Lower rates expected to boost homebuyer demand, with experts predicting market activity to heat up
The Bank of Canada reduced its key policy rate by 50 basis points to 3.25 percent on Wednesday, marking the fifth consecutive rate cut since June.
BNN Bloomberg reports that the central bank signalled a slower pace of rate reductions moving forward. Real estate experts predict this move will influence the market in the coming months.
Phil Soper, CEO of Royal LePage, described the rate cut as a catalyst for increasing homebuyer demand. He noted a “sharp uptick” in activity after October’s initial 50-basis point reduction.
“This latest significant rate cut will help to sustain activity throughout the winter months, typically the slowest period for real estate transactions in Canada,” Soper stated. He anticipates a pull-ahead effect, with activity ramping up ahead of the traditional spring market.
Victor Tran, a mortgage and real estate expert with RATESDOTCA, observed an increase in home sales over the past month but maintained that the market remains slow.
“The predicted rush after the Bank of Canada began lowering rates in June has yet to materialize,” he explained, adding that activity is unlikely to rise significantly during the traditionally slower winter months.
Clay Jarvis, a spokesperson for NerdWallet Canada, highlighted an upcoming policy change that could benefit buyers.
Starting December 15, the federal government will increase the insured mortgage price cap from $1m to $1.5m, allowing buyers to qualify for mortgages with a down payment under 20 percent.
Jarvis described this as a “major leg up” for some buyers, although he noted that not all will be able to afford the associated mortgages.
Experts are forecasting an early start to the spring housing market in 2025. Tran anticipates a market shift favouring sellers and advised potential buyers to secure pre-approvals in preparation for a competitive market.
Soper predicts an earlier-than-usual spring market, with activity picking up as early as late January or February.
Royal LePage forecasts a 6 percent increase in residential real estate prices by the end of 2025. Detached homes are expected to rise by 7 percent, while condominiums are projected to increase by 3.5 percent.
Regionally, Toronto is forecasted to see a 5 percent aggregate price rise, Vancouver a 4 percent rise, and Montreal a 6.5 percent rise. Soper attributed Vancouver’s relatively modest condominium price growth to the influx of new properties.
The interest rate reduction is expected to influence mortgage rates. Tran indicated that variable rates could dip below 5 percent, with fixed rates remaining above 4 percent. This could drive interest in variable-rate mortgages as homebuyers seek lower payments.
Penelope Graham of Ratehub.ca noted that the lower prime rate of 5.45 percent would benefit variable-rate mortgage holders, potentially reducing either their monthly payments or the interest portion of their payments.
llison VanRooijen, VP of consumer credit at Meridian, highlighted that the rate cut would provide relief for borrowers, including those with unsecured loans.
Alana Riley, head of mortgage insurance and banking at IG Wealth Management, stated that reduced borrowing costs could lead to increased property values. She noted that urban markets often see higher property valuations during periods of declining interest rates.
Riley added that residential, retail, and industrial real estate sectors are poised to benefit from the current financing conditions.
