CIBC economist Benjamin Tal says the Bank of Canada’s overnight rate \u201cis very close to neutral already,\u201d meaning any further rate relief will be modest. (REUTERS\/Blair Gable) \u00b7 REUTERS \/ Reuters <\/p>\n
Variable mortgage rates in Canada could drop below fixed rates now that the Bank of Canada (BoC) has cut its overnight rate<\/a> as was widely expected, but scars from past rate swings and wider economic anxieties may keep the housing market muted even if borrowing costs fall further, experts say.<\/p>\n CIBC economist Benjamin Tal told Yahoo Finance Canada that key economic indicators for employment<\/a>, inflation<\/a> and housing gave the BoC \u201cthe green light\u201d to cut today, \u201cnot only in September but also I think after.\u201d But he notes the policy rate \u201cis very close to neutral already,\u201d meaning that any rate relief will be modest. Before today’s announcement, markets had largely priced in two cuts, said Ron Butler, a broker at Butler Mortgage.<\/p>\n An interest rate cut typically flows through to variable mortgage rates and could push some variable rates below those offered for fixed mortgages. Lenders have already been offering steeper discounts on variable mortgages, says Butler, cutting below prime \u201cas deep as we\u2019ve seen in a couple of years.\u201d<\/p>\n But the appeal of variable rates has faded since the pandemic era, when borrowers endured rate swings that pushed payments sharply higher in a short span. \u201cWe used to have a situation in which, when interest rates were going down, 75 per cent of people would go to variable,\u201d said Tal. \u201cI don\u2019t think that will be the case anymore \u2014 that number will be much lower now.\u201d<\/p>\n Butler puts it more bluntly: \u201cThe heyday of variable may have passed.\u201d<\/p>\n Fixed rates have already fallen significantly from last year\u2019s highs, offering some relief \u2014 but not enough to reignite demand. Butler says he has recently seen three-year insured fixed terms as low as 3.69 per cent, down from the mid-5s in mid-2024. “From 5.69 per cent down to four per cent on fixed rates, you\u2019d think the real estate market would have substantially improved. The answer is: Not really,\u201d he said. Despite better borrowing conditions, sales volumes have barely budged and most homes in the GTA are still selling under asking.<\/p>\n Tal warns that further declines are unlikely. U.S. deficits, sticky inflation, and Ottawa\u2019s own likely heavy borrowing<\/a> are all pushing up long-term yields. As he puts it in a follow-up: \u201cAny change in the five-year rate will be too small to change the narrative.\u201d<\/p>\n Tal argues that the market\u2019s deeper challenge isn\u2019t cost but psychology. \u201cI don\u2019t think the main issue in the housing market at this point is interest rates,\u201d he said. \u201cI think it\u2019s confidence more than anything else.\u201d The hesitation in the market has multiple sources. Don Kottick, president of Re\/Max Canada, says tariff uncertainty early this year pushed many buyers and sellers into \u201ca wait-and-see kind of attitude\u201d that, like the tariff unknowns, still lingers. And Butler notes a dramatic change in who\u2019s even in the market. \u201cThere\u2019s nobody buying to rent a property or flip a property\u2026 all that stuff that was in excess in 2021, that\u2019s absent, that\u2019s gone,\u201d he said.<\/p>\n Story Continues <\/p>\n You cannot solve something that has taken 20, 30 years to build up in five minutes.CIBC economist Benjamin Tal on the affordability crisis<\/p>\n For those who are active, the balance of power has shifted. Kottick says the \u201cgap between buyers and sellers has narrowed\u201d and that people listing today know \u201cthey have to price to the market.\u201d Those unwilling to meet buyers where they are often don\u2019t list at all.<\/p>\n Renewals are another pressure point. While economists have moved on from forecasts of systemic shock<\/a>, some households still face steep hikes<\/a>. Tal says increased payments for some homeowners won\u2019t be enough to alter the Bank\u2019s course. Butler says clients who locked in around 1.7 per cent in 2020 and 2021 are now renewing closer to four per cent, pushing payments up 20 to 25 per cent. Some see jumps of 50 per cent, though others with shorter terms are renewing into lower costs. The refrain he hears most often is \u201cWe can manage, but it hurts.\u201d And, he adds: “We already saw the worst-case scenario tested when variable rates surged from 1.45 per cent to over six per cent… the whole world didn\u2019t come to an end.\u201d<\/p>\n Even with the BoC’s 25 basis point cut on Wednesday, affordability challenges will persist. \u201cYou cannot solve something that has taken 20, 30 years to build up in five minutes,\u201d Tal said. Kottick echoes the point, arguing that only new supply can meaningfully address the imbalance between demand and inventory.<\/p>\n John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.<\/p>\n Download the Yahoo Finance app, available for Apple and Android.<\/p>\n","protected":false},"excerpt":{"rendered":"CIBC economist Benjamin Tal says the Bank of Canada’s overnight rate \u201cis very close to neutral already,\u201d meaning…\n","protected":false},"author":2,"featured_media":145507,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[52,24735,49,48,13834,11196,10080,44,77825,77826,24731,77824,77827],"class_list":["post-150691","post","type-post","status-publish","format-standard","has-post-thumbnail","category-canada","tag-bank-of-canada","tag-benjamin-tal","tag-ca","tag-canada","tag-cibc","tag-housing-market","tag-interest-rate","tag-news","tag-overnight-rate","tag-rate-relief","tag-ron-butler","tag-variable-mortgage-rates","tag-variable-rates"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/150691","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=150691"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/150691\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/145507"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=150691"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=150691"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=150691"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}