What does the Oct 23rd Bank of Canada’s rate cut mean for real estate?

On Wednesday, the Bank of Canada moved to lower its key policy rate by 50 basis points to 3.75 per cent. The outsized rate cut was done in response to recent inflation data and the central bank says its focus has changed from lowering inflation to maintaining its inflation target.

A positive signal for first-time homebuyers

The rate decrease won’t materially impact mortgage costs today, but the start of a downward trend may inspire new buyers to ramp up their home search efforts as confidence in the economy grows. If you’re looking to buy, you’ll likely see an improvement in housing affordability and options.

Some relief for variable rate mortgage holders

If your lender’s prime rate decreases in response to the BoC’s interest rate cut, as a variable rate mortgage holder you will benefit in one of two ways: Either your regular mortgage payment will decrease, or more of your mortgage payment will be directed toward your mortgage principal, meaning you could pay off your mortgage faster than in a higher rate environment.

Mortgage renewers will still feel the financial impact of higher rates

While the interest rate reduction is positive news for homeowners, many mortgage holders renewing in the next 6-12 months will still feel the impact of higher rates compared to their current mortgage term.

Where do you go from here? It’s not a one-size-fits-all answer

We probably won’t see the market roar back to life. Thanks to the stress test, buyers with their hearts set on a variable (mortgage) might not be able to qualify until after another cut or two. If buyers in larger markets elect to delay purchases until the new insured mortgages rules take effect, we may not see an uptick in home sales until December or January.

More sellers have been listing in the fall expecting buyers to enter the market. However, there has not been a “flood of activity yet” as many are waiting for further reductions in borrowing costs.

But things are definitely bubbling beneath the surface, and another rate cut could be the catalyst for a busy market in early 2025, and tightening conditions by spring.

‘Psychological shift’

The combination of a 50-basis point rate reduction and the impending mortgage rule changes in December creates an opportune moment for buyers to make their move.

Any significant uptick in sales activity or home prices would likely signal to buyers that they should act fast. He said the market may see a psychological shift in the coming weeks. But once the market begins to move, it’s likely to heat up quickly, pushing home prices higher. This may lead to an unseasonably busy winter season, and a busy spring season in 2025.

Commercial real estate

Virtually every buyer needs leverage given the price of the properties. Additionally, the sentiment improvement shouldn’t be underestimated. This sends a clear message that the worst is over, and the focus is no longer inflation but instead on investment and growth.

The market decline for commercial real estate is “more dramatic” for larger deals as the pool of buyers is small. This group of larger buyers are generally more sensitive to interest rates and the rate cut could energize the market for larger deals.

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