As you likely already know, interest rates have been on an upward trajectory since January, and we’re starting to see the intended effect on overall inflation and the real estate market. The Federal Government’s objective is to bring the inflation rate to 2.5% by the end of the year. Right now we’re hovering around 6% in the second quarter of 2022.

With a 3% interest hike since last Fall, buyers are re-looking at what they can now afford. So, how does this break down with real money? For example, for a $1 million mortgage, buyers are now paying about $70,000 MORE over a five-year term. Mortgage rates are currently hovering around 4.2%, up from 2.8% in January. That’s an extra $14,000 in more interest each year.

At 2.8% Homeowners paid $130,000 interset over five years
and now…
At 4.2% Homeowners will be $198,000 in interest over five years.

There’s a good possibility that interest rates will increase by another .50% in June and another .50% in July. The last time we saw a .50% interest rate hike was back in 2002, and now we’re facing three in a row.


The BIG question is, are house prices coming down enough to offset this increased interest cost?

The sales statistics indicate “yes” but slowly. So, it could work out as a net neutral in the end. Some analysts predict an overall home price reduction of 20% by the end of 2023. In the meantime, it’s about adjusting both Buyer and Seller expectations on housing prices and securing the best possible interest rate.  

Jason Freisen from Outline Financial suggests that as buyers revise their budget and speak to their banks, it’s also a great idea to have multiple pre-approvals with staggered dates.


What is the Impact of Interest Rate Increases on the Real Estate Market?

Homes are still trading in Toronto at a healthy pace, but we are indeed heading toward a more balanced market. With that, we’re back to homes staying on the market for longer, and Sellers will have to re-adjust expectations. Houses aren’t likely to sell in 5-7 days any longer as buyers have more choice and make fewer compromises when they buy.

Looking at April’s numbers and comparing year-over-year – we’re at -41.2% change. Just over 8,000 homes sold in the GTA compared to 13,613 homes in April 2021. The third slowest April in 10 years. There were about 12% more active listings in April compared to April 2021. This is where we are seeing real change. With increased inventory, buyers are hanging back and have more choice. We’ve had a significant run-up over the last two years. The monthly decreases in the average sale price could be trending down at a similar pace. For example in the Core 416 – the average home sold at 110% of list price in March and April dropped to 108% list price or a reduction of about $50,000.


Although we are seeing average home prices slide down month-to-month, there was still a 15% gain on the average price year-over-year.

We’re very much in a transitioning market and this may not be the best time for Sellers to purchase their next house first. But, if you do buy your next house first, be sure to have a Plan B if your home doesn’t sell as quickly or at the price you predicted.  



Key Takeaways

  • The Toronto real estate market is still healthy!
  • The real estate market is taking a turn towards more balance.
  • Active Listings remain low but are growing and slowing down price growth
  • Be Careful if buying before selling

Thinking of buying or selling?

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