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Skyrocketing borrowing costs coupled with economic uncertainty left many potential homebuyers in the GTA sitting on the sidelines in 2023.

But sluggish Toronto home sales may not be the story for 2024 if the Bank of Canada follows through with expected interest rate cuts this year, industry analysts say.

“If history is any guide, once people buy into the notion that interest rates are going to be declining, you will start to see noticeable movement back into the market… even speculation on rate cuts has an impact on the market,” Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board (TRREB), told CP24.com.

“So when we actually see real tangible rate cuts, I think you will see an initial wave of people who have been putting their housing purchase on hold start to move back into the marketplace.”

According to the latest available data from TREBB, Greater Toronto home sales fell six per cent in November 2023 compared to November 2022. That was down 8.7 per cent compared to October.

Sales, in fact, hovered around a 20-year low for much of 2023 outside a brief surge in activity in the spring.

The average home price in Toronto in November was $1,082,179, which was essentially flat year-over-year.

The average price of a home across all property types in Toronto peaked at $1,334,062 in February 2022, prior to the Bank of Canada’s first interest hike.

In December, the Bank of Canada held its key interest rate at five per cent for the third time in a row following 10 rate hikes as part of a campaign to combat inflation. Forecasters expect that the central bank will begin to cut rates in 2024 but opinions on the exact timing differ.

“Inflation and elevated borrowing costs have taken their toll on affordability. This has been no more apparent than in the interest rate-sensitive housing market. However, it does appear relief is on the horizon,” Toronto Regional Real Estate Board (TRREB) President Paul Baron said in a news release issued last month.

“Bond yields, which underpin fixed rate mortgages have been trending lower and an increasing number of forecasters are anticipating Bank of Canada rate cuts in the first half of 2024. Lower rates will help alleviate affordability issues for existing homeowners and those looking to enter the market.”

A recent report by Re/Max suggests that home sales in the GTA will increase by more than 10 per cent in 2024 as interest rates begin to come down and more buyers return to the market.

According to a market survey forecast by Royal LePage, housing prices in the GTA are expected to rise by six per cent in 2024.The report states that prices will be relatively unchanged in the first half of the year but will pick up in the second half of 2024, when interest rates are expected to decline.

The brokerage predicts that single-family detached homes will see a seven per cent increase in price this year, and condos will see an increase of five per cent.

“I think a very small rate cut by the central bank, by the Bank of Canada, will unleash a lot of that pent-up demand that we’ve had a lot of that over the last couple of years, which, by the way, is the longest slow-down in Canadian and Ontario real estate in 25-years,” Phil Sopher, president and CEO of Royal LePage, told CP24 in December.

“Even the great recession was only nine months, we’re going to be two years here. So there’s a lot of pent-up demand.”

Cameron Forbes, a Re/Max Realtron Realty broker, concedes that it may take more than that to coax buyers back into the market.

“It very well could be that, you know, we need to see a couple of movements on the part of the Bank of Canada in order to sort of kick start some of this pent up demand,” he told CP24.com.

He said the current interest rate environment has had the biggest impact on those trying to break into the market.

“With the stress test it's hard for people to qualify for higher mortgages,” he said. “I think first-time buyers are honestly the people who are most impacted right now. They're challenged with the equity for the down payment.”

He added that while two per cent interest rates will not be returning any time soon, homeowners will see a break in rates in the not-so-distant future.

“I think that people didn't understand that two per cent interest rates are not normal,” he said.

“That was very abnormal and I think people became accustomed to it because it lasted for a while.”

Forbes said he does not see a big uptick in market activity until the fourth quarter of the year.

“I think the Bank of Canada governor has sort of communicated to everybody that there's still inflation pressure… so my gut is third quarter rates dropping and the fourth quarter with the market obviously having a pretty big impact at that time with buyers coming in and purchasing,” he said.

Forbes said while longer-term fixed mortgage rates have already started to come down to as low as five per cent, it will probably be another six months before there is movement on short-term and variable rates.

Leah Zlatkin, of LowestRates.ca, said that she expects homeowners will get a break on rates sooner than some are predicting.

“We see that there's potentially either a soft recession happening right now or a recession looming in the coming year and because of that, I believe that the Bank of Canada is going to do whatever they can to help alleviate that pressure for people,” Zlatkin, who works as a licensed mortgage broker, said.

“As long as holiday spending stays in line and inflation doesn't become rampant, I predict that earlier in the year, we're going to start seeing cuts as long as the U.S. Fed holds or starts cutting themselves.”

While some will have to wait for rates to come down to qualify for a mortgage, Zlatkin said now may be the best time for well-qualified buyers to make a purchase.

“For somebody who is believing that the rates are going to start coming down over the next little bit and that it's a buyer's market right now, this is the opportune time to buy, to get a deal and to ride that wave down in the future years,” she said.

For homeowners who can stand a little bit of “volatility,” Zlatkin said a variable rate mortgage may be the right move given anticipated rate cuts.

“Obviously that did not pan out for the people who chose variable rates in the last few years,” she said.

“If you believe the powers that be and you believe that rates are going to come down and you believe that analysts are correct, then, I mean, it's a good bet to make. If those analysts are wrong then obviously it's going to be a bad bet to make… but nobody here has as crystal ball.”

Source: CP24