There has been frustration in the housing and mortgage industries that the Bank of Canada’s rate cuts over the summer, which took the rate to 4.25%, did not stimulate a flurry of home sales. With the most recent cut this week of .5% taking the bank’s rate to 3.75%, the bank’s monetary policy report is projecting a recovery in home sales and a boost in prices tied to lower interest rates. But a mortgage and real estate expert, the Canadian Real Estate Association (CREA) as well as a survey by EveryRate.ca say “maybe not.” CREA recently downgraded its housing market forecast for 2024, saying the bank’s interest rate cuts haven’t spurred the anticipated increase in sales. The association said the increased rates of reduction could actually make some buyers wait until spring, keeping the national housing market in “more of a holding pattern” until then. Victor Tran of Ratesdotca tells Canadian Mortgage Trends (CMT) many potential buyers will likely stay on the sidelines for at least until the bank’s final rate announcement of the year in December as they wait to see if the bank implements another rate cut and because they are worried the market has yet to bottom out. Expectations of a number of economists from CIBC, RBC and other financial institutions are of another cut of .5% in December which would take the rate to 3.25% but an EveryRate.ca survey of potential home buyers finds that won’t be low enough. According to the survey, 74% of Canadians giving consideration to buying a home or refinancing will wait until the bank’s policy rate goes below 3%. Of this group, the survey found 10% would act if the policy rate dropped below 1%; 28% would act if the policy rate falls less than 2%; 37% would act if the policy rate falls less than 3% and; 12% would act if the policy rate dropped below 4%, the latter now being true, which may spur them back into the market. Finally, only 3% are ready to act regardless of the current rates. “We knew Canadians wanted lower rates, we knew Canadians wanted into the housing market, we just didn’t know how low they needed rates to go before they get off of the sidelines,” Andy Hill, mortgage broker and co-founder of EveryRate.ca, said in a statement. “Most Canadians are clearly waiting for mortgage rates to drop further before moving,” he added. Even the most positive projections do not expect the bank’s rate to fall to 3% until at least until mid-2025 (RBC is an outlier, forecasting the bank’s rate will be 2% by July next year) and Hill says that means many potential buyers and refinancers “will likely stay on the sidelines for the foreseeable future.” A Bank of Canada policy rate of 3%, which determines the prime lending rate used at most lenders, would suggest variable rates about 1.25% lower than today’s levels. With the bank rate cut to 3.75% this week, the five-year variable rate will decrease to the area of 4.8%, according to Penelope Graham of Ratehub.ca. “In recent weeks, a handful of discount brokerages started offering five-year fixed rates just below 4%,” says CMT. “However, these were specifically for high-ratio default-insured mortgages, meaning those with a down payment of less than 20%. Tran tells CMT it is “difficult to accurately time the market,” predicting “it’s likely to heat up quickly once it does begin to move” which will push home prices back up, possibly leading to an unusually busy winter buying season. As for Graham, she says “Recent national and regional real estate reports have shown early signs that home buyers are starting to respond to lower interest rates, but many prospective buyers remain on the sidelines.” “Now, as an additional 50-basis-point cut is anticipated in December, buyers may continue the wait for lower borrowing costs before making a move. However, new mortgage policy reforms that go into effect on December 15 could prompt activity to pick up in the new year.”
