Rate cuts have helped bring buyers off the sidelines – and another big reduction, as well as new mortgage qualification rules, could spell good news for the market
Homebuying activity has posted big double-digit surges in consecutive months across Canada – and with borrowing costs sliding in recent months, could 2025 begin with a hotter-than-usual housing market?
Sales across the market saw a 26% jump last month compared with the same time in 2023, according to the Canadian Real Estate Association (CREA), following a 30% increase in October.
Plenty of buyers appear to have been coaxed off the sidelines by a flurry of Bank of Canada interest rate cuts since June, and its latest move – a 50-basis-point drop, the second successive oversized reduction to its benchmark rate – could see that trend continue, according to CREA’s senior economist Shaun Cathcart.
He said, in remarks accompanying the association’s release on Monday, that the Bank’s December cut and a loosening of mortgage rules “could mean a more active winter market than normal.”
Are things on the up for Canada’s homebuyers?
Last week’s central bank cut undoubtedly marked good news for homebuyers across Canada, BlueShore Financial advisor Nico Wong (pictured top) told Canadian Mortgage Professional, in boosting their borrowing power and expanding their budgets.
That reduction will improve the mortgage outlook for scores of hopeful buyers – and it will also have an impact in other areas that can influence their ability to put money towards a home purchase. “Overall, everyone can expect the cost of borrowing to be lower due to the rate cut,” Wong said.
“Generally, the outcome will be positive for mortgages, car loans, student loans, and anything that requires financing based on the prime rate. It is positive news for individuals as it will help to save money on these kinds of items and the extra funds can be allocated elsewhere.”
Canada's new mortgage rules, effective Sunday, raise the insured mortgage cap to $1.5 million and allow 30-year amortizations for first-time homebuyers. Experts say these changes improve affordability but could lead to short-term price inflation.https://t.co/hPLmCO8fs1
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 17, 2024
The Bank of Canada embarked on an aggressive series of rate hikes throughout 2022 and 2023 in an effort to curb an alarming spike in inflation, which hit a multi-decade high of 8.1% in June 2022.
That approach appears to have paid off, with inflation now lying within the central bank’s target range – and the fact that rate hikes are now firmly in the rearview mirror is also providing a boost to homebuyer sentiment towards the market, according to Wong.
Bank officials seemingly believe rates need to continue ticking lower in the year ahead, even if they’re unlikely to move in the same 50-point jumps seen in the last two announcements.
“I think rates will likely be cut further next year, and we don’t need to be concerned that borrowing costs will increase as much as they would have before,” Wong said.
“Measured pace” of activity to prevail in short term
Still, that’s not to say red-hot housing and mortgage markets are in store for the beginning of 2025. Royal Bank of Canada (RBC) said in an analysis this week that it expects activity to continue climbing – “but at a measured pace.”
Affordability issues, the bank’s assistant chief economist Robert Hogue wrote, will curtail plenty of borrowers even despite the introduction of new mortgage rules including a new higher mortgage insurability cap and longer amortizations for first-time buyers and those purchasing newly-built properties.
What’s more, prospects for some markets are unsurprisingly better than others. “Activity remains more hectic in the Prairies and parts of Quebec and Atlantic Canada – well above pre-pandemic levels in many cases,” Hogue wrote.
“The recovery is still a work in progress in British Columbia and Ontario despite solid back-to-back sales gains in Vancouver and Toronto over the last two months. It will take deeper rate cuts to fully reinvigorate these markets.”
Wong said he isn’t expecting an immediate surge in market activity, although the overall picture looks strong in the longer term.
“The rate just dropped in December – but the holiday season is always slower for buying real estate overall,” he said. “The real estate market will likely still pick up again in the spring as it usually does. With the latest rate cut, you now have more purchasing power as a homebuyer and if you have a budget in mind, it just got a little bigger.”
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