through condo and house numbers area by area every month. The same cut does not land the same way everywhere, and some areas will move before others.

If you want to know what this means for the specific property or area you are looking at, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.