The Bank of Canada dropped its policy interest rate from 2.5% to 2.25% on Wednesday, making it the second 25-point cut in a row, however it may be the last reduction we see for a while.
During the morning announcement on October 29, Bank of Canada Governor Tiff Macklem said the policy interest rate is now “about the right level to keep inflation close to 2%, while helping the economy through this period of structural adjustment.”
Let’s go over what this means for Canadian homeowners, buyers, sellers and those interested in real estate.
A lower interest rate may attract more Canadian home buyers
We’ve come a long way from the 5% key interest rate days of early 2024. This is welcome news for those currently on variable mortgages as their regular payment amount will drop almost immediately (or more of each payment will go toward their principal, rather than interest).
“While mortgage rates remain above their pandemic lows, the Bank’s recent rate cut is easing pressure on borrowers,” said Phil Soper, President and CEO of Royal Lepage. “Rates are once again in the threes—a level that feels supportive by the standards of the past two decades.”
Right now, you can qualify for a rate as low as 3.79%.
Many Canadian real estate markets have become more active after a sluggish spring selling season. Up until September, home sales had increased for six straight months as potential buyers started to come off the sidelines, and lower interest rates played a factor there. The Canadian Real Estate Association (CREA) is also forecasting a strong finish to the year when it comes to home sales, citing lower interest rates, rising inventories and more market balance throughout the country.
Compared to data from six months ago national home sales are up more than 10%. CREA’s Senior Economist Shaun Cathcart says, overall, home sales are at a good level right now and that things will continue to “move in the right direction” into next year.
“With three years of pent-up demand still out there and more normal interest rates finally here, the forecast continues to be for further upward momentum in home sales over the final quarter of the year and into 2026,” Cathcart is quoted as saying.
What aspiring home buyers need to know about the Bank of Canada’s rate announcement
Lower interest rates lift affordability in two ways:
- For a given income, the amount of mortgage you qualify for can rise (because interest costs are lower).
- Monthly payments drop (or growth in payments slows), which reduces stress for buyers.
For instance, if you have a $500,000 mortgage over 25 years on a variable rate, your monthly payment could go down around $90.
For fixed-rate buyers, the effect is more indirect. While the Bank of Canada’s cut doesn’t directly affect your fixed rate, it tends to help reduce fixed-rate borrowing costs over time at renewal (via lower bond yields and lender competition).
Where will interest rates go next?
There remains a lot of negative consumer confidence out there. Canadians remain concerned about the state of the economy and their own job security.
Since the Bank of Canada is nearing the low-end of its neutral range, there isn’t much wiggle room for more cuts. Should the economy further stumble or enter a recession, policymakers would be put into a tough spot.
The Bank of Canada will make its final interest rate announcement for the year on December 10.
Why you should use a REALTOR® this fall
Your REALTOR® is your personal real estate MVP. While you’re figuring out financing, they can already get to work behind the scenes.
If you’re buying, this means setting up searches for you, attending open houses on your behalf, and asking around to their connections about what might be coming available.
If you’re selling, your REALTOR® can get to work marketing your property right away, getting it ready for staging and compiling documentation, all without severely disrupting your routines.
By now you know interest rates impact the Canadian real estate landscape and that likely isn’t about to change any time soon. Making the right decision at the right moment seems like a lot of pressure when you don’t know where interest rates will be on a month-to-month basis.
Thankfully REALTORS® monitor market trends and housing data to make sure, whether you’re buying or selling, your best interests are kept top of mind.
Don’t put it off any longer. Find your REALTOR® today.
