Will the latest interest rate cut heat up the housing market?

This is the second reduction in interest rates since the 0.25% drop in early June. Although this rate drop was highly anticipated by market participants, its effects are yet to be seen until today’s official confirmation.

Canada's inflation rate for June was at 2.7%, unemployment at 6.4%, while retail sales are down. An important variable that many have started to note is the GDP per capita, rather than total GDP, is declining. The pressure on unemployment could also be caused by the faster population growth in Canada while job creation remains slower. Of note is that many of the new jobs created are within the public sector rather than the private sector, which many economists find to be unsustainable in the long term.

The impact on mortgages.

The latest rate announcement can offer additional relief to many with variable rate mortgages, home equity lines of credit and unsecured credit lines. The sale numbers of real estate remain low across the country as many buyers are still sitting on the sidelines, whether because of the higher borrowing costs, the tougher mortgage qualification environment or likely a combination of the two. Meanwhile, more reports are indicating that property listings are increasing, at least partially due to increasing borrowing costs at mortgage renewal time.

Overall, in our opinion, we think this rate drop confirms the trajectory that many economists are calling for, with year end of 2024 seeing a range of 4.00% to 4.25% (prime rate of 6.20% to 6.45%) and year end of 2025 seeing a range of 2.75% to 3.50% (prime rate of 4.95% to 5.70%). This overall path by the Bank of Canada should increase buyer confidence and improve the health of the real estate market over the coming year and a half.

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