One chief economist says the Bank of Canada’s most recent rate cut is likely to spur activity in the housing market, with other experts saying there is still pent-up demand.
The Bank of Canada lowered its key policy rate by 25 basis points to three per cent Wednesday amid tariff threats from the U.S. BNNBlooberg.ca reached out to a number of experts following the announcement. TD Bank Chief Economist Beata Caranci said in an interview with BNN Bloomberg that real estate is one of the “most responsive areas” to changes in borrowing costs.
“The way our mortgage market is structured, we react quickly when mortgage rates go up… it becomes a greater burden to households relatively quickly, more so than what you see in the U.S.,” she said.
“Likewise, when rates go down, we benefit faster from those rate drops in terms of reducing the debt burden and the debt service costs and allowing for that entry point into the market.”
Caranci added that housing makes up a larger share of Canada’s economy when compared to peer nations. Given the current trade tensions with the U.S., she noted that any recovery in the housing market would stand to benefit Canada’s economy despite downside concerns surrounding tariffs.
“So in this particular case, the timing of the recovery of the housing market and consumer spending…This is good timing to help push against some of the negative influences, so I don’t think the Bank of Canada would criticize the size of the housing market at this juncture,” Caranci said.
Regarding a potential recovery in the housing market, Ron Butler, a mortgage broker at Butler Mortgage, said in an interview with BNN Bloomberg Wednesday that the resale market for homes in Canada has “picked up slightly” alongside reductions in borrowing costs during the past four months. However, if tariffs are enacted and the Canadian economy sees a “major unemployment trend” it would stop any recovery and “cut that off at the knees.”
‘Pent-up demand’
Victor Tran, RATESDOTCA mortgage and real estate expert, said that while the market is showing “some signs of life,” gains in market activity have not met expectations following rate cuts. According to Tran various factors are affecting demand in the market including lower immigration targets, a lagging condo market and economy uncertainty.
“Housing sales activity is slowly ticking up, but there is plenty of room for growth in activity. Buyers are currently well-positioned to take the time they need to find the right home and can make offers conditional on financing and inspections,” he said.
“There is still pent-up demand, and the housing market is very likely to pick up significant momentum at some point in the coming year but predicting the tipping point is challenging.”
This sentiment was shared by Leah Zlatkin, a licensed mortgage broker and LowestRates.ca expert, who said that many buyers are “hitting the pause button” in hopes of better purchasing conditions in the future.
President and CEO of Royal LePage Phil Soper said that the latest rate cut will increase borrowing capacity for homebuyers.
“This latest decrease arrives just before the spring housing market – when demand typically picks up – which should spur buying and selling activity in the weeks ahead. However, the looming promise of hefty tariffs by the United States government is a source of uncertainty for the central bank and consumers alike,” he said.
Given the current market conditions, Debbie Cosic, founder and CEO of In2ition Realty, said that the “landscape is shifting” and advised those waiting to enter the market to act.
Alana Riley, the head of mortgage, insurance and banking at IG Wealth Management, said in a that individuals looking to sell may be able to “find buyers more willing to negotiate” following market uncertainty.
Mortgages – the ‘good news’
Regardless of the impact on the housing market, Zlatkin said the most recent rate cut is “good news” for variable rate mortgage owners.
“They’ll see an immediate decrease in their monthly payments, providing some relief amidst the rising cost of living. This also frees up some cash flow, which can be used for other financial goals, like paying down debt or increasing savings,” she said.
According to Ratehub.ca Expert Penelope Graham, the decision will bring prime rates to 5.2 per cent at most lenders across Canada, moving variable rates lower.
“Those who currently have a variable mortgage rate will see either their monthly payment lower if they have an adjustable-rate mortgage, or the portion of their payment servicing interest costs decrease, if they’re on a fixed payment schedule,” she said.
“Fixed mortgage rates are set to decrease slightly, as bond yields have dipped down to the 2.8 per cent range following the rate announcement.”
Riley added that the lower rates will also benefit those with Home Equity Lines of Credit (HELOCs) or unsecured lines of credit.
“The rate decrease should also mitigate some of the financial pressure on homeowners facing mortgage renewals and potentially reduce the risk of mortgage defaults,” she said.
