The rate cuts have pushed mortgage rates to their lowest in 17 months, affecting housing markets differently across the country
According to WOWA's Canada mortgage rate page on July 30, the lowest mortgage rates are currently available.
The Bank of Canada (BoC) cut its benchmark rate on July 24, marking its second reduction in two months. This move coincides with a drop in government bond yields, leading to the lowest fixed and variable mortgage rates in the past 17 months.
Borrowers with insured mortgages, typically those with down payments under 20 percent, and those with uninsurable mortgages, such as homes above $1m, can benefit from these rates. However, despite the low rates, the real estate market's response remains complex.
Historical analysis by WOWA Leads shows that drops in mortgage rates from their peaks do not always lead to a booming real estate market.
Currently, the Toronto and Vancouver housing markets are stagnant, while Montreal, Calgary, and Edmonton remain active. In Toronto, the sales-to-new-listing ratio is at 35 percent, indicating a buyer's market, with inventory levels at their highest since 2010.
Historical data reveals that similar periods of high unaffordability and rate cuts did not necessarily boost the market. For instance, from Q3 1981 to Q3 1983, despite the BoC rate dropping from 20.78 percent to 9.26 percent, the Canada home price index fell by 14 percent while inflation rose by 17 percent.
Vancouver's home prices dropped nearly 40 percent during this period.
Similarly, between Q2 1990 and Q1 1994, the BoC rate fell from 13.5 percent to 3.6 percent, yet home prices in Canada decreased by 8 percent, with inflation rising by 10 percent. The Greater Toronto Area saw a 28 percent drop in home prices from April 1989 to August 1993.
From Q1 1995 to Q4 1996, despite a BoC rate cut from 8.2 percent to 3 percent, home prices declined by 4.5 percent, with inflation at 3 percent. Vancouver's home prices dropped 17 percent from August 1994 to October 1998.
During the 2007-2008 Global Financial Crisis, home prices decreased by 9 percent between Q2 2008 and Q1 2009, even as the BoC rate fell from 4.25 percent to 0.25 percent, though prices rebounded in 2009.
WOWA Leads attributes these patterns to the lag effect of rate hikes and subsequent economic deterioration. Most Canadian mortgages are fixed rates, so the impact of rate hikes is felt primarily during renewals, pressuring some sellers to sell their properties.
Additionally, BoC rate cuts usually signal slowing economic conditions, higher unemployment rates, and lower self-employed earnings, all contributing to lower home prices.
The Canadian housing market's performance varies across provinces. Ontario has seen recent price declines, while Quebec and Alberta continue to experience steady growth.
Based on historical trends, areas like Ontario, especially the Greater Toronto Area, may see price moderation, while Alberta and Quebec remain stable. The full impact of the current high rates on the housing market has yet to unfold.
