Hat-Trick of Rate Cuts by Bank of Canada!

So widely anticipated that the actual announcement was almost an anticlimax, the latest rate cut is the third reduction, making it a hat-trick.

In its September meeting, the Bank of Canada (BoC) announced another quarter-point reduction, bringing the overnight rate down to 4.25%.

Canada is one of the most aggressive countries in the G10 when it comes to easing monetary policy. The rate reductions are presented as a positive sign, a natural outcome of the economy settling down. Inflation is under control, as the Consumer Price Index (CPI), has slowed to an annual growth rate of 2.5%, closer to the BoC’s 2% target.

There are whispers that hint at deflation risks. However, the BoC Governing Council is keeping a close watch on the situation and continuously monitoring data to avoid that danger. Industry experts expect that the coming months will see more cuts of 0.25%. If there is a setback in the labour market and wage growth, then there may even be a 0.5% cut, and the new year will start with policy rates at 3.5%.

How is Real Estate Coping?

It is generally considered good news for the real estate sector when rate cuts are announced.

Lower borrowing costs (especially for homeowners who have opted for a variable-rate mortgage) are welcome – however, the previous rate cuts in June and July had little effect and the market has not been as responsive as expected.

Canada’s top housing markets – Toronto and Vancouver – have been subdued. Metro Vancouver registered 1,904 sales in August 2024, and the benchmark price for all residential properties is currently $1,195,900. The Greater Toronto Area saw a nominal decrease in the average selling price to $1,074,425, while total sales numbered 4,975.

At the same time, there has been a surge in new listings, and the GTA MLS® System reported 12,547 entrants. Metro Vancouver has 13,912 properties currently listed for sale with 4,109 additions in August 2024.

If it looks like a buyers’ market, not quite.

Mortgage rates have yet to come down, and despite the BoC’s efforts, many potential homebuyers are still playing the waiting game.  With industry experts confident that further rate cuts will be made, there is an expectation that mortgage rates will fall even more.

Additionally, in what is a double-whammy, home prices have been mostly steady and affordable housing is still not easily available. Understandably, many first-time buyers are hesitant about taking on an expensive mortgage and would rather wait for some more time.

What Lies Ahead?

The next rate announcements are set for October 23 and December 11, and economists are forecasting both will bring further rate cuts. Experts at TD and Scotiabank are confident that the policy rate will fall to 3.75% by the end of the year.

There is plenty of economic data that the BoC will need to keep an eye on and analyse in the coming months. It is a nuanced scenario with multiple interplaying components, chief of which is the Labour Force Survey. Canada’s labour market continues to struggle, and unemployment is creeping up, making further rate cuts appear likely.

However, given Canada is gearing up for elections in 2025, the present government will be keen to placate the voting public. And it is very likely that real estate, one of the biggest contributors to Canada’s GDP will benefit in this scenario.

As Canada approaches the end of 2024, all eyes are on the BoC’s next move.

Stay with us as we crunch the numbers for you!