The Bank of Canada’s 0.25 percentage-point decrease on Wednesday offers further relief for homebuyers and sellers ahead of the spring housing market, but the looming threat of U.S. tariffs could dampen activity as economic uncertainty lies ahead.
The central bank’s sixth consecutive rate cut since June brings the key interest rate to 3 per cent from 5 per cent.
The rate-cutting cycle has improved variable-rate mortgages, which are directly tied to the Bank of Canada’s rate changes — if the bank increases or cuts rates, the interest rate on variable-rate mortgages moves up or down accordingly. Because the Bank of Canada has cut the rate significantly over the last eight months, borrowing costs have come down for variable-rate mortgages, making it possible for more buyers to enter the real estate market.
“The Bank of Canada has dropped interest rates yet again, a decision that will further increase borrowing capacity for homebuyers and benefit mortgage holders whose loans are coming up for renewal,” said Phil Soper, president and CEO of Royal LePage.
“This latest decrease arrives just before the spring housing market — when demand typically picks up — which should spur buying and selling activity in the weeks ahead.”
More inventory has come to the Toronto market, especially for single-family homes, and properties listed below the $1.5-million mark are getting snatch up quickly showing increased buyer appetite. However, the condo market is still plagued by excessive supply and waning demand as investors flee the market with end-users unwilling to buy abundant small-sized apartments.
Condo sellers are more motivated to sell and are open to negotiation, with some buyers securing properties below asking prices, said Leah Zlatkin, mortgage broker and LowestRates.ca expert.
“While it’s not a full-blown buyer’s market across the board, and desirable properties in prime locations still attract competition, buyers undoubtedly have more leverage now than they’ve had in years,” she added.
Today’s announcement also offers “good news” for current variable-rate holders as they’ll see an immediate decrease in their monthly payments, providing some relief amidst the rising cost of living, Zlatkin said.
“This also frees up some cash flow, which can be used for other financial goals, like paying down debt or increasing savings.”
According to the Toronto Regional Real Estate Board (TRREB), the average home sold at $1.06 million in December. With a variable rate of 4.65 per cent, monthly mortgage payments on this home would be about $4,797. At 4.55 per cent, monthly mortgage payments become about $4,749, a decrease of $48 per month — assuming a 20 per cent down payment and 25-year amortization, Zlatkin said.
Fixed-rate mortgages, which are tied to the bond market, are set to decrease slightly, as bond yields have dipped down to the 2.8 per cent range following the Bank of Canada rate announcement, said Penelope Graham, mortgage expert at Ratehub.ca.
However, bond investor concerns over future inflation growth — due to the threat of U.S. tariffs and a potential economic downturn — means yields will likely stay in the 2.8 to 3 per cent range, resulting in fixed rates remaining in the low- to mid-4-per-cent range.
The threat of U.S. tariffs, which could come into effect Feb. 1, are top of mind for the central bank, which may cut interest rates further to help stimulate the economy, offering more relief for homebuyers and owners. But if there is massive job loss it could cause housing activity to dampen and prices to remain flat or trend downward, experts say.
“A recession resulting from a tariff tit-for-tat could prompt additional cuts in the short-term to stimulate the economy,” Soper said. “Though Canada’s housing market would be insulated for the most part from trade turmoil, economic challenges could eventually cause activity to slow.”
