What the BoC’s Latest Rate Cut Means for the Canadian Housing Market

The latest rate cut from the Bank of Canada won’t jumpstart the sluggish Canadian housing market, but it should help fortify homebuyer confidence and provide immediate relief for some homeowners.

By Josh Sherman | 4 minute read

As of Oct. 23, the Bank of Canada’s overnight is at its lowest level in about two years (3.75%).

The Bank of Canada’s latest rate cut, its biggest since 2020, is good news overall for homebuyers, market-watchers say, but it won’t have an outsized effect on Canadian home sales or prices this year. 

In its fourth consecutive rate cut of the year, the central bank lopped 50 basis points off its overnight rate on Oct. 23, following three previous 25-basis-point cuts. The rate, which influences borrowing costs for consumers and now sits at 3.75%, hasn’t been this low since late-2022, though don’t expect a housing-market boom in response, industry observers say. “It’s… not going to happen this year,” says Adrienne Lake, managing broker at Corcoran Horizon Realty, of the chances of a substantial pickup in the market before the new year.

BoC rate cut won’t immediately help most buyers or borrowers

For the majority of mortgage holders and potential homebuyers, the rate reduction simply won’t improve affordability today, notes Alex Leduc, CEO of Perch Mortgages. While variable rates fluctuate with changes to the overnight rate, interest rates on fixed-rate mortgages — three- and five-year fixed rates account for about two-thirds of all mortgages in Canada — are tied to movements in the bond market. “Fixed-rates barely budged [following the cut], which makes sense, because the market was pricing in the 50 basis points, so it came in according to expectations,” he tells Wahi.

First-time buyers are overwhelmingly qualifying for mortgages based on the fixed rate, since these rates are lower today, notes Leduc. “Effectively this cut has zero impact on their qualifying,” he adds.

The main beneficiaries of the cut then are borrowers with variable rates, which represent a non-insignificant one-third of mortgage debt in Canada, according to the central bank. However, borrowers with conventional variable rates won’t see their monthly payments reduced. Instead, they’ll see more of their money going towards the loan’s principal and less towards interest. 

Homeowners with adjustable mortgages, meanwhile, stand to gain the most from the announcement. This type of rate, which represents about one quarter of variable mortgages, responds immediately to changes to the overnight right. Therefore, borrowers with these types of loans will see a lower payment on their next monthly bill. 

Besides the fact that affordability for most hasn’t improved post-cut, Lake sees two other reasons Canada’s housing market won’t heat up meaningfully as the fall market progresses.

Lake tells Wahi that she’s 99.99% confident in her assessment, in part because the Bank of Canada has one more rate announcement scheduled this year, on Dec. 11. Some homebuyers will wait to see if there will be yet another cut, she says. 

Meanwhile, new mortgage rules — which reduce minimum downpayments and monthly mortgage payments for some buyers — don’t take effect until Dec. 15. That’s another reason some may shelve property-purchasing plans, Lake suggests, as it will take time for the reality of the new rules to sink in. Leduc notes that as long as a homebuyer’s closing date is on or after Dec. 15, they can still benefit from the new mortgage rules on a home they buy today. “You don’t have to wait until the program is activated in December to take advantage,” he tells Wahi. 

Canadian housing market rebound likely delayed until 2025

The latest rate cut may not bring about big changes for most buyers and sellers, and the previous reductions have yet to reignite home prices. According to the latest available data from the Canadian Real Estate Association, the index price of a home in Canada was down 3% on a year-over-year basis as of September. Nonetheless, Leduc sees the late-October cut as a “positive signal” overall.

It will help support homebuying intentions, and, taken with the previous cuts and expected future reductions, should help pave the way for market recovery in 2025, he suggests. “It’s going to start building confidence,” he says. “I personally think we’ll see a very hot market for ‘25 and ‘26.” Lake agrees. “Psychologically, it is great for the consumer to hear that 3.75% [rate],” she says.

In the meantime, Canadians are continuing to cut back on spending, according to a recent TD Economics report. “While the Bank of Canada has begun an easing cycle, it will take time to see meaningful effects across the economy,” the report reads. “The full impact of easing is unlikely to be felt until the first half of 2025, when a rebound in housing activity should lift home-related purchases.”