It’s impossible to think of the 2020s without considering the far-reaching impacts of the pandemic, as well as Russia’s invasion of Ukraine, global supply shortages and a red-hot housing market. Between 2014 and March 2020, the overnight target was between 0.5% and 1.75%. And then almost overnight, the entire world shutdown, forcing central banks to cut rates to stave off deflation. On March 16, 2020 the BoC slashed the key rate by 50 basis points, then by another 25 basis points on March 27, bringing the overnight rate to a low of 0.25%. In July 2020, Bank of Canada governor Tiff Macklem told Canadians that interest rates will remain low “for a long time.”
However, by March 2022, the BoC was now facing inflationary pressures, with CPI rising from 5.1% at the start of 2022 to reach a 41-year peak of 8.1% in June, forcing the Bank to raise interest rates 10 times by 4.75 percentage points to a 22-year high of 5% in July. This, in turn, caused mortgage rates, especially variable-rate mortgages, to soar; roughly half of new mortgages in early 2022 were variable-rate (when rates were less than 2%), compared to just 6% in August 2023 (when rates averaged 6.5%), according to the CHMC. Compounding this financial squeeze was the run-up in the housing market, with home prices up 34% since before the pandemic, requiring home buyers to service bigger mortgages. Five-year fixed-rate mortgages hit a high of 7.04%, and as of March 2024, currently sit at around 5%.
According to the TREB, the average sales price of a Toronto home in 2023 was $1,126,568. Using today’s minimum down payment rules, 20% down would have been $225,314. Assuming a home buyer took out a 5-year mortgage for $901,254 at 7.04%, monthly payments would have equaled $6,334.80; at 4.79%, monthly payments would have equaled $5,134.52(*). At that time, the provincial minimum wage for Ontario was $16.55 per hour.
Source for all tables: Bank of Canada, interest rates posted by major chartered banks. As of February 2024.
(*) This calculation does not account for mortgage default insurance and is only an illustration.
