The Canada economy grew by a modest 1% in the third quarter of 2024. That fell short of the Bank of Canada’s (BoC) forecast of 1.5%. The figure may seem minor, but it matters for interest rates and homebuyers. In this post, I explain why.
This post covers GDP data for the third quarter of 2024. The figures below are from that time, and rates have moved a great deal since then.
The timing is important. The BoC had already started cutting rates after inflation reached its 2% target.
Why Slow Growth in the Canada Economy Matters
For several years, the Bank of Canada fought inflation with a series of interest rate hikes. Now inflation is back within the BoC’s target of 2%. As a result, the central bank has begun to cut rates, including a 0.50% reduction in October 2024 (Bank of Canada).
Growth of 1%, below the expected 1.5%, suggests the Canada economy may be struggling to keep its momentum under the weight of higher rates. This could push the BoC toward further cuts to stimulate activity.
Slower growth, combined with inflation under control, creates room for the BoC to ease policy. That would support consumer spending and business investment. With borrowing costs still high, lower rates could also help revive demand in sectors like housing, which the earlier hikes hit hard.
Mortgage Lending: Easing the Burden on Homebuyers
Lower interest rates would directly help mortgage borrowers. After several years of rising costs, a rate cut would make mortgages more affordable for first-time buyers and for owners renewing their loans. For many Canadians, smaller monthly payments would ease financial pressure. This is especially true for people with variable-rate mortgages or renewals on the horizon.
In addition, cheaper borrowing could bring sidelined buyers back into the market. That extra demand could help steady home prices, prevent further declines and promote a more balanced market. In short, a softer Canada economy can lead to better borrowing conditions for households.
If your renewal is coming up, you may also find my post on the stress test change for mortgage renewals useful.
Long-Term Effects on Housing and the Canada Economy
The Canadian housing market has faced major challenges because of the BoC’s aggressive rate hikes. A gentler approach, with further cuts, could support housing by making financing more affordable. That would likely encourage more buyers to enter the market. It could also give a much-needed boost to both residential and commercial real estate.
Lower borrowing costs would also make it easier for existing owners to refinance. As a result, their mortgage payments would drop and they would have more money to spend. That, in turn, could help stimulate the Canada economy as consumers feel more confident about their finances.
What Homebuyers and Homeowners Should Do
As these changes unfold, buyers and owners should stay informed about the effect of further rate cuts on the Canada economy and on their own plans. Here are a few practical steps:
- Get a mortgage pre-approval so you know your real budget before you shop.
- Check your renewal date, and start comparing options a few months ahead.
- Ask your lender how a lower rate would change your monthly payment.
- Keep an emergency fund, because rate paths can change quickly.
If you want to buy or renew a mortgage, now could be an excellent time to talk to a trusted real estate professional. A professional can help you navigate these changes, make well-informed decisions and spot opportunities that arise in a changing market.
For the inflation side of this story, read my post on October 2024 inflation at 2.0%. To see what the BoC did next, read about its cut to 3.25%.
Final Thoughts
The Canada economy may have eked out 1% growth in the third quarter of 2024, below the Bank of Canada’s expected 1.5%. Even so, this could pave the way for further rate cuts. With inflation under control and growth slowing, the BoC has room to ease policy and make borrowing more affordable. That would bring relief to homebuyers, owners with expiring mortgages and the wider housing market.
For official GDP releases, visit Statistics Canada. Stay tuned for updates as we track these economic trends together.
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Talk to a Mississauga Real Estate Agent
Do you have questions about what this means for your own plans? I am happy to help. Please contact me here or call 416 908 5600. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage.
Disclaimer: this article was published on 15 January 2025 and reflects the information available at that time. Interest rates, prices, and government programs change, so check the current position before acting on anything here. It is provided for information only and is not financial, mortgage, tax or legal advice. A. Q. Mufti is a registered Sales Representative with RE/MAX Real Estate Centre Inc., Brokerage, Ontario, Canada.
