The Bank of Canada’s Interest Rate Cut: A Turning Point for Real Estate Buyers?

On Wednesday, the Bank of Canada took a significant step by cutting its key policy rate by 50 basis points, bringing it down to 3.75%. This marks the fourth consecutive rate cut since June, driven by inflation data and a shift in focus from lowering inflation to maintaining inflation targets. Experts believe this move could spark increased buying activity in the real estate market, though some buyers may still hold off until the final rate decision of the year.

Renewed Interest in the Housing Market

Phil Soper, President and CEO of Royal LePage, commented on the impact of the rate cut, noting that the housing market had been sluggish in many regions due to high borrowing costs. However, with this more aggressive cut, Soper believes the market could quickly shift. "With every cut to the overnight lending rate, more homebuyers are expected to come off the sidelines," Soper said. He added that rising demand could push home prices up, eliminating the advantages of lower borrowing costs. In his view, an early spring market is now a possibility.

Buyers May Still Hold Off

While some buyers may act quickly, others may wait for further rate cuts or the last rate announcement of the year. Victor Tran, a mortgage and real estate expert with RATESDOTCA, highlighted the uncertainty that remains. "Many will wait for the final rate announcement of the year before making a move," Tran said. He noted that buyers are hesitant to act until they believe the market has bottomed out, though it's difficult to predict market timing with any accuracy.

Favorable Conditions for Buyers

Leah Zlatkin, a licensed mortgage broker, emphasized that the combination of the recent rate cut and upcoming mortgage rule changes in December creates favorable conditions for buyers. Zlatkin warned, however, that waiting for further rate cuts might mean entering a hotter market. "Once rates decrease to a point that the majority of buyers are comfortable with, the housing market will heat up quickly, and prices will rise," she said. She suggests that potential buyers consider shorter-term mortgage options to secure their place in the market before prices spike.

Impact on Mortgage Holders

For those renewing mortgages, the cut provides some relief. Alana Riley, head of mortgage, insurance, and banking at IG Wealth Management, pointed out that the cuts in 2024 and 2025 are expected to mitigate the impact of higher renewal rates. While homeowners will likely still face higher rates than their current ones, the situation is expected to be more manageable than at the start of the rate cut cycle.

Psychological Shift in the Market

Experts, including Tran, predict a "psychological shift" among buyers and sellers. If there’s an uptick in sales or home prices, buyers may rush to act before prices rise further, potentially leading to a busy winter and spring market in 2025.

In summary, the Bank of Canada's latest rate cut is a significant step that could drive new activity in the housing market. However, many potential buyers may hold off until more clarity emerges from the Bank's final rate announcement later this year. With mortgage costs becoming slightly more affordable, experts are keeping a close watch on how the market will respond in the coming months.