Bank of Canada rate cuts could soon change the housing market. Given current economic conditions, experts predict that the Bank of Canada (BoC) could lower its policy interest rate by 0.5% by the end of 2024. Further cuts could follow in early 2025. These forecasts rest on factors such as a weaker labour market and rising unemployment. Economists believe bigger cuts are needed to avoid a recession and ease mortgage pressure (blogTO) (Mortgage News Canada). But what does this mean for the housing market, and could it lead to higher home prices?
In January 2025, this post first appeared on this site. The figures, forecasts and dates below come from the time of writing. Some may have changed since.
Bank of Canada rate cuts and housing prices
Historically, interest rate cuts have a strong effect on the housing market. Lower rates usually reduce the cost of borrowing, so it becomes easier for buyers to afford a mortgage. When rates fall, people with variable-rate mortgages benefit right away through lower monthly payments. Fixed mortgage rates also tend to come down. As a result, demand for homes rises, because more buyers enter the market with more buying power.
In Canada, the BoC’s policy rate closely links to the prime rates at commercial banks. Those prime rates, in turn, drive variable mortgage rates. As mortgage rates drop, housing becomes more affordable for a larger group of people, especially first-time buyers. This jump in demand usually pushes home prices up, because more buyers compete for the same homes.
You can find more on the link between rates and the housing market here:
Could home prices rise further?
If the BoC makes a 0.5% cut in the coming months, it would signal a big shift away from the tight policies of the past few years. The housing market already has strong demand. So Bank of Canada rate cuts could lead to further price increases as more buyers rush to use lower borrowing costs.
However, while rate cuts may lift demand, they also risk making affordability worse in some markets. Cities like Toronto and Vancouver have already seen rapid price growth over the past decade. Lower rates could push those prices even higher. That would make it harder for buyers, especially those with lower incomes, to find affordable housing. In short, rate cuts may help people who are already in the market or who can qualify for a mortgage. Yet they could worsen affordability for others.
For more detail on how a rate cut could affect prices, see:
Mortgage renewal pressure
Another factor behind the forecast for Bank of Canada rate cuts is the coming mortgage renewal crunch. Over the next two years, nearly half of all Canadian mortgages will come up for renewal. Many of them were locked in at historically low rates. Borrowers could face payment increases of 30 to 40% when they renew (Mortgage News Canada). A drop in rates could help ease this pressure and give relief to owners facing large jumps in their monthly payments.
You can read more about the renewal challenge here:
- Mortgage Renewal Crisis Looming
- How Much Canadian Homeowners Can Expect Their Mortgage Payments To Rise
What Bank of Canada rate cuts mean for GTA buyers
For buyers in Mississauga and across the GTA, the key is to plan ahead. First, get a pre-approval now, so you know your budget before competition picks up. Next, ask your lender how a lower rate would change your payment on a fixed or a variable mortgage. Then decide how much of any saving you want to put toward a larger home, and how much you want to keep as a cushion.
If you own a home and your renewal is coming up, start early. Compare your options a few months before your term ends. My post on the stress test change for renewals explains one rule change that may help. You can also read about the latest rate cut and how it helps mortgage holders.
The bigger picture
Bank of Canada rate cuts will likely bring some quick relief to borrowers. Still, the wider housing market could see both good and bad effects. On one hand, lower rates could boost demand, raise competition and push up prices. On the other hand, that rising demand could deepen affordability problems, especially in already expensive cities. For buyers, owners and policymakers alike, the next few months will be key to the future of Canada’s housing market.
For more updates and news, these resources can help:
Talk to a Mississauga real estate agent
Do you have questions about rate cuts, your renewal or your buying plans? I am happy to help. Please call me at 416 908 5600 or send me a message. And if this post helped you, you can also leave a Google Review. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage.
Disclaimer: this article was published on 17 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.
