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Those in the market for a Toronto home shouldn’t get too excited about the prospect of lower mortgage rates, says one economist.
This week in a widely reported move RBC revealed it was slashing its five-year mortgage rate, and other lenders are expected to do the same. But Stephen Brown, a senior economist with Capital Economics, suggests it won’t do a whole lot to boost activity in Toronto’s housing market.
“While such cuts may well help markets like Montreal where sales remain pretty strong, it’s hard to see them doing much for Toronto or Vancouver,” he writes in a Canada Economics Weekly report.
“In both cities, speculation has played a far larger role in driving up both sales and prices in recent years. For owner-occupiers to replace such buyers, either mortgage rates or prices will need to fall much further,” Brown continues.
Although Toronto sales fell by 16.1 percent in 2018, according to the Toronto Real Estate Board (TREB), Brown is not sure substantial price drops are a foregone conclusion. While sales took a double-digit dip, the average price of a home in the GTA remained relatively stable at $787,300, representing a decline of 4.3 percent.
“Given high transaction costs, absent a severe economic downturn or a sharper rise in interest rates than we envisage, investors may simply decide to hold on to their assets,” Brown states.
Many experts predict the Bank of Canada will continue to gradually increase interest rates this year. But Capital Economics has repeatedly predicted the central bank will need to reverse at least one of the five hikes it has announced since July 2017, in part because of the struggles of the country’s oil industry.
While Capital Economics remains an outlier, some observers are now entertaining the possibility that the central bank will sit on the sidelines for 2019.