Real estate experts say the Bank of Canada’s third straight interest rate cut is good news for variable-rate mortgage holders, but it may be some time before demand in the market significantly recovers.
“The reality is it just doesn’t make financial sense for many people looking to buy a home. Mortgage rates haven’t come down fast enough to stimulate activity in the housing market. It’s just not affordable for people,” says Victor Tran, mortgage and real estate specialist at Ratesdotca.
The central bank cut its key interest rate to 4.25% on Wednesday, amid a weakening economy and slowing inflation.
Mr. Tran says that for every quarter-percentage point decrease, a homeowner with a variable-rate mortgage can expect to pay about $15 less per $100,000 of mortgage in monthly payments.
Meanwhile, fixed-rate mortgage holders won’t see the effects of lower mortgage rates until their next renewal.
“While this sounds like a lot, even a full percentage point cut in current mortgage rates would not result in a meaningful increase in purchasing power given persistently high home prices,” Tran says.
Bank of Canada Governor Tiff Macklem said if inflation continues to slow as expected, it is “reasonable” to expect further rate cuts this year.
But he added that if inflationary pressures prove stronger than expected, the central bank could slow the pace of interest rate cuts.
Canada’s annual inflation has been below 3% for months, reaching 2.5% in July.
Penelope Graham, a mortgage expert at Ratehub.ca, says the bank’s two previous rate cuts in June and July “did little to move the needle” on housing demand, as potential buyers wait for deeper cuts before snapping up a home.
She argues that many buyers are likely to stay on the sidelines for longer despite the third straight decline, given the strong anticipation of further declines to come later this year.
“With mortgage rates changing regularly, it is essential for mortgage borrowers to shop around to find the best rate,” says Mr.me Graham.
“Variable mortgage rates look more attractive as they are poised to decline in the near future, but if we have learned anything from the Bank of Canada’s rate hike cycle, it is that nothing is certain,” she adds.