What Does an Economic Slowdown Mean for the GTA Housing Market?

Sudden changes to Interest Rates will continue to affect affordability and pricing in the GTA.

What Does an Economic Slowdown Mean for the Housing Market? | MyKCM

According to a recent survey, more and more GTA residents are concerned about a possible recession. Those concerns were validated when the Bank of Canada met April 13 and June 1 and confirmed they were strongly committed to bringing down inflation. And, in order to do so, they’d use their tools and influence to slow down the economy. The bank of Canada will meet again on July 13, and most experts feel that the rate will increase another .75 to 1 %.

All of this brings up many fears and questions around how it might affect our lives, our jobs, and business overall. And one concern many in the GTA have is: how will this affect the housing market? We know how economic slowdowns have impacted home prices in the past, but how could this next slowdown affect real estate and the cost of financing a home?

According to Mortgage Specialists: 

Throughout history, during a recessionary period, interest rates go up at the beginning of the recession. But in order to come out of a recession, interest rates are lowered to stimulate the economy moving forward.”

Here’s the data to back that up. If you look back at each recession going all the way to the early 1980s, here’s what happened to mortgage rates during those times (see chart below):

What Does an Economic Slowdown Mean for the Housing Market? | MyKCM

As the chart shows, historically, each time the economy slowed down, mortgage rates decreased. Fortune.com helps explain the trend like this:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

And while history doesn’t always repeat itself, we can learn from it. While an economic slowdown needs to happen to help taper inflation, it hasn’t always been a bad thing for the housing market.

Bottom Line

Concerns of a recession are rising. As the economy slows down, and the Bank of Canada feels the initial need to increase rates to combat inflation, the market will continue to change. While no one knows exactly what the future holds, you can make the right decision for you by working with a trusted real estate professional to get expert advice on what’s happening in the housing market and what that means for your homeownership goals.

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