Broker weighs in on immediate market prospects
The Bank of Canada may have made its biggest interest rate cut in over four years on Wednesday – but don’t expect that move to spark an immediate uptick in mortgage and housing market activity.
The central bank’s 50-basis-point rate reduction marked its fourth consecutive cut, meaning its trendsetting interest rate has now fallen by 1.25% since June. Still, further downward movement is required before homebuyers begin to step off the sidelines in meaningful numbers, according to a Toronto-based mortgage broker.
Victor Tran (pictured top), a mortgage and real estate expert with RATESDOTCA, told Canadian Mortgage Professional that even the oversized cut, rather than the usual 25 basis points, was unlikely to move the needle for many buyers. “I don’t think it’s going to do that much to the market,” he said.
“I don’t think it’s going to improve the sales volume that’s been very sluggish for the past year now because the math just simply doesn’t make sense. Fixed rates are still a popular choice and they’re still in the low- to mid-four range, and it’s still very unaffordable and expensive for most people at today’s house prices. So rates definitely do have to come down a lot more for buyers to really step off the sidelines and enter the market again.”
Market will grow hotter – just not yet
The good news: rates are expected to continue falling in the months ahead, even if the Bank appears more inclined to cut in 25-basis-point steps looking ahead rather than with bigger moves.
What’s more, with the next announcement scheduled for December 11 – just days before new rules aimed at improving mortgage accessibility come into play – the end of the year could see a marked improvement in prospects for hopeful buyers, particularly those purchasing for the first time.
#BreakingNews: The Bank of Canada has reduced its overnight interest rate by 50 basis points, lowering it to 3.75%. Governor Tiff Macklem explained that the cut was necessary due to slowing inflation, which dropped to 1.6% in September.https://t.co/I1UNHT21vC
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 23, 2024
The decision to increase the insured mortgage cap to $1.5 million, Tran said, is one that will help plenty of Canadians who are currently hovering around the margins of the housing market. “Most of the properties, especially freehold properties within the GTA [Greater Toronto Area] and GVA [Greater Vancouver Area] are over $1 million,” he said. “Now it allows a lot of buyers to enter the market a lot earlier. They don’t have to continue saving to get that 20% [down] and start buying.”
Access to 30-year amortizations is also being extended to all first-time buyers and any Canadian purchasing a newbuild property, another move that Tran said is likely to provide a welcome boost to affordability.
Why the affordability window could be a narrow one
Whether sales activity will immediately start to pick up in December is anyone’s guess, with that month typically marked by a quieter market because of the holidays. But lower rates and the new rules could mean that hopeful homebuyers face a narrow window to snag the property they want, Tran said, before prices start to climb thanks to higher activity.
Lower mortgage rates will correlate to high prices – “and as demand increases, supply is going to get swallowed up,” he said. “It’s going to be unfortunate for a lot of people that are relying on these new mortgage rules that come into effect in December to enter the market, but the ones that have been sitting on the sidelines and just waiting for opportunities, that already have the 20% down and can get into the market right now, have a huge advantage.”
The prospect of a busier market – and more competition – in the opening months of 2025 means buyers who could technically buy a property now would be best advised to make their move, according to Tran, instead of holding out in the hope of lower rates down the line. “If anyone is able to get in now, then I would recommend to jump on it now,” he said, “instead of waiting for the rate to come down further, or for the new mortgages to come into effect. They might be able to beat the rush and not have to compete with many other buyers or get into bidding war situations.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
