Bank of Canada rate cut and what it means for the housing market

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The Bank of Canada announced today that it will lower its key overnight rate by 50 basis points to 3.25 per cent, marking its fifth consecutive interest rate cut and the second “jumbo” cut in a row. The move is expected to provide significant relief to the housing market, easing borrowing costs and stimulating demand in a time of slowing GDP growth and persistent global uncertainties.

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In a statement, governor Tiff Macklem emphasized that while inflation is now under control, with the consumer price index (CPI) hovering around the central bank’s two per cent target, economic instability remains. This includes concerns about rising unemployment and potential impacts from U.S. trade policies.

Here’s what real estate analysts had to say about the changing market conditions:

Bond yields exerting downward pressure on fixed rates: Ratehub.ca

Mortgage analyst Penelope Graham of Ratehub.ca notes that the Bank of Canada’s decision aligns with expectations, as bond yields had moved into the 2.8 per cent range ahead of the announcement. The dip could exert downward pressure on fixed mortgage rates in the near term, though uncertainty around U.S. inflation and Federal Reserve policy may temper this effect. “The U.S. CPI report showing inflation at 2.7 per cent complicates the outlook for further yield declines,” she added.

‘The bid-ask gap is slowly closing’: Altus Group

Peter Norman, vice0president at Altus Group Ltd., attributed the central bank’s accelerated easing measures to weak third-quarter GDP figures.

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“Yes, the CPI number crept up in October, but not to a worrisome level, so a smaller cut still seemed unlikely,” Norman said. He also highlighted trade tensions and their potential impact on investor confidence as factors influencing the Bank of Canada’s decision. “Increased trade tensions could affect business investment decisions,” he explained. “This points to more easing on the Canadian side.”

Norman anticipates that the Bank of Canada’s rate will settle around 2.5 per cent, setting the stage for increased movement in the real estate market. “This should lay the groundwork for a long awaited uptick in transactions and development activity,” he said.

Ray Wong, also of Altus Group, suggested that the pace of future cuts will depend heavily on actions by the U.S. Federal Reserve. “The bid-ask gap is slowly closing,” Wong said, referring to more balanced conditions in real estate markets. “We’re going to see steady increases in activity next year, reflecting this year’s rate decisions.”

Rate cut might intensify competition, price out homeseekers: LowestRates.ca

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The rate cut also has implications for homebuyers. Leah Zlatkin, a mortgage broker and analyst with LowestRates.ca, described the current real estate market as dynamic but challenging.

“Homebuyers in the GTA (Greater Toronto Area) face a dilemma of strong sales and rising prices alongside economic uncertainty and affordability concerns,” she said. Zlatkin warned that today’s rate cut might intensify competition, potentially pricing out those waiting for a market cooldown.

‘Buyers will feel an urgency to act before affordability erodes’: Royal LePage

Phil Soper, chief executive of Royal LePage, noted that the Bank of Canada’s rate cuts are driving increased demand.

“Buyers have woken up to the reality that property prices are rising again, and more will feel an urgency to act before affordability erodes,” Soper said. “As a result, we are anticipating a ‘pull-ahead’ of activity and an early start to the traditional spring housing market. Adding to this momentum is the change in lending policies that come into effect on December 15, which we believe will coax more sidelined purchasers to take advantage of their expanded borrowing power.”

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‘Reduction could ramp up December activity’: NerdWallet

The Bank of Canada also referenced upcoming mortgage rule changes aimed at improving affordability for first-time buyers. These changes, alongside lower rates, are expected to drive buyer demand and potentially push real estate prices higher.

Clay Jarvis, a mortgage analyst with NerdWallet, emphasized the impact on demand. “Canada’s housing market came roaring back after the October rate cut,” Jarvis said. “Today’s reduction could ramp up December activity, especially in markets like Ontario and B.C., where lower downpayment requirements are set to take effect.”

Suburban markets offer better opportunities: Coldwell Banker

Despite the generally optimistic outlook, some market watchers remain cautious. Dean Artenosi, a real estate author and co-owner of Coldwell Banker The Real Estate Centre, advised buyers to consider suburban markets. “Owning in major urban centres may not be feasible,” he said, suggesting that suburban markets offer better opportunities for long-term investment.

• Email: shcampbell@postmedia.com

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