by Mo Monsef 
Move expected to provide significant relief to the real estate sector, easing borrowing costs and stimulating demand
The Bank of Canada has reduced its key overnight rate by 50 basis points, lowering it to 3.25%. This marks the fifth consecutive rate cut and the second significant reduction in a row. The decision aims to provide much-needed relief to the housing market, easing borrowing costs and encouraging demand in a period of slowing economic growth and global uncertainties.
Governor Tiff Macklem highlighted that while inflation is now under control, with the consumer price index (CPI) at the Bank’s 2% target, there are still economic risks. These include rising unemployment and potential impacts from U.S. trade policies, which remain concerns for future economic stability.
Impact on the Canadian Housing Market
Experts agree that this rate cut will likely impact the Canadian housing market in several ways:
- Lower Borrowing Costs: The rate cut will reduce mortgage rates, making it cheaper for Canadians to borrow money. This could encourage more buyers to enter the market, especially in cities like Toronto, Vancouver, and Montreal.
- Boosted Demand: The reduction in borrowing costs could make home buying more affordable, increasing demand in the market. First-time buyers, in particular, may be more likely to purchase homes, especially in areas where home prices have plateaued or decreased.
- Home Price Stabilization: With increasing demand, the rate cut could help stabilize or even increase home prices, as more buyers re-enter the market.
- Development Growth: As the cost of borrowing becomes more affordable, developers may be more inclined to begin or continue construction projects, helping to address the growing demand for housing.
Real Estate Insights
Real estate analysts believe this move will positively affect the housing market, but they caution that broader economic instability, such as unemployment and trade issues, may limit the full potential of this rate cut.
What Does This Mean for Homebuyers?
- First-Time Buyers: The rate reduction can make homeownership more accessible by lowering monthly mortgage payments, especially for first-time buyers who have faced affordability challenges due to previous high interest rates.
- Investors: Real estate investors may benefit from the lower borrowing costs, which could make financing more affordable for both new investments and existing properties.
- Existing Homeowners: Homeowners with variable-rate mortgages will likely see their monthly payments decrease, easing financial burdens.
Bond Yields Impacting Fixed Mortgage Rates, Says Ratehub.ca
According to Penelope Graham, a mortgage analyst at Ratehub.ca, the Bank of Canada’s recent rate cut aligns with expectations, as bond yields had already dropped to around 2.8% prior to the announcement. This decrease in bond yields could put downward pressure on fixed mortgage rates in the short term. However, U.S. inflation and the Federal Reserve’s policies could dampen this effect. Graham noted, “While the U.S. CPI report indicated inflation at 2.7%, this complicates predictions for further yield reductions.”
Norman, a representative of Altus Group, highlighted that the CPI increase in October was not concerning enough to warrant a significant rate cut. He also pointed to trade tensions and their potential influence on investor confidence as key factors in the Bank of Canada’s decision. He mentioned, “The escalating trade tensions could influence business investment decisions, which may lead to further easing measures in Canada.”
Norman expects that the Bank of Canada’s rate will eventually stabilize around 2.5%, setting the stage for increased activity in the real estate market. “This should set the foundation for a long-awaited rise in real estate transactions and development,” he added.
Meanwhile, Ray Wong, also from Altus Group, suggested that the pace of future rate cuts will largely depend on the actions of the U.S. Federal Reserve. He noted that real estate market conditions are becoming more balanced, stating, “The bid-ask gap is slowly closing.” Wong believes this trend will lead to a steady increase in market activity next year as a result of this year’s rate decisions.
Altus Group’s Peter Norman attributed the Bank of Canada’s aggressive easing measures to weak GDP figures from the third quarter.
Rate Cut Could Increase Competition, Pricing Out Homebuyers: LowestRates.ca
The recent rate cut has raised concerns for homebuyers. Leah Zlatkin, a mortgage broker and analyst at LowestRates.ca, described the current real estate market as dynamic yet challenging. She noted that in the Greater Toronto Area (GTA), homebuyers face a dilemma: strong sales and rising prices combined with economic uncertainty and affordability issues. Zlatkin warned that the rate cut might increase competition, potentially pricing out those who were waiting for the market to cool down.
Urgency to Act Before Affordability Erodes: Royal LePage
Phil Soper, CEO of Royal LePage, emphasized that the rate cuts are driving higher demand. He noted that many buyers are realizing property prices are rising again, which is causing more of them to act urgently before affordability worsens. Soper anticipates a “pull-ahead” of activity, with an early start to the traditional spring housing market. Additionally, changes to lending policies set to take effect on December 15 could further encourage sidelined buyers to take advantage of their expanded borrowing power.
December Activity Could Increase: NerdWallet
The Bank of Canada also referenced upcoming mortgage rule changes aimed at improving affordability for first-time buyers. These changes, combined with the rate reduction, are expected to drive increased demand and could push real estate prices higher. Clay Jarvis, a mortgage analyst at NerdWallet, highlighted the impact on demand, noting that Canada’s housing market surged after the October rate cut. He believes that the recent reduction could ramp up December activity, particularly in regions like Ontario and B.C., where lower down payment requirements are set to take effect.
Suburban Markets Present Better Investment Opportunities: Coldwell Banker
Despite the generally optimistic outlook, some experts remain cautious. Dean Artenosi, a real estate author and co-owner of Coldwell Banker The Real Estate Centre, advised buyers to consider suburban markets. He pointed out that owning property in major urban centres may not be feasible, suggesting that suburban areas present better opportunities for long-term investment.
