The Bank of Canada's anticipated cautious approach in lowering the interest rate by 25 basis points (0.25 per cent) could have a positive and possibly decisive effect on real estate. Firstly, it makes it possible for more buyers to enter the market by qualifying for a mortgage. Secondly, it could make variable-rate mortgages and mortgage renewals easier to acquire.
The Bank’s decision, widely predicted by financial experts and analysts, brought an interesting observation from the British Columbia Real Estate Association.
“Financial markets are now shifting attention towards what the Bank will do before the end of the year,” said BCREA's chief economist, Brendon Ogmundson, “with many economists believing that tempered inflation and prolonged weakness in the economy will result in an additional 25-point cut, bringing the policy rate to 2.25 per cent by year-end. These expectations are reflected in 5-year bond yields, which have stabilized around 2.71 per cent, down about 0.4 points from their summer peak. This broader trend will place downward pressure on 5-year fixed mortgage rates, which we hope stimulates stronger sales activity…in the housing market overall.”
At 2.50 per cent, the rate is the lowest it has been since the month that the pandemic began, March 2020. It peaked at 7.20 per cent in July 2023. The Bank’s Governor, Tiff Macklem, explained the cautious decision to lower the rate like this:
“The disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
It marks the first change in the Bank of Canada interest rate in since March 12, when it was also lowered by 0.25 per cent. Three times since then, the Bank has kept the rate at 2.75 per cent.