High prices and a glum economic outlook are holding back potential buyers in Toronto and other markets.Graeme Roy/The Canadian Press
The Bank of Canada’s rate cut Wednesday is expected to have a muted impact on some of Canada’s largest real estate markets, as high prices and a glum economic outlook continue to hold back potential buyers.
The central bank lowered its interest rate by 25 basis points to 2.25 per cent. Governor Tiff Macklem suggested that it may be the last cut for some time if the economy continues to grow in line with current expectations. (There are 100 basis points in a single percentage point.)
Jason Mercer, chief information officer at the Toronto Regional Real Estate Board, said the drop in rates may entice some buyers, but more cuts are required to meaningfully draw homebuyers away from the sidelines.
“There’s a lot of households that still need to see a little bit more in terms of lower borrowing costs or home prices before they move into the market,” Mr. Mercer said.
The latest rate cut will have an immediate impact on variable-rate mortgages, but even a full 25-basis-point drop on a variable mortgage would only save a homeowner $15 per $100,000 of mortgage, according to an analysis by Rates.ca.
Variable rates react immediately to interest-rate cuts, while fixed-rate mortgages are priced on longer-term sentiment and bond yields. Bond markets have already priced in these expected rate cuts, which means little change is anticipated in five-year fixed mortgage rates.
Clay Jarvis, a housing expert with NerdWallet, said Wednesday’s rate cut will only affect a small portion of buyers who are in a position to purchase a home.
He said most Canadians either have their budgets stretched too thin to buy a home, or are worried about economic uncertainty around a recession and Canada’s economic relationship to the United States.
“The market’s inviting if you have the savings and income to absorb whatever rockiness might be hiding over the horizon,” Mr. Jarvis said. “But the number of people in that position isn’t very high, and it’s not getting any larger.”
Experts were in some disagreement around how this rate cut will affect condo markets in Toronto and Vancouver, which are facing their biggest downturn in decades because of a barrage of supply, little demand and a slowdown in population growth.
Mr. Mercer said condo sales could see an uptick because they’re a target for first-time buyers, who are more sensitive to rate changes because a larger portion of their mortgage payment is made up of interest costs.
Phil Soper, president and chief executive officer of Royal LePage, added that condos may make more sense for investors, who were struggling with negative cash flow when interest rates were higher.
“They’re getting to the point now where there are favourable economics and they can see the way to favourable cash flow from renting,” Mr. Soper said.
On the other hand, Canadian Real Estate Association economist Shaun Cathcart said prices have to fall much further in the condo market before sales pick up.
Mr. Cathcart said that most observers expected rates to drop to this level by spring 2026.
The fact that rates have dropped earlier than expected will do little to change the reality that fall and winter are slow seasons for the real estate market, he said.
“This could help out some people this fall, but the year is winding down now, so that will be a limited impact unless this turns into a sharper cutting cycle,” Mr. Cathcart said.
Meanwhile, Mr. Soper said there is an opportunity for this rate cut to further accelerate growth in cities such as Quebec City, Montreal, Edmonton and Halifax.
Those markets, which have seen notable price increases in the past year, have been hot because they’re more affordable and they’ve seen strong economic growth.
Mr. Soper said buyers in communities such as Quebec City may have to contend with multiple offers on coveted properties – although nothing resembling the pandemic housing craze.
“The Toronto norm is now the Quebec City norm,” Mr. Soper said.
With a report from Erica Alini