Real estate experts say the latest interest rate cut from the Bank of Canada will spur activity in the new year, leading to markets heating up in the winter months.
The Bank of Canada moved to lower its key policy rate Wednesday by 50 basis points to 3.25 per cent. The move marked the fifth consecutive rate cut since June, while the central bank signalled a slower pace of rate cuts moving forward.
Royal LePage CEO Phil Soper said in a statement to BNNBloomberg.ca Wednesday that the rate cutting cycle has spurred a steady rise in homebuyer demand, noting a “sharp uptick” in activity after the bank’s first 50-basis point cut in October.
“This latest significant rate cut will help to sustain activity throughout the winter months, typically the slowest period for real estate transactions in Canada,” he said.
“Buyers have woken up to the reality that property prices are rising again, and more will feel an urgency to act before affordability erodes. As a result, we are anticipating a ‘pull-ahead’ of activity and an early start to the traditional spring housing market.”
Victor Tran, a mortgage and real estate expert with RATESDOTCA, said in a statement to BNNBloomberg.ca Wednesday that there has already been a steady increase in home sales activity over the past month, however the market remains “comparatively slow.”
“The predicted rush after the Bank of Canada began lowering rates in June has yet to materialize, and as we head into what is traditionally one of the slowest times of year in the housing market, that is unlikely to change immediately,” Tran said.
Clay Jarvis, a spokesperson for NerdWallet Canada, said in a statement to BNNBloomberg.ca Wednesday that the interest rate announcement comes days ahead of buyers receiving a “major leg up” with “lower down payment requirements for homes priced between $1 million and $1.5 million.”
In September, the federal government announced it would increase the $1 million price cap for insured mortgages to $1.5 million, in an effort to help Canadians qualify for a mortgage with a down payment under 20 per cent. The changes will take effect on Dec. 15.
“Not all buyers will be able to afford the resulting mortgages but those who can will be pouncing,” Jarvis said.
Spring market
Going into the new year, real estate experts are expecting an early start to the spring market, a time of year associated with increased activity.
“It’s likely that housing activity will remain slow throughout the remainder of the year and will pick up significantly in early 2025. We’re likely to see an early start to the spring housing season and a market shift from favouring buyers to favouring sellers,” Tran said.
“When the market changes, it’s likely to change quickly and heat up fast. Buyers planning on purchasing in early 2025 should secure pre-approvals now and prepare to move quickly for desirable properties.”
Soper said that overall, he is predicting an “early spring” in most regions of the country, saying that real estate markets often heat up in late March after a winter slowdown.
“We see this year being pulled ahead by a few weeks into February, maybe even late January,” he said.
Home prices
By the end of 2025, Soper said in an interview last week that Royal LePage is forecasting an overall increase in home prices of around six per cent in the residential real estate market. By property type, he said single family detached homes are expected to rise around seven per cent and condominiums by around 3.5 per cent.
In Toronto, Soper said aggregate prices are expected to rise by five per cent, with a seven per cent increase in single detached homes and condo prices expected to fall by about one per cent. In Vancouver, aggregate prices are expected to rise by four per cent, with single detached units gaining two per cent and condos gaining 4.5 per cent.
“So, a little bit of a different story on the condominium side in Vancouver that has less to do about demand and more to do with the amount of new properties that are coming onto the market,” Soper said.
Montreal home prices are expected to rise by 6.5 per cent in aggregate, he said, with single family homes rising by 7.5 per cent and condos rising by six per cent.
Mortgages
Regarding mortgage rates, Tran said fixed rates are “languishing” above four per cent, with variable rates expected to fall lower than five per cent following Wednesday’s rate cut.
“There will be an uptick in interest in variable rate mortgages as homebuyers hope to capitalize on falling rates and payments,” he said.
Allison VanRooijen, VP of consumer credit at Meridian, said in a statement to BNNBloomberg.ca Wednesday that lower borrowing costs will help many Canadian borrowers.
“A rate cut of this size is welcome news for the millions of Canadian borrowers with mortgage renewals coming up in 2025, but also for those with unsecured lending,” VanRooijen said.
“Often we focus on mortgage lending, but there’s a whole segment of the market with unsecured loans or high costs of financing that may see a relief in their monthly cashflow as this cut takes effect.”
Penelope Graham, a mortgage expert at Ratehub.ca, said in a statement Wednesday that the Bank of Canada’s interest rate cut will provide “further relief for mortgage borrowers,” as prime rates move lower to 5.45 per cent at? the majority of lenders.
“Those with variable mortgage rates will see either their monthly payments, or the portion of their payment that services interest, fall in kind,” she said.
Real estate investors
Alana Riley, the head of mortgage insurance and banking at IG Wealth Management, said in a statement to BNNBloomberg.ca Wednesday that the lower borrowing costs provide opportunities for real estate investors.
“This favourable environment could result in higher property values, as investors may be willing to pay more for properties due to reduced borrowing costs. Historically, periods of declining interest rates have led to increased property values in larger urban markets across Canada,” she said.
“Moreover, sectors such as residential, retail, and industrial real estate stand to benefit from heightened demand and advantageous financing conditions.”