Real estate experts have mixed opinions on whether the Bank of Canada’s further reduction in borrowing costs will spur activity in the Canadian housing market.
On Wednesday, the Bank of Canada cut interest rates by 25 basis points, bringing its key policy rate to 4.5 per cent in a move widely expected by economists in a Bloomberg survey. The move follows a previous 25 basis point interest rate cut in June.
Karen Yolevski, the COO of Royal LePage Real Estate Services Ltd., said in a statement to BNNBloomberg.ca Wednesday that research from Royal LePage indicates 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,” Yolevski said.
She added that she expects the rate cut will spur a “slight boost in activity” over the near term, followed by a more significant increase in buyer demand in the fall.
“In the meantime, some much-needed inventory has been building in major markets over the last few months, giving buyers more options to choose from. In addition to lower rates, this may also encourage more buyers to re-enter the market in the near future,” Yolevski said.
Penelope Graham, mortgage expert at Ratehub.ca, said in a statement to BNNBloomberg.ca Wednesday that it “remains to be seen” if the Bank of Canada’s most recent rate cut will incentivize home buyers to re-enter the market amid still-elevated borrowing costs.
“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.
While some real estate professionals anticipate the rate cut could drive demand in the housing market, others say borrowing costs are likely still too high.
Leah Zlatkin, a licensed mortgage broker and LowestRates.ca expert said in a statement that the latest move by the Bank of Canada is “not likely” to “move the housing market in a significant way.”
“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.
However, Zlatkin added that once borrowing costs are brought down to levels that most buyers are comfortable with, the housing market will “heat up quickly,” with prices moving higher. As a result, she said potential buyers should “consider buying now” if they can afford the higher rates for a short period to enter the market while prices are lower.
“We haven’t seen this many listings on the market for a long time, and buyers that choose to purchase now will have more choice and less pressure than they would in a hot market,” Zlatkin said.
In a statement to BNNBloomberg.ca Wednesday, Victor Tran, RATESDOTCA mortgage and real estate expert, agreed that the recent rate cut isn’t “likely to spur much activity” in the broader housing market and further rate cuts are likely needed.
“For many, budgets are still too tight and buyers are willing to wait. We would likely need to see another 25 to 50 basis point decrease before there is a significant uptick in sales activity,” he said.
Richard Mariani, a sales and marketing manager at CountryWide Homes, said in a statement to BNNBloomberg.ca that regardless of Wednesday’s rate cut, the “damage has already been done.”
“The real estate market, especially the pre-construction sector, has seen record low sales from 2022 and 2023, and 2024 is shaping up to be one of the worst sales years on record. The ripple effect has already impacted many jobs, particularly in the trades,” he said.
“An interest rate cut does not equate to instant sales or the immediate return of workers—it might take two to three years to generate enough sales for construction programs to commence and bring back jobs.”
Condo market
While the housing market is experiencing a slowdown, Tran said the condo market is “even slower.”
“Interest in investment properties has decreased the longer rates remain high. Properties are taking much longer than usual to move,” he said.
Tran’s comments come following a significant slowdown in condominium sales in Canada’s largest real estate market. Last week Bloomberg News reported that Toronto condo developers saw new unit sales fall to the slowest pace in 27 years.
Mortgages
Variable mortgage products are currently a “great option” for individuals confident in the downward path of interest rates and who have the “financial bandwidth” to withstand any surprise interest rate holds or increases by Canada’s central bank going forward, Graham said.
“As the mortgage market fluctuates, choosing the best rate type for your needs can be confusing. While it may be tempting to get a variable mortgage rate when cuts seem likely, it’s important to take your personal risk tolerance and financial situation into account,” she said.
“Those who’ve stuck it out so far with variable rates are being rewarded further today, as they’ll see their monthly payments lower again, or more of their payment go toward their principal.”
Tran echoed this sentiment, saying that Wednesday’s rate cut coupled with the June rate cut will provide “more breathing room” for mortgage owners with variable-rate products.
Clay Jarvis, a mortgage and real estate expert at NerdWallet, said in a statement to BNNBloomberg.ca that variable mortgage prices will be lower following the Bank of Canada’s announcement.
“Variable mortgage rates will get a little cheaper, but they’ll still be significantly higher than the lowest fixed rates consumers can find,” he said.
“If elevated mortgage rates are limiting what a home buyer can afford today, that’ll still be the case tomorrow — and for several weeks after that.”
Commercial real estate
Adam Jacobs, the head of research at Colliers Canada, said in a statement to BNNBloomberg.ca Wednesday that the rate cut is a “welcome sign that the worst is over.” He added that the decision is “good news for many people, especially 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, the president of Avison Young Canada, said in a statement on Wednesday that the Bank of Canada’s announcement will have a “positive impact” on 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 (commercial real estate),” he said.
“We have been in a very uncertain interest rate environment over the last two years. This second rate drop certainly shows the BoC’s confidence in the inflation data and reinforces the fact that we are finally shifting into a different interest rate regime.”
With files from Bloomberg News.