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Economist reacts to Toronto real estate figures

Recent real estate figures from Toronto indicate a potential rebound in the housing market, according to Marc Desormeaux, a Desjardins economist. However, he emphasizes that the full consequences of increased interest rates have yet to unfold.

Data from the Toronto Regional Real Estate Board reveals a noteworthy surge in home sales for December, with 3,444 transactions—a robust 11.5% increase compared to the same period last year. Additionally, the average home price experienced a moderate 3.2% climb, reaching $1,084,692.

Desormeaux believes these numbers hint at a positive trajectory for Toronto's real estate sector, particularly as the Bank of Canada seems to have momentarily halted its rate-hiking initiatives. During a recent television interview with BNN Bloomberg, he remarked, "We are seeing some signs that perhaps the worst of the drag from the second round of monetary tightening is behind us in Toronto, but we’ll wait to see what happens in the spring real estate season."

Despite these positive indicators, Desormeaux remains cautious, emphasizing that the broader Canadian economy has not yet witnessed the full impact of heightened interest rates.

In a notable trend, new listings saw a decline in December, dropping from 4,161 a year ago to 3,886. Desormeaux suggests this reduction may be indicative of homeowners in Toronto struggling to cope with the elevated interest rates. He noted, "For folks who bought a home in 2019 or 2020 at ultra-low rates, if they’re on a fixed five-year term, then they’re going to be renewing at much higher rates in the next few years."

This potential rise in mortgage rates could have implications for household budgets, as Desormeaux warns, "We see a situation in which a much larger share of Canadians’ income goes to the service of mortgage debt. That means there’s less money available for other types of consumer spending."

Looking ahead, Desormeaux anticipates a ray of relief in the form of rate cuts. He predicts that the Bank of Canada will initiate interest rate reductions in the middle of 2024, with the trendsetting rate reaching approximately 3.5% by the year's end. However, he emphasizes that these adjustments won't bring rates back to ultra-low levels, cautioning that the mortgage renewal question will be a significant factor for the Canadian economy in the coming years.

As the Toronto real estate market shows signs of recovery, the delicate balance between economic growth and interest rate management remains a key concern for both homeowners and policymakers. The evolving landscape will likely prompt individuals to closely monitor market trends and mortgage dynamics in the foreseeable future.