Bank of Canada delivers another jumbo rate cut! Will It Fuel a Housing Market ‘Rush’?

Real estate experts agree that the Bank of Canada’s latest rate cut will spur activity in the new year, warming up markets during the winter months.

The Bank of Canada on Wednesday sharply cut its key interest rate again by 50 basis points (0.50%) to 3.25 percent. The move marked the fifth consecutive rate cut since June, while the central bank has signaled a slower pace of rate cuts going forward. Commercial bank prime rates are correspondingly down to 5.45% at most financial institutions.

Royal LePage CEO Phil Soper said in a statement to Bloomberg on Wednesday that the rate-cutting cycle has spurred a steady increase in demand from home buyers, noting a “sharp surge” in activity since the bank’s first non-standard 0.50% cut in October. “This latest significant rate cut will help sustain activity during the winter months, which are typically the slowest period for real estate transactions in Canada,” Soper said. “Buyers have woken up to the reality that home prices are rising again, and many will feel the need to act before affordability declines. As a result, we expect to see a ‘lead’ in activity and an early start to the traditional spring housing market.”

It’s also worth remembering that the announcement of the steep interest rate cut comes just days before buyers get another major incentive in the form of lower down payment requirements for homes priced between $1 million and $1.5 million.

In September, the federal government announced it would increase the $1 million price cap on insured mortgages to $1.5 million to help Canadians qualify for a mortgage with a down payment of less than 20 per cent. It also increases the maximum amortization on insured mortgages for first-time buyers to 30 years. The changes will go into effect on December 15.

As we enter the new year, real estate experts are expecting an unusually early start to the spring market, a time of year associated with increased activity.

Royal LePage CEO Phil Soper said he generally expects an “early spring” in most parts of the country, saying housing markets often heat up in late March after a winter slump. “We see this year being pushed forward a few weeks into February, maybe even into late January,” Soper said.

By the end of 2025, Royal LePage is forecasting overall home price growth of about six percent in the residential market. Single-family detached homes are expected to rise about seven percent, and condos are expected to rise about 3.5 percent.

As for mortgage rates, we see fixed rates “frozen” just above four percent, with variable rates set to fall well below five percent following Wednesday’s rate cut. We expect interest in adjustable-rate mortgages to increase as homebuyers look to take advantage of lower rates and payments.

Alana Riley, head of mortgage insurance and banking at IG Wealth Management, said in a statement to Bloomberg on Wednesday that lower borrowing costs are opening up opportunities for real estate investors.

“This favorable environment could lead to higher property values ​​as investors may be willing to pay more for properties due to lower loan payments. Historically, periods of lower interest rates have led to higher property values ​​in major urban markets across Canada,” she said.

The Bank of Canada’s next meeting is scheduled for Jan. 29, 2025.