In February 1989, Toronto’s real estate market was at the peak of a housing bubble. The high five-year fixed mortgage rate of 12.25% at the time reflects a general environment of high interest rates used to curb inflation throughout the late 1980s. While initially not deterring buyers due to speculative investment and demand outpacing supply, these high rates eventually made mortgages less affordable, reducing demand for housing.
By 1996, although the five-year fixed mortgage rate had significantly decreased to 6.95%, home prices were still lower. This was mainly because the economic conditions had changed. After the peak, the early 1990s saw a recession that increased unemployment, lower income growth, and a significant consumer and investor confidence pullback. These factors diminished the demand for homes, and it took time for the market to absorb the effects of the earlier economic conditions despite the lower mortgage rates. Additionally, the psychological impact of the burst bubble lingered, making potential buyers wary of investing in real estate, fearing further price drops.