Bank of Canada rate cut unlikely to move housing market needle

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The Bank of Canada is widely expected to cut its benchmark interest rate by 50 basis points tomorrow.

That’s a big cut, but is it enough to entice buyers back to Canada’s housing market, who so far have been holding out for lower rates?

Not according to this new poll. The survey conducted for mortgage comparison site Everyrate.ca in late September, found that 74 per cent of Canadians who are considering buying or refinancing need policy rates to drop below 3 per cent before they act.

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“We knew Canadians wanted lower rates, we knew Canadians wanted into the housing market, we just didn’t know how low they needed rates to go before they get off of the sidelines,” said Andy Hill, mortgage broker and co-founder of EveryRate.ca.

“Most Canadians are clearly waiting for rates to drop further before moving.”

The Bank of Canada has reduced its rate by 75 basis points since June from 5 per cent to 4.25 per cent. The cuts have brought some relief to Canadians renewing their mortgages, but failed to significantly revive the country’s stalling housing market.

Nationally, home sales increased slightly in September but new listings grew faster, leaving a surplus of properties on the market.

“Looking at September’s ho-hum housing figures, it feels like we’re in that moment just before a starter pistol goes off,” said Clay Jarvis, a spokesperson at personal finance company, NerdWallet. “The market’s loaded with new listings, but buyers still aren’t ready to run headlong into gigantic mortgages.”

They could be waiting for some time. Most of Canada’s big banks don’t expect the rate to fall below 3 per cent until the first quarter of 2025 or later, with the Bank of Nova Scotia forecasting a 3 per cent rate at the end of next year.

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“Given the current rate trend, we might not see policy rates below 3 per cent until late 2025,” said Hill. “That means many potential buyers and refinancers will likely stay on the sidelines for the foreseeable future.”

Victor Tran, a mortgage and real estate expert with Ratesdotca, said while a 50-bps cut will bring some back to the market, many buyers may choose to wait for the Bank of Canada meeting in December.

“Buyers are holding out for the bottom of the market,” said Tran.

“The challenge is that no one can predict when that will be, and once the market shifts, it’s likely it will heat up quickly, and push up house prices. If buyers wait too long, they may find themselves trying to buy with a lower mortgage rate, but higher house prices.”

Younger Canadians, aged 18 to 34, were especially conscious of interest rates in Everyrate’s survey, with many saying they needed rates below 2 per cent or even below 1 per cent to consider buying or refinancing.

“Rates below 3 per cent aren’t just preferable — they’re essential to making homeownership possible for this group,” said the survey.

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The 26 per cent in the poll who would buy or refinance regardless of interest rates were mainly older Canadians, over 55 years old.

With the high cost of housing in Canada, the younger generations may need more than interest rate cuts, said the survey.

“Policies to improve housing affordability could help bridge the gap and make the market more accessible for first-time buyers,” it said.

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There’s been no shortage of gold records lately, but yesterday truly was a milestone.

Gold rose over US$20 an ounce Monday morning to hit US$2,753, which is not just a new nominal high, but also an inflation-adjusted high, said Stéfane Marion, economist with National Bank of Canada.

The last inflation-adjusted record was set in January, 1980 at US$2,742 per ounce.

National expects gold has further to climb.

“Rising government debt, increasing geopolitical uncertainty, and growing protectionism create the ideal conditions in which the yellow metal typically thrives,” said Marion.

• Today’s Data: Canada’s industrial product prices and raw material price index
• Earnings: Canadian National Railway, First Quantum Minerals Ltd, Bank of America Corp., Goldman Sachs Group Inc., The Charles Schwab Corp., Citigroup Inc., Johnson & Johnson, Walgreens Boots Alliance, PNC Financial Services Group

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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