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The measure is expected to provide significant relief to the real estate sector, reducing borrowing costs and boosting demand
Published on December 11, 2024 • 4 minutes reading time
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The Bank of Canada's recent interest rate cut is expected to boost the housing market. Photo by Peter J. Thompson /Financial contribution
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The Bank of Canada announced today that it will cut its key federal funds rate by 50 basis points to 3.25 percent. This is the fifth consecutive rate cut and the second “jumbo” cut in a row. The move is expected to provide significant relief to the real estate market, reduce borrowing costs and boost demand at a time of slowing GDP growth and ongoing global uncertainties.
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Governor Tiff Macklem stressed in a statement that while inflation is now under control and the consumer price index (CPI) hovers around the central bank's two percent target, economic instability remains. These include concerns about rising unemployment and possible impacts of US trade policy.
This is what real estate analysts say about the changing market conditions:
Bond Yields Put Downside Pressure on Fixed Rates: Ratehub.ca
Mortgage analyst Penelope Graham of Ratehub.ca notes that the Bank of Canada's decision is in line with expectations as bond yields had been in the 2.8 per cent range before the announcement. The decline could put downward pressure on fixed-rate mortgage rates in the near term, although uncertainty about U.S. inflation and Federal Reserve policy could mitigate that effect. “The US CPI report showing inflation at 2.7 percent complicates the prospect of further declines in yields,” she added.
“The bid-ask gap is slowly closing”: Altus Group
Peter Norman, vice president of Altus Group Ltd., attributed the central bank's accelerated easing measures to weak third-quarter GDP numbers.
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“Yes, the CPI number rose in October, but not to a worrying level, so a smaller decline 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 impact companies’ investment decisions,” he said. “This suggests further easing on the Canadian side.”
Norman expects the Bank of Canada interest rate to settle at around 2.5 percent, setting the stage for more movement in the real estate market. “This should lay the foundation for a long-awaited increase in transactions and development activity,” he said.
Ray Wong, also of Altus Group, suggested that the pace of future cuts will depend heavily on the Federal Reserve's actions. “The bid-ask gap is slowly closing,” Wong said, citing more balanced conditions in real estate markets. “We will see a steady increase in activity next year, reflecting this year’s tariff decisions.”
Rate cut could increase competition and price out home hunters: LowestRates.ca
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The interest rate cut also has an impact on homebuyers. Leah Zlatkin, mortgage broker and analyst at LowestRates.ca, described the current real estate market as dynamic but challenging.
“Homebuyers in the GTA (Greater Toronto Area) face the dilemma of strong sales and rising prices, coupled with economic uncertainty and affordability concerns,” she said. Zlatkin warned that today's rate cut could increase competition and potentially price out those waiting for the market to cool.
“Buyers will feel the urgency to act before affordability fades”: Royal LePage
Phil Soper, chief executive of Royal LePage, noted that the Bank of Canada's rate cuts are leading to increased demand.
“Buyers have woken up to the reality that property prices are rising again and more will feel the urgency to act before affordability deteriorates,” Soper said. “As a result, we expect activity to pick up and the traditional spring housing market to start early. Adding to this momentum is the change in lending policy that comes into effect on December 15th, which we believe will allow even more marginalized buyers to benefit from their expanded credit power.”
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“Reduction could boost activity in December”: NerdWallet
The Bank of Canada also noted upcoming changes to mortgage rules aimed at improving affordability for first-time buyers. These changes, along with lower interest rates, are expected to spur buyer demand and potentially drive up home prices.
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Clay Jarvis, mortgage analyst at NerdWallet, highlighted the impact on demand. “Canada's real estate market rebounded following the rate cut in October,” Jarvis said. “Today’s reduction could boost activity in December, particularly in markets such as Ontario and British Columbia, where lower down payment requirements are set to take effect.”
Suburban markets offer better opportunities: Coldwell Banker
Despite the generally optimistic outlook, some market observers remain cautious. Dean Artenosi, real estate writer and co-owner of Coldwell Banker The Real Estate Center, advised buyers to consider suburban markets. “Property in large urban centers may not be feasible,” he said, suggesting that suburban markets offer better opportunities for long-term investment.
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