Remember when I mentioned that sometimes it seems like everyone wants to talk about real estate (see What Acupuncture Taught Me About Real Estate)? Just the other day one of the guys painting our home called me over for a chat. He was listening to a talk show on the radio while he worked and the subject was oil prices, interest rates and their impact on the real estate market. This has been a very popular topic lately.

Here’s what he said to me: “You’re in real estate so you know exactly what’s going on. How’s this all going to play out? Are my kids going to be able to afford houses in Toronto? Where will prices be in 5 or 10 years?” I was equal parts dumbfounded and flattered that someone would think I knew the answers to these questions. No one knows the answers to these questions.

All I have to offer is my own opinion based on 20+ years experience and knowledge of the residential real estate market in central Toronto. I don’t conduct in depth studies or perform detailed analyses and I’m not an economist (although I did major in economics when getting my Bachelor of Commerce). So with these things in mind, I offer you my thoughts, comments and points to ponder relating to oil prices, interest rates and the economy:

• Let’s get interest rates out of the way quickly because this is a simple subject. The direct effect that a 25 basis point reduction in the Bank of Canada rate will have on the real estate market in central Toronto can be summed up in one word: zero. Or infinitesimal if you prefer to hedge your bets. The fact that the already historically low mortgage rates decrease by another 10-25 basis points isn’t going to motivate a slew of buyers to jump into the market.
• There may, however, be an indirect benefit to the drop in the interest rate. A lower interest rate leads to a lower dollar and a lower dollar can lead to increased exports and manufacturing which could result in an improved economy. It’s a long way to get there, but an improved economy will have a positive impact on our real estate market.
• There’s no question that falling oil prices will have a severe negative impact on the economy of certain Western provinces, but what I’m hearing is that this negative impact will be more than offset by the positive impact it will have on the economies of other provinces, notably Ontario.  Lower oil prices help our neighbours to the south so our exports and manufacturing should pick up since the U.S. economy seems to be in a good position to support us (motivated by it’s own self-interests and not altruism, in case that isn’t clear).
• China is also in a position to take advantage of low oil prices and could help our exports, too. It never hurts to have an economy of that size on your side.
• Lower oil prices mean lower gas prices which mean more money in the pockets of everyone who drives a car and that extra money might make a new or larger home more affordable.
• Becoming less dependent on oil could be a benefit in the long run as the world tries to move away from oil consumption and find alternate sources of fuel, both for environmental and economic reasons.

So there you have it, my inexpert opinion on how falling oil prices and interest rates will affect the real estate market in central Toronto. Basically, it seems as though they’ll have a positive impact on our market in the short term. But as I told the painter, what happens in the long term is anyone’s guess as there are just too many factors to consider that could possibly affect the market.

As always, if you know of anyone who’s looking for an honest realtor who really knows his stuff and doesn’t pressure his clients, Please Don’t Keep Me a Secret. I really appreciate your referrals. Thanks for reading and don’t be shy if you have any questions or comments!