The Bank of Canada recently delivered a significant interest rate cut, lowering its benchmark rate by 50 basis points to 3.75%. While the term “oversized” has been used to describe the move, the cut is certainly welcome news for homeowners with variable-rate mortgages, as well as those nearing mortgage renewal.
The Immediate Impact on Homeowners
For homeowners with variable-rate mortgages, this rate cut means the cost of their mortgage is likely to decrease. According to mortgage expert Penelope Graham from Ratehub.ca, prime rates are expected to fall to around 5.95% at most lenders. As a result, borrowers will see a reduction in either their monthly payments or the portion of their payment dedicated to servicing the interest on the loan.
This rate cut is part of a broader effort by the Bank of Canada to address inflation, and it could have a ripple effect on the housing market. The bank’s latest monetary policy report suggests that lower rates could eventually lead to a recovery in home sales and a modest increase in home prices.
A Waiting Game for Buyers
Despite the recent rate cut, many potential homebuyers remain cautious. While some buyers are starting to take advantage of the lower interest rates, many are still holding out, hoping for further rate reductions. Graham notes that some buyers may continue to wait for another anticipated 50-basis-point cut in December before making their move.
Moreover, changes to mortgage policies set to take effect on December 15 could prompt even more activity in the market come the new year. The combination of lower interest rates and new policies could lead to a flurry of buying and selling activity, especially in early 2025.
The Housing Market's Outlook
Victor Tran, a mortgage and real estate expert at Ratesdotca, suggests that while the rate cut could encourage some buyers to enter the market, many are still reluctant to act until they feel certain the market has bottomed out. He points out that predicting the bottom of the market is nearly impossible, and potential buyers are hesitant to rush in without that clarity.
However, Tran believes that once the market begins to pick up, it could “heat up quickly,” with more buyers entering the market and sellers responding in kind. This could lead to a busy winter and a very active spring season in 2025, as buyers rush to lock in favourable rates before any further rate changes.
A “Holding Pattern” for Now
Despite the rate cuts, the Canadian Real Estate Association (CREA) has downgraded its housing market forecast for the remainder of the year. The organization had previously expected that rate cuts would lead to a gradual recovery in the housing market, but the anticipated surge in activity has not materialized yet. CREA now predicts that national home sales will remain relatively flat until spring 2025, when a sharper rebound is expected.
For the remainder of 2024, CREA forecasts that about 468,900 residential properties will change hands, a modest increase of 5.2% compared to 2023. While the housing market has been slower to respond than initially expected, CREA remains optimistic that lower interest rates will drive an increase in sales and prices in 2025. The national average home price is projected to edge up to $683,200 by the end of the year and rise to $713,375 in 2025, representing a 4.4% annual increase.
Housing Starts Show Mixed Trends
In addition to interest rates, the pace of housing construction also plays a role in shaping the housing market. The Canada Mortgage and Housing Corporation (CMHC) reports a slight decline in the six-month trend for housing starts, down 1.3% from August to September. However, in September itself, housing starts increased by 5%, driven by a rise in multi-unit and single-detached home construction in some provinces, particularly Alberta, Quebec, and the Atlantic provinces.
On the flip side, housing starts in Ontario and British Columbia have decreased, although these provinces had historically high levels of construction in 2023. Notably, Montreal has seen a strong recovery in new home construction, with a 15% increase in housing starts from January to September compared to the previous year.
Despite these regional differences, CMHC notes that the overall housing starts in Canada are still below what is needed to restore affordability, especially in urban centres.
Looking Ahead: Will the Market Heat Up?
As the year draws to a close, the Canadian housing market remains in a “holding pattern.” While the Bank of Canada’s recent interest rate cuts have provided relief for homeowners, the full impact on the market remains uncertain. Buyers are waiting for signs that the market is bottoming out, and sellers are holding off on listing properties until they see increased demand.
If the anticipated rate cuts and new mortgage policies fuel a market recovery, we could see a surge in activity in early 2025. For those thinking about buying or selling a home, it may be wise to stay informed about upcoming rate decisions and market shifts as the year progresses.
Stay tuned—2025 may be a much busier year for the Canadian housing market than many anticipate.
