The Bank of Canada’s second consecutive key interest rate cut is welcome news for homeowners and potential buyers, but it won’t impact the real estate market in a “significant way,” experts say.
At least a full percentage point drop is needed to stimulate the market, which could be reached by the end of the year, said John Lusink, president of Right at Home Realty. On Wednesday morning, the Bank of Canada dropped the key overnight rate by another quarter percentage point, bringing it to 4.5 per cent.听
“It’s not a surprise that the Bank of Canada lowered its rate, but I’m disappointed it wasn’t a 0.5 percentage-point drop,” Lusink said. “That would have really stimulated the market. Will this recent rate cut have a dramatic effect on sales? No, I don’t think so. It’s still wait and see for a lot of people.”聽
That’s because mortgages rates, while lowering, are still high for many people, said Leah Zlatkin, mortgage broker and expert. Homeowners with a variable rate mortgage, which is tied to the Bank of Canada’s prime rate, will see an immediate impact on their mortgage payments. And for buyers interested in opting into a variable-rate mortgage, the lowest variable rates will decrease to about 5.75 per cent.
鈥淕iven that rates have been high for an extended period of time, any decrease is welcome news,鈥 Zlatkin said in a statement. 鈥淏ut this cut is not likely to be the one that moves the housing market in a significant way. We鈥檝e seen a 50-basis-point drop since June, but rates are still comparatively high and many potential buyers are waiting for further rate decreases to increase their buying power before they make a move.鈥
Fixed-rate mortgages, which are tied to the bond market, were already “meaningfully lower” than variable rates before the Bank of Canada’s second rate cut, said Robert Kavcic, BMO senior economist.听
“Fixed mortgage rates have already priced in these rate cuts,” he said. “So, a 0.25 percentage-point cut to variable won鈥檛 necessarily help affordability or bring in more buyers.”
The bond market is reading as “more dovish,” he said, as the Bank of Canada is putting more weight on concerns about weaker economic growth, and less on inflation pressure. If there is concern about economic growth, lowering interest rates can give a boost to the economy. “That should keep three- and five-year fixed mortgage rates on a downward-drifting path, albeit a gradual one,” Kavcic added.
While the rate cut won’t be enough to bring in an influx of buyers, it does help with buyer psychology, said Karen Yolevski, chief operating officer at Royal LePage. During the Bank of Canada’s 16-month rate hike period, a Royal LePage survey found that 18 per cent of respondents would pursue buying property if the central bank dropped rates by 0.5 to 1 percentage point.听
“We believe the market will come back slowly but surely in the same manner that the interest rates will decrease by the Bank of Canada,” she said. “Buyers will come off from the sidelines but it won’t be a rush to the gates. It will instil confidence that rates are on a downward trend and bolster consumer sentiment.”聽
Yolevski added that Royal LePage is holding to its forecast of a 10 per cent聽price increase from the fourth quarter of 2023 to the fourth quarter of 2024 in 海角社区官网鈥 the forecasted aggregate home price in the final quarter of 2024 is $1,235,630 鈥 a more than $100,000 rise over last year鈥檚 actual final-quarter price of $1,123,300.
Investors will need to see a bigger interest rate drop compared to end-users, said Lusink, as asking rent isn’t high enough to cover mortgage costs as well as condominium maintenance and other fees. It means the preconstruction condo market will struggle to attract investors for some time.听
“For local investors to come back they need to see a significant rate drop,” he said. “It will take a lot to bring back a whole investor community that’s disappeared.”聽
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