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After much anticipation, the Bank of Canada announced a significant rate cut of 50 basis points today, lowering the overnight lending rate to 3.75%. This marks the fourth rate cut of 2024 and follows a sharp decline in Canadian inflation to 1.6% in September—the lowest level in three and a half years.
For much of the year, prospective homebuyers have put their plans on hold, waiting for borrowing costs to drop. But with four interest rate cuts, an improved housing supply, and a substantial drop in inflation, market conditions are now better suited for buyers to return to the market. This begs the question: will activity heat up before the year ends, or will buyers wait for further interest rate drops to make their move?
The Market Shows Promising Signs of Recovery
This time last year, the Bank of Canada held the overnight lending rate at 5%, causing many prospective homebuyers to feel uncertain about the real estate climate. In a Zoocasa survey from the fall of 2023, 62.1% of homebuyers said they had delayed buying a home, with rising interest rates cited as the biggest reason.
This fall, the outlook feels a little more positive. According to the latest report from the Canadian Real Estate Association (CREA), national home sales dropped by 5% month-over-month in September, primarily due to seasonal trends. However, year-over-year data reveals that most real estate markets are experiencing significantly higher activity compared to 2023.
National home sales are up 6.9% year-over-year, while Halifax-Dartmouth, Hamilton-Burlington, Winnipeg, Montreal, and Victoria have all experienced double-digit percentage increases. In the Greater Toronto Area, buyers are also coming off the sidelines more this fall than last year, especially in the detached and townhouse sector. According to the latest TRREB release, year-over-year detached sales increased by 10.5%, and townhouse sales increased by 14.3% in September.
A recent Zoocasa report also revealed that the average mortgage payment in 20 Canadian cities has declined year-over-year from 2023 to 2024, with Greater Vancouver’s average down by 13.6% and Greater Toronto’s by 14.6%. As mortgage payments become more affordable, prospective homebuyers are likely to regain confidence in the market and return by spring 2025.
What’s Happening with Mortgage Rates
Average 5-year fixed rates peaked at 5.49% at the end of 2023 before falling to 4.09% in September of this year. The last time average 5-year fixed rates were lower than 4.09% was in the summer of 2022. With all signs pointing to interest rates continuing to plunge, variable mortgage rates may grow in popularity. However, borrowers should consider their own personal risk tolerance before making any sudden changes.
“With mortgage rates frequently changing, this is a volatile time to shop for a mortgage or to be coming up for a renewal. It’s important for borrowers to explore all of the rate options available to them in the marketplace, and assess what type of rate, term, and length would be most advantageous. Working with a mortgage professional is key when establishing your personal rate strategy when rates are trending lower,” advises Penelope Graham, mortgage expert at Ratehub.ca.
According to Ratehub.ca’s mortgage payment calculator, a homeowner who made a 10% down payment on a $669,630 home—the average national price in September 2024, as reported by CREA—would have a monthly mortgage payment of $3,721 with a 5-year variable rate of 5.30% amortized over 25 years. Following the latest 50-basis point reduction, their variable rate would drop to 4.8%, decreasing their monthly payment by $178 to $3,543.
Do you have questions about the recent rate drop or conditions in your local market? Our real estate agents are here to help. Give us a call today to speak to an agent in your area.
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