Here's what housing market experts are saying
The Bank of Canada’s latest decision to slash its interest rate by 50 basis points is stirring hopes for increased activity in Canada’s housing market, but experts are divided on how soon the impact will be felt.
On Wednesday, the central bank lowered its key policy rate by half a percentage point, bringing it down to 3.75%. This is the fourth consecutive rate cut since June and marks the Bank of Canada’s shift in focus from lowering inflation to maintaining its target rate.
Phil Soper, president and CEO of Royal LePage, believes the move could signal a turning point for the housing market.
Soper said in a statement to BNNBloomberg.ca Wednesday that activity in Canada’s housing market has been “sluggish” across many regions due to elevated borrowing costs, “but today’s more aggressive cut to lending rates could cause the tide to turn quickly.”
“With every cut to the overnight lending rate, more homebuyers are expected to come off of the sidelines,” Soper said. “In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs.”
Soper noted that this rate cut could usher in an “early spring market.”
Read more: Bank of Canada makes biggest rate cut since beginning of pandemic
However, not all experts are convinced that the housing market will shift immediately. Victor Tran, mortgage and real estate expert at RATESDOTCA, pointed out that while the cut might encourage some buyers to make a move, many are likely to wait for the Bank of Canada’s final rate decision of the year.
“Buyers are worried about moving ahead before the market bottoms out,” Tran said, noting that no one can predict market movements with absolute certainty.
Leah Zlatkin, a licensed mortgage broker and expert at LowestRates.ca, believes this could be an ideal time for buyers who have been waiting for more favourable conditions.
"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,” Zlatkin said. With plenty of properties available, she highlighted the benefits of acting now before rates drop further and the market heats up.
The recent rate cut offers relief to some homeowners as well, particularly those who are facing mortgage renewals in the next year or two.
Penelope Graham, mortgage expert at Ratehub.ca, explained that lower prime rates, now expected to fall to 5.95% at most lenders, will ease monthly payments for those with variable-rate mortgages.
"Those with variable mortgage rates will see either their monthly payments, or the portion of their payment that services interest, fall in kind,” she said.
On the fixed-rate side, bond markets had already priced in the Bank’s decision, with five-year yields hovering around 2.9%. This could create some downward pressure on fixed mortgage rates moving forward.
Despite the positive outlook on borrowing costs, experts like Clay Jarvis, spokesperson for NerdWallet Canada, are more measured about the broader impact on the housing market.
"We probably won’t see the market roar back to life," Jarvis said, explaining that the stress test remains a hurdle for buyers looking to qualify for variable-rate mortgages. Jarvis believes that additional rate cuts may be necessary before significant buyer activity picks up.
More rate reductions could be in store for 2024 and 2025, according to Alana Riley, head of mortgage, insurance, and banking at IG Wealth Management. She pointed out that these cuts could help homeowners with mortgages up for renewal manage the financial shock of higher rates.
“Shelter price inflation remains high, driven by rent and mortgage interest costs,” Riley explained, adding that this continues to be a major contributor to inflation in personal budgets.
As the housing market absorbs the effects of the latest rate cut, some experts expect a shift in buyer behaviour.
Tran said that a “psychological shift” may occur in the coming weeks, leading to an uptick in sales as buyers see an opportunity to act before prices rise. “
Once the market begins to move, it’s likely to heat up quickly, pushing home prices higher,” Tran said, hinting that the market could see an unseasonably busy winter, followed by a strong spring in 2025.
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