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Do the ’90s hold clues to what’s next for Canada’s real estate market?

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There are “eerily similar circumstances” to today’s rapidly rising interest rate environment and what happened to the housing market in the 1990s when the Bank of Canada raised rates rapidly, a Re/Max executive says.

The Bank of Canada raised interest rates from 1.0 per cent in April 2022 to 5.0 per cent in July of this year. In comparison, between February 1994 and January 1995, the central bank raised rates from 7.25 per cent to 10.5 per cent.

Elton Ash, executive vice-president of Re/Max Canada, said the impact of the 1990s increases on the GTA’s housing market was immediate, with sales softening and average price declining from close to $209,000 to $198,000 in 1996. 

The same factors are at play today, with the market’s only saving grace the lack of inventory currently listed for sale, Ash said, commenting in the Re/Max Hot Pocket Communities Report, which was released in late August.

“We’re at a crossroads, and the biggest question remains: where do we go from here?” Ash asked. 

But others don’t share the view that the housing market is about to revisit the 1990s.


The 1990s vs. today


Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board, said today’s lack of inventory in the GTA differs greatly from the situation almost 30 years ago.

“Back in the 1990s, you saw a scenario where there was a lot of panic selling,” he said. “Whereas this time around, what you’re seeing is that as interest rates moved up, we went from a very constrained supply in the marketplace and remained there because, quite simply, with higher borrowing costs, people weren’t prepared to list their existing home for sale to move into something different.”

Mercer said year-to-date listings in the GTA are down by about 20 per cent, although there has been “a bit of a turnaround” in recent months with more listings coming onto the market

Recent rate hikes have not led to a scenario of sales dropping rapidly and listings increasing, he said.

In addition, Mercer said unemployment trended upwards quite rapidly in the early to mid-1990s, which led to a decline in consumer confidence that was much more pronounced than it is today. 

Today’s high immigration numbers are also leading to strong population growth, which is supporting both the ownership and rental markets, he said.

What lies ahead?


Francis Gosselin, a Montreal-based consulting economist with online mortgage firm Nesto, agreed with Mercer that the current lack of inventory combined with “massive immigration” marks major differences from the situation 30-some years ago.

Gosselin said there is a significant supply issue today in the GTA and Montreal and that immigration is putting pressure on the demand side. “That’s something that we didn’t have in the ’90s. We did have immigration back then, but not at the rate we have today.”

The federal government has targeted about 500,000 immigrants to Canada annually, a big change both in absolute numbers and in proportion to today’s population versus that of the 1990s, he said.

Housing starts do not even approach half of what is needed to house the newcomers. Interest rate hikes have led to a decrease in housing starts due to higher mortgage rate financing costs, which make it more difficult for developers to get projects off the ground, Gosselin said.

It is difficult to forecast whether home prices will decline because of recent interest rate hikes, he said. “It’s kind of a guessing game. But even if they did go down slightly, it’s unlikely to remain there for a long time.” 

On Sept. 6, the Bank of Canada decided to hold its benchmark interest rate at 5.0 per cent amid signs the economy is cooling. However, in a statement, the Bank said that it was “prepared to increase the policy interest rate further if needed” as it “remains concerned about the persistence of underlying inflationary pressures.”

Economic growth is not as strong as it was earlier in the year, and we’re starting to see a slowdown in the labour market, Mercer said. “Unemployment still remains very low from a historical perspective but is certainly not running as low as it was earlier this year.”

The GTA is “relatively on track” to end the year in the low 70,000s in sales and average prices of $1.12 or $1.13 million, he notes. 


“I don’t expect that there will be massive returns to be made in real estate, but I don’t think it’s going to fall through the floor any time soon either.”

– Francis Gosselin, Nesto


Gosselin said that even if the Bank of Canada does eventually choose to raise interest rates by a quarter of a point, it won’t make a huge difference. “Going from 5 to 5.25 isn’t a life-altering movement” as much as it was from March to December of last year when rates increased significantly.

“What we’re forecasting is that whether it goes up or not by a quarter point or eventually goes down by a quarter point, we’re going to see between now and the end of next year a period of relative stability in the prime rate,” he said. “It might go to 5.25 (per cent), it might go down to 4.75 (per cent), but we’re not going to see the rates fall back down to 3.0 (per cent). That’s the new reality for the market.”

The economist expects a period of relative stability both on the rate and house prices sides. 

“I don’t expect that there will be massive returns to be made in real estate, but I don’t think it’s going to fall through the floor any time soon either.”


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