Gasoline, meet fire. That’s how Bosley real estate agent David Fleming views the impact on the Toronto region housing market if the Bank of Canada goes ahead with Wednesday’s likely rate cut in response to growing novel coronavirus fears.

The real estate market is already hotter than it was when it peaked in early 2017, he said. This year started with a shortage of homes available to buy and a “massive surge” in demand. That was followed by an easing in the mortgage stress test and now a rate cut looms, Fleming said.

“I understand the government is trying to stop a recession from something they can’t control, the coronavirus that’s going to affect the entire world’s economy. But all it’s going to do to the Toronto market is add more fuel to the fire,” he said.

The central bank is expected to drop its trend-setting interest rate 25 to 50 basis points in the midst of spreading fears about the impact of the COVID-19 illness that have already shaken the stock market and pushed down oil prices.

But there is no sign yet those fears have infected the Toronto housing market.

The Toronto Regional Real Estate Board (TRREB) reported price growth of 17 per cent year over year in February to an average of $900,000, including all condos and ground-level homes

Sales shot up 45.6 per cent in the same period. But the real estate board cautions that this February compares to last year’s decade low in the same month. Sales aren’t likely to persist at those rates given the market began rising after the first quarter of 2019. The board also noted the number of transactions is still far outpacing new listings. There were 2,274 more sales this February compared to last but only 779 more new listings, indicating a tight market.

The real estate board is forecasting 10 per cent price growth this year — five times the Bank of Canada inflation target, said TRREB chief analyst Jason Mercer.

“That’s certainly strong price growth from a historic perspective and representative of a very tight market,” even if the mid- to long-term picture is less clear, he said.

RBC economist Colin Guldimann agrees a rate cut will offer some lift to the housing market but it won’t necessarily alter affordability significantly for many consumers. It will depend on how much of the cut banks pass along and how quickly it trickles down.

Because the market normally lights up in the spring anyway, he said, it will be difficult to distinguish how much activity is seasonal and how much is a result of the rate cut and other factors.

“There’s another big piece to this which is important to signal, which is these rate cuts aren’t manna in that they’re not happening for no reason. They’re happening with significant concerns about the domestic economy,” he said.

“Most rate watchers don’t expect the banks to pass through the full Bank of Canada rate cut,” said mortgage expert Robert McLister of RateSpy. “Banks face the great unknown of the coronavirus, rising credit risk, falling rates and an inverted yield curve. The latter two factors alone put substantial pressure on bank earnings. Swiping 10 basis points from each 25-basis-point Bank of Canada rate cut is one way to keep shareholders happy.”

Even though some consumers have already jumped into the market, he predicts a blockbuster spring. Assuming rates don’t change and the Office of the Superintendent of Financial Institutions moves ahead with its plan to ease the stress test for uninsured mortgages, some buyers will be looking at an additional five to six per cent of purchasing power, McLister said.

Royal LePage CEO Phil Soper says the spring market will be “boisterous — maybe too boisterous,” based on pent-up demand in a market that is already tilted in favour of sellers.

The issue at the heart of the rate cut — the coronavirus — will also have a more muted effect on jobs and the Canadian economy than other parts of the world, he said.

With less than 10 per cent of Canadian jobs reliant on manufacturing, Soper said, “The interruptions to supply chains have much less impact than they would in Germany, Japan or even some parts of the U.S.”

“We were Italy in 2003. Now we’re a tertiary player at this stage of the viral outbreak,” he said.

Psychology could be as big a factor as economics in raising the volume on the housing market, agrees Shaun Hildebrand of Urbanation, a development market research firm.

Lower rates could create more urgency in the minds of consumers who don’t see the virus impacting their job or personal finances, he said.

In the condo market, which has consistently outperformed other housing categories because of the starting price point, Hildebrand expects supply will remain tight as homeowners hang on to list until the fallout from the coronavirus contagion settles.

Loading... Loading... Loading... Loading... Loading... Loading...

Although the number of listings has increased year over year — 7.9 per cent, according to the real estate board — demand is now so high that it has absorbed most of the inventory — even high-priced homes and areas such as Oakville and York Region that were slower to recover from the correction of 2017 through the early part of 2019, said Realosophy president John Pasalis.

The sales of lowrise homes in the 905 communities around Toronto “is mind blowing,” he said.

“It’s not a good rate of growth,” Pasalis said. “We are definitely a little concerned about what’s going on in the housing market.”