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What the Bank of Canada’s Rate Cut Means for Real Estate

What the Bank of Canada’s Rate Cut Means for Real Estate

On October 23, 2024, the Bank of Canada made headlines by cutting its key policy rate by 50 basis points to 3.75%. This significant move is the fourth consecutive cut since June and reflects a shift in focus from reducing inflation to maintaining a target inflation rate of 2%. But what does this mean for the real estate market?

A Potential Boost for Homebuyers

Experts believe that this rate cut could ignite activity in the sluggish Canadian housing market. Phil Soper, president and CEO of Royal LePage, noted that elevated borrowing costs have kept many potential buyers on the sidelines. However, this aggressive cut could change that quickly. “With every cut to the overnight lending rate, more homebuyers are expected to come off of the sidelines,” he said, predicting a rise in demand that could drive home prices up.

Timing Is Everything

Victor Tran from RATESDOTCA highlighted a key concern: many buyers may wait for the final rate decision of the year before making a move. Buyers are hesitant to jump in until they feel the market has stabilized. “While this will likely encourage some buyers to enter the market, it’s likely that many will wait,” he explained, underscoring the uncertainty surrounding market timing.

Favorable Conditions for Buyers

Leah Zlatkin, a licensed mortgage broker, expressed optimism about the current market conditions. She pointed out that the combination of a rate cut and upcoming mortgage rule changes in December presents an excellent opportunity for buyers. “With an abundance of properties available, the current market conditions are exceptionally favorable for potential homebuyers,” she said. However, she cautioned that those waiting for further rate cuts may find themselves facing a hotter market soon.

Gradual Recovery Expected

While the recent cut is a step in the right direction, some experts, like Clay Jarvis from NerdWallet Canada, suggest that we may not see a dramatic resurgence in home sales right away. Many buyers still face challenges due to stress tests and may need more time before they can qualify for mortgages. If buyers in larger markets delay their purchases until the new insured mortgage rules take effect, the market may not see a significant uptick until later this year.

Looking Ahead

As we look forward, Alana Riley from IG Wealth Management anticipates further cuts in 2024 and 2025, which could help ease the burden of higher renewal rates for homeowners. She pointed out that shelter price inflation, largely driven by rent and mortgage costs, continues to be a significant factor in personal budgets.

A Shift in Buyer Psychology

The overall sentiment in the market could shift quickly if there’s a noticeable uptick in sales or prices. Tran suggests that such a shift may lead to a bustling winter and spring season. “Once the market begins to move, it’s likely to heat up quickly,” he warned.

Positive News for Homeowners

For homeowners facing mortgage renewals in the near future, the rate cut is welcome news. While renewal rates may still be higher than current rates, they’re expected to be more manageable than they would have been at the beginning of the easing cycle. This reduction in borrowing costs means that homeowners with variable-rate mortgages will see either lower monthly payments or a larger portion of their payments going toward the principal.

Conclusion

The Bank of Canada’s recent rate cut signals a potential turning point for the real estate market. While some buyers may hesitate, the combination of favorable conditions and upcoming rule changes could create an exciting opportunity for those ready to enter the market. As always, staying informed and understanding market dynamics will be key for prospective buyers in the months ahead.

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