The Bank of Canada’s recent decision to cut interest rates by 50 basis points, lowering the key policy rate to 3.75%, has sparked a conversation about the impact this move may have on the Canadian housing market. While this could potentially reignite buyer interest, some buyers may still be holding out for more significant rate cuts before making a move.

On Wednesday, the central bank announced its fourth consecutive rate reduction since June, citing a shift in focus from lowering inflation to maintaining its inflation target. With the latest cut, real estate experts are speculating on how this will influence buyer behaviour and housing prices in the coming months.

Early Signs of a Market Shift

Phil Soper, CEO of Royal LePage, highlighted that while the housing market has been sluggish due to elevated borrowing costs, this more aggressive rate cut could change the tide. According to Soper, each reduction in the overnight lending rate is expected to bring more buyers into the market, leading to increased demand and potential price growth.

“An early spring market is on the cards,” Soper stated, suggesting that this rate cut may lead to a quicker-than-expected revival of housing activity.

Buyers Cautious, but Ready to Act

Victor Tran, a mortgage and real estate expert at RATESDOTCA, also weighed in, indicating that while some buyers may be encouraged by the rate cut, others might hold off until the final rate decision of the year. Many buyers are cautious about entering the market before rates stabilize further, as they fear acting too soon could lead to missing out on better conditions.

Leah Zlatkin, mortgage broker at LowestRates.ca, echoed this sentiment. She noted that the combination of rate cuts and upcoming mortgage rule changes makes the current market conditions favourable for buyers. However, she warned that waiting too long could lead to rising prices, as demand is likely to surge once buyers feel more comfortable with the rates.

Affordability Boost for Homebuyers

This rate cut could also help ease affordability concerns for those struggling with higher borrowing costs. According to Clay Jarvis from NerdWallet Canada, the reduction in rates provides a slight affordability boost, although the stress test will continue to prevent some buyers from entering the market just yet.

With additional rate cuts anticipated in 2024 and 2025, as suggested by Alana Riley, head of mortgage, insurance, and banking at IG Wealth Management, there may be a growing psychological shift among buyers. As rates decrease, the possibility of higher home prices increases, making it more difficult for those on the sidelines to time their entry into the market perfectly.

Impact on Mortgages and Renewals

For homeowners facing mortgage renewals in the next 12 to 24 months, the recent rate cut is welcome news. Even though renewal rates may still be higher than current rates, the impact is expected to be more manageable than at the start of the rate-cutting cycle. Penelope Graham from Ratehub.ca noted that prime rates at most lenders will likely fall to 5.95%, bringing relief to those with variable mortgage rates.

In contrast, homeowners with fixed-rate mortgages may not see as immediate a benefit from the rate cuts, as fixed rates are primarily influenced by bond yields, which may not react as dramatically to the recent rate cut.

Conclusion

The Bank of Canada’s recent rate cut is likely to trigger increased activity in the real estate market, with experts predicting a busier-than-usual winter and an early spring market in 2025. However, buyers are still approaching with caution, waiting for further rate decisions before making a move. For those looking to purchase or renew their mortgages, the current market offers both opportunities and risks, with the potential for rising prices looming as more buyers re-enter the market.

As always, timing is key, and prospective homebuyers should weigh their options carefully as the market adjusts to these new economic conditions.