Bank of Canada downgrade and what it means for the housing market

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The Bank of Canada announced today that it will cut its key overnight rate by 50 basis points to 3.25 percent, marking the fifth consecutive interest rate cut and the second “jumbo” cut in a row. This move is expected to provide significant relief to the housing market, reduce borrowing costs and stimulate demand at a time of slowing GDP growth and ongoing global uncertainty.

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In a statement, governor Tiff Macklem stressed that although inflation is now under control, with the consumer price index (CPI) hovering around the central bank’s two percent target, economic volatility remains. These include concerns about rising unemployment and potential impacts from US trade policies.

Here’s what real estate analysts have to say about the changing market conditions:

Low-stress bond yields at fixed rates: Ratehub.ca

Mortgage analyst Penelope Graham of Ratehub.ca notes that the Bank of Canada’s decision is in line with expectations, as bond yields rose to the 2.8 percent range ahead of the announcement. The dip may have downward pressure on fixed mortgage rates in the near term, although uncertainty about US inflation and Federal Reserve policy may dampen this effect. “The US CPI report showing inflation at 2.7 percent complicates the fall in yields,” he added.

‘Bidding gap narrowing’: Altus Group

Peter Norman, vice president at Altus Group Ltd., said the central bank’s acceleration measures were due to weak third-quarter GDP figures.

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“Yes, the CPI number went up in October, but not at a worrying level, so a small cut seemed unlikely,” Norman said. He also highlighted trade tensions and the potential impact on investor confidence as factors influencing the Bank of Canada’s decision. “The increase in trade disputes may affect business investment decisions,” he explained. “This points to more openness on the part of Canada.”

Norman expects the Bank of Canada rate to remain at around 2.5 per cent, setting the stage for increased movement in the housing market. “This should lay the foundation for a long-awaited revival in commerce and development,” he said.

Ray Wong, also of the Altus Group, suggested that the pace of future reductions will depend largely on the actions of the US Federal Reserve. “The bid-ask gap is closing slowly,” Wong said, referring to moderate conditions in the real estate market. “We will see continued growth next year, reflecting this year’s pricing decisions.”

Price cuts may intensify competition, home-seeker pricing: LowestRates.ca

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Price reductions also have an impact on home buyers. Leah Zlatkin, real estate agent and analyst for LowestRates.ca, described the current real estate market as dynamic but challenging.

“Homebuyers in the GTA (Greater Toronto Area) are dealing with strong sales and rising prices coupled with economic uncertainty and affordability concerns,” he said. Zlatkin warned that today’s price cuts could intensify competition, driving out prices for those expecting a market downturn.

‘Consumers will feel the urgency to act before affordability erodes’: Royal LePage

Phil Soper, chief executive officer of Royal LePage, noted that the Bank of Canada’s rate cuts are driving demand.

“Buyers have woken up to the fact that property prices are rising again, and many will feel the urgency to act before affordability erodes,” Soper said. “As a result, we expect a ‘pull-forward’ of activity and an early start to the spring housing market. Adding to this momentum are the changes in lending policies that come into effect on December 15, which we believe will entice many left-out consumers to take advantage of their expanded borrowing power.”

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‘Cuts may boost December employment’: NerdWallet

The Bank of Canada also talked about upcoming changes to mortgage rules aimed at improving affordability for first-time buyers. These changes, along with lower prices, are expected to drive consumer demand and possibly increase real estate prices.

Clay Jarvis, a mortgage analyst for NerdWallet, emphasized the impact of demand. “The Canadian housing market is rebounding after October’s rate cut,” Jarvis said. “Today’s reduction may increase activity in December, particularly in markets such as Ontario and BC, where lower payment requirements will come into effect.”

Urban markets offer better opportunities: Coldwell Banker

Despite a general sense of optimism, some market watchers remain cautious. Dean Artenosi, real estate agent and owner of the Coldwell Banker Real Estate Center, advised buyers to consider suburban markets. “Ownership in big cities may not be possible,” he said, suggesting that urban markets offer better opportunities for long-term investment.

• Email: shcampbell@postmedia.com

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