Third time's the charm, but is it enough to bring homebuyers back to the market?
The Bank of Canada (BoC) made its third consecutive interest rate cut on Wednesday as it works to balance inflation control with stimulating economic growth.
The central bank lowered its benchmark rate by 25 basis points to 4.25% during its September 4 meeting. BoC officials left the door open for more cuts in the coming months while cautioning against the risk of inflation falling below the 2% target.
Economists are forecasting additional rate cuts before the end of the year, with markets pricing in a 93% chance of another 25-basis-point cut in October, followed by another reduction in December. Some analysts have suggested that a larger 50-basis-point cut may be possible if economic growth continues to weaken.
Governor Tiff Macklem said the BoC’s governing council had discussed the possibility of a larger cut but opted for the smaller adjustment as there are still inflationary pressures, particularly from high shelter costs.
“It is reasonable to expect further cuts in our policy rate,” Macklem said.
“As inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target. We care as much about inflation being below the target as we do above.”
Impact on mortgage rates
Following the decision, experts in the housing and mortgage sectors shared their thoughts on how it could affect homebuyers and the broader market.
Penelope Graham, a mortgage expert at Ratehub.ca, pointed out that fixed mortgage rates, which are influenced by bond yields, have already been trending downward.
According to Graham, five-year bond yields are hovering in the 2.9% to 3% range, which will help keep fixed mortgage rates low. Variable mortgage rates will also continue to drop as lenders adjust their prime rates.
"Borrowers have now received a cumulative 75-basis-point reduction since June, which will lower variable mortgage rates further," Graham said.
“The previous two rate cuts we received in June and July did very little to move the dial on real estate demand, as prospective home buyers wait for mortgage rates to fall further. Now that we’ve received a cumulative 75-basis-point reduction, that could start to incentivize buyers to return to the market, as we’ll certainly start to see this reflected in lower mortgage costs.”
However, Clay Jarvis, a mortgage expert at NerdWallet Canada, said the rate cut may not be enough to significantly shift the housing market.
"The Bank’s latest rate cut will make things a little easier for mortgage shoppers committed to variable rates, but it’s not going to resuscitate the housing market,” said Jarvis. “Significantly lower fixed rates have been available all year, so if buyers aren’t succeeding, it’s probably due to other factors.
“High home prices, increased debt loads, diminished savings, worries about the economy — a slight dip in variable rates doesn’t lower any of these barriers to the market."
Read next: Top broker on what will happen to interest rates
More cuts expected
Some economists suggest that weaker-than-expected growth could lead to a larger 50-basis-point-cut at its next announcement, though the central bank opted for a more conservative approach this time.
On the housing front, don’t expect an immediate uptick in activity. “There’s strong anticipation of further cuts to come, many buyers may stick it out a little longer, especially as many of Canada’s housing markets remain very well supplied, and favourable towards buyers,” Graham added.
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