Some real estate analysts say a reduction in the Bank of Canada’s key interest rate could be the sign many would-be homebuyers have been waiting for, while others believe more cuts are necessary before there is major movement in the market.
The central bank announced the quarter-percentage-point cut on Wednesday, its first in more than four years, meaning its key interest rate now stands at 4.75 per cent.
“Back when interest rates began to rise, people held back because the future of rates felt uncertain — consumers like certainty when they are navigating big decisions like buying a home,” Laurie Lidstone, chair of the Greater Victoria Real Estate Board, said Wednesday.
“Likely this rate announcement will make some consumers — both buyers and sellers — more confident to make their next move. It’s been years since buyers have had this much choice, and with prices staying stable and rates going down, it’s a great time to buy or sell.”
The number of properties for sale in the capital region surpassed 3,000 in April and again in May, considerably more than a year ago, although May’s total sales came in at 763, down from 775 for the same month a year ago.
Higher interest rates have been a major psychological barrier for buyers, said Brendon Ogmundson, chief economist for the B.C. Real Estate Association, who does not expect Wednesday’s rate cut to result in a surge in sales.
He is, however, anticipating a bit of an uptick this month as some buyers on the sidelines start to enter the market, which he describes as well-balanced with a decent amount of inventory and a fairly normal number of sales in the capital region. “Hopefully markets can remain in balance for the rest of the year.”
The latest interest-rate cut will likely be the first of many in the next 18 months, said Brian Yu, chief economist of Central 1 Credit Union.
Yu expects to see the Bank of Canada reduce the rate four times this year, taking a break in September to evaluate the impact on sectors like the housing market. The timing and depth of upcoming cuts will be partly affected by U.S. Federal Reserve rate decisions.
Canada’s economy is facing headwinds from the mortgage renewal cycle and continuing higher payments for many homeowners, Yu said.
But, “In our view Canada’s inflation problem is in the rear-view mirror.”
The Bank of Canada will continue its cuts to limit unnecessary damage to the economy but that will take time, Yu said.
If the U.S. delays cutting rates, that could reduce the pace of cuts in Canada, he said. The Bank of Canada will be closely watching the effect on the exchange rate and the potential for inflation on import prices.
Mike Grace, a mortgage broker with Sobo Mortgage in Victoria, said while the rate cut is good news, he’s not expecting it to lead to a rush of buyers in the local real estate market.
“We all have to start somewhere. It feels like a page is turning in this world, but it is just the beginning, hopefully.”
While the rate drop offers a bit of relief for homeowners with variable-rate mortgages, interest rates are still high, resulting in payments that are much bigger than in 2021 and 2022.
“There’s still a significant amount of stress in the system for many people,” Grace said. “So it’s a good start but it is unfortunately not enough and it is going to take quite a bit more movement for things to feel unstrained in the market for existing homeowners and for new purchasers.”
Some of Canada’s largest cities have seen ballooning home listings in recent months from droves of sellers listing their properties, despite demand from potential buyers not keeping up.
That includes the Greater Toronto Area, where new listings last month jumped 21.1 per cent year-over-year, with 18,612 properties put on the market. Calgary and Vancouver have seen similar trends, with new listings rising 18.7 and 12.6 per cent, respectively, year-over-year in May.
A Leger survey commissioned by Royal LePage found 56 per cent of Canadian adults who have been active in the housing market said they have been forced to postpone their property searches since the Bank of Canada began raising its key lending rate from near zero in March 2022.
Among those waiting on the sidelines, just over half said they would resume their search if interest rates went down, including one in 10 who indicated a quarter-percentage-point drop would be enough for them to jump back in.
“There certainly is pent-up demand,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services. “Typically when rates go down, prices go up. So this would be the time where people come off the sidelines, knowing and anticipating that prices are likely to rise.”
