The Bank of Canada’s climbdown on rates continues – and housing market prospects are improving as a result, says BMO's Porter
The Bank of Canada slashed its benchmark interest rate by 50 basis points on Wednesday morning in a second consecutive oversized cut that could boost the national housing market’s prospects.
The decision marks the central bank’s fifth rate reduction of the year, meaning its overnight rate has now fallen by 175 basis points since early June – and while there’s little chance of an explosion in homebuying activity, a deeper-than-expected series of cuts potentially points to a brighter 2025 on the mortgage and housing fronts.
Unemployment has been on the rise in recent months amid a sluggish economy, with November’s headline figure of 6.8% helping nudge the Bank toward a bigger December rate cut than initially anticipated.
But Bank of Montreal (BMO) chief economist Doug Porter (pictured top) told Canadian Mortgage Professional that the move toward lower rates could offer something of a shot in the arm for Canada’s housing sector. “We think there’s lots of signs that things are turning around, and the housing market is one of them,” he said after the Bank’s latest announcement.
“We think the interest rate cuts we’ve already seen on top of today’s will heavily support domestic spending in the year ahead. The main reason why the Canadian economy has been relatively weaker than the US in the last couple of years is that we’re a more interest-rate-sensitive economy, and our consumers have been burdened by these high interest rates.”
The Bank of Canada has lowered its overnight interest rate by 50 basis points, making a second consecutive oversized cut in response to a spike in unemployment and growing signs of a weakening economy. https://t.co/NBlnujREIG
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 11, 2024
Tariff threats, economic uncertainty could ‘indirectly’ spur housing market
In its Wednesday statement, the Bank said the possibility of new tariffs on Canada by the incoming Trump administration south of the border had contributed to an uncertain economic outlook.
However, Porter said housing remains the one sector of the economy that shouldn’t be overly affected by tariff threats or trade uncertainty in 2025 – and that it could be further fuelled if the Bank feels compelled to cut rates even more next year.
“I’m not saying it helps the housing market directly – it doesn’t,” he said. “If the economy is concerned… about what’s ahead because of US tariff threats, that’s not helpful. But it can indirectly help the housing market because the Bank of Canada will be biased to cut further with trade uncertainty.
“They’ll do what they can to support the economy and the winner from that will be consumer spending and the housing market, if the Bank of Canada really has to lean on lowering interest rates even more rapidly to support growth.”
Why a big housing boom is unlikely despite lower rates
More rate cuts down the line could mean a busier spring housing market in 2025 than those seen in recent years – although Porter emphasized that homebuying is unlikely to “roar” into action in the year ahead.
That’s partly because of a changing population picture, with the federal government having cut its target for new immigration into Canada in the coming years as part of a major overhaul. Meanwhile, the affordability crisis weighing down on the national housing market shows little sign of easing.
“We’re starting from a level of very weak affordability,” Porter said. “Yes, it’s helping that interest rates are coming down – but we need a period of stable prices and rising incomes to really get affordability in a better spot.
“There is some pent-up demand, but I don’t think there’s a ton of appetite for investors to rush back into the market. We’ll see, but while I do think that we’ll have a solid market next year, I don’t think that it will be super strong.”
Bank of Canada rounds off a year of substantial rate cuts: ‘A big step’
The decision to cut rates by half a percentage point rather than the more conventional 25 basis points came as little surprise, with market expectations of a jumbo cut spiking in the days leading up to the announcement.
Still, Porter noted that the move – which follows an oversized cut by the same amount in October – marks “quite an aggressive step” by the central bank. “The Bank of Canada is out well ahead of everybody else in terms of the rate-cutting cycle,” he pointed out.
“No other central bank has cut by more than 1.25 percentage points and the Bank of Canada is now at 1.75 percentage points. So they clearly mean business and are really trying to boost growth. It’s a big step.”
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.
