Fourth Straight Interest Rate Cut May Not Bring Buyers Back to the Market Just Yet

While the Bank of Canada’s fourth straight cut to its key interest rate could inspire potential homebuyers to get off the sidelines, some commentators say the housing market may not see a huge spark just yet.
While the Bank of Canada’s fourth straight cut to its key interest rate could inspire potential homebuyers to get off the sidelines, some commentators say the housing market may not see a huge spark just yet.
The central bank brought its key policy rate down by half a percentage point to 3.75 percent on Wednesday after Canada’s inflation rate fell to 1.6 percent in September.
For every quarter-percentage point decrease, Ratesdotca says variable-rate mortgage holders can expect to pay approximately $15 less per $100,000 of mortgage.
But among would-be buyers, many will likely wait for the Bank of Canada’s final rate announcement of the year in December before making a move because they are worried the market hasn’t yet bottomed out, said Ratesdotca mortgage and real estate expert Victor Tran.
Given current real estate price trends, he added interest rates will need to drop further for buyers to feel it makes sense to jump in.
“It’s good news overall, but I don’t think it’s going to suddenly increase demand as much as what people think,” Tran said in an interview.
“We’re definitely in a downward trend right now and it seems like the Bank of Canada will continue to drop rates, but because house prices are still so high, it just doesn’t make sense for a lot of people to enter the housing market.”
The average price of a home sold last month in Canada was $669,630, up 2.1 percent from September 2023, according to the latest data released by the Canadian Real Estate Association.
While Tran said it is difficult to accurately time the market, he predicted it will heat up quickly once it does begin to move, pushing home prices higher and leading to an unseasonably busy winter season.
For those in the market for a new home right now, he said it may be in their best interest to “try to get ahead of the gun.”
“If the rates do continue dropping and everyone starts jumping off the sidelines, it may be difficult to get into something later on,” said Tran.
“When demand is really high and supply is low again, those bidding wars will be back and it’s going to be a pretty stressful experience for a lot of buyers.”
Earlier this month, CREA downgraded its housing market forecast for the remainder of the year, saying the Bank of Canada’s interest rate cuts haven’t spurred the gradual improvement it previously anticipated.
CREA said the accelerated pace of interest rate cuts could actually prompt some buyers to hold off on a purchase for now, keeping the national housing market in “more of a holding pattern” until next spring.
Some real estate agents say they are already starting to see the tide turn, however.
Cailey Heaps, president and CEO of Heaps Estrin Team, said there has been “a noticeable increase in buyer activity in recent weeks, which indicates that confidence is returning to the market.”
“Buyers were already pricing an interest rate reduction into their offers, meaning today’s announcement was expected and reinforces that the market is headed in the right direction,” she said in an email.
“In recent weeks, houses have been selling faster, prices are appreciating and there has been an increase in the number of multiple offers on homes.”
Andrew Zsolt, president and broker of record at Royal LePage Terrequity Realty, said it would be a mistake for buyers to wait for more favourable mortgage rates now that there have been four cuts and likely more on the way.
“The inventory is good and the prices haven’t started to increase yet,” he said, adding that any further mortgage savings would be “wiped out” in 2025 by potentially higher prices in the market.
A Royal LePage survey conducted by Leger earlier this year suggested 51 percent of potential homebuyers would resume their search if interest rates decreased, but around 23 percent said they would wait to see a drop of more than a full percentage point.
“Too many buyers are just sitting in their hands waiting for something and it’s going to cost them a lot of money, ultimately,” said Zsolt.
“Consumers are waiting until the whole world gets on the bandwagon and then the prices will be up and they’ll miss the boat.”