Bank of Canada drops rates again; Can it spark a housing revival? (2024)

The Bank of Canada cut its benchmark interest rate last Wednesday by 25 basis points for the second time this year, bringing it down to 4.5 percent, its lowest since April 2023.

The move was widely expected by economists, who forecast further cuts through 2024 and possibly into next year.

Here's what experts have to say about the impact of the cuts on Canada’s real estate markets, as reported by Financial Post:

Clay Jarvis, Nerdwallet Canada’s mortgage and real estate expert, stated that the 25-basis point cut will not significantly impact the housing market. “An overnight rate of 4.5 percent is unlikely to unleash homebuyers’ pent-up demand,” he said.

Jarvis added that even with the reduction, variable rate mortgages at Canada’s biggest banks will still be over six percent, and passing a stress test at eight percent remains a significant hurdle.

He also noted that fixed mortgage rates, which remain much lower than variables, are offered for well below five percent. But those rates have not been low enough to get the market moving.

Until variable rates fall by at least another one percent, they will not provide a more affordable option than what is already available.

Penelope Graham, mortgage expert at Ratehub.ca, noted that current homeowners with variable rates are benefiting from reduced monthly payments. “Those who’ve stuck it out so far with variable rates are being rewarded further today,” she said.

However, Graham pointed out that the overall impact on market activity remains uncertain, stating, “It remains to be seen whether this second cut will be the incentive homebuyers need to re-enter the housing market.”

According to Ratehub.ca’s mortgage payment calculator, today’s 25-basis point cut would lower the variable mortgage rate of a home priced at the average $696,179 to 5.45 percent.

This means that the homeowner will pay $95 less per month or $1,140 less per year on their mortgage payments on a 5-year variable rate of 5.70 percent amortized over 25 years.

The Chartered Professional Accountants of Canada highlighted the relief for Canadians with variable-rate mortgages, who can expect lower monthly payments. They noted that lower rates will significantly reduce borrowing costs for potential homebuyers.

Karen Yolevski, COO of Royal LePage Real Estate Services Ltd., expects a slight boost in market activity in the short term, with more robust demand in the fall.

“With mortgage qualification thresholds continuing to come down, sidelined buyers may have the confidence they need to make their return to the housing market,” she said. Yolevski added that increased inventory in major markets could also encourage buyers.

Victor Tran of Rates.ca believes the rate cut offers some relief for homeowners with variable-rate mortgages but may not significantly boost overall market activity. “We would likely need to see another 25 to 50 basis point decrease before there is a significant uptick in sales activity,” Tran said.

Rates.ca noted that the rate cut comes as many housing markets as possible across the country are experiencing slow sales and a dip in house prices, with home sales activity dropping more than nine percent year-over-year in June.

The Canadian Mortgage Brokers Association in British Columbia views the rate cuts as positive, easing financial pressure on mortgage holders and first-time buyers.

Rebecca Casey, president of CMBA-BC, stated, “We are optimistic that today’s announcement will continue to ease the financial burden on homeowners and homebuyers, while also empowering first-time buyers.”

Avery Shenfeld, chief economist at CIBC Capital Markets, suggested that the rate cut could lead to further reductions, potentially lowering mortgage interest and easing inflation pressures. “The much-anticipated quarter point cut opens the door to a further cut in September,” he said.

According to BNN Bloomberg, Yolevski reiterated that buyers have been waiting for a “concrete signal” from Canada’s central bank.

“A second cut to the overnight lending rate indicates just that, and with mortgage qualification thresholds continuing to come down, sidelined buyers may have the confidence they need to make their return to the housing market,” she said.

Yolevski also noted that increased inventory in major markets could encourage buyers to re-enter the market.

In the same BNN Bloomberg report, Graham pointed out that while the rate cut may offer new optimism, the overall impact on market activity remains uncertain.

“However, we did see a slight uptick in sales as a result of the June rate cut. Today’s decrease could offer new optimism and stoke real estate demand,” she said.

Leah Zlatkin of LowestRates.ca is skeptical about significant market movement, highlighting that rates are still high, and many buyers may wait for further cuts.

“We’ve seen a 50-basis point drop since June, but rates are still comparatively high and many potential buyers are waiting for further rate decreases to increase their buying power before they make a move,” she said.

Victor Tran emphasized that the condominium market is particularly slow, with high rates dampening investment property interest. “Interest in investment propertieshas decreased the longer rates remain high. Properties are taking much longer than usual to move,” he said.

Adam Jacobs from Colliers Canada sees the rate cut as a “welcome sign that the worst is over” and positive news for borrowers, real estate professionals, developers, and investors.

“Rate cuts should help in terms of making more rental development feasible/economical, easing pressure on the rental market, more people can afford to buy, and inducing more sellers to list properties,” Jacobs said.

Mark Fieder from Avison Young Canada believes the Bank of Canada’s announcement will positively impact investor sentiment.

“Commercial real estate return metrics are improving compared to other asset classes, and we expect this will further fuel investor appetite and capital allocation into CRE,” he said.