Nobody is expecting the national housing market to roar into life on the back of the Bank of Canada’s decision to cut interest rates by 25 basis points on Wednesday.
But the move, which brings borrowing costs a notch lower for homebuyers and owners, was a broadly positive one for the housing and mortgage outlook – not least because it’s unlikely to be the last reduction in the current cycle, according to BMO chief economist Doug Porter (pictured top).
He told Canadian Mortgage Professional the decision, which was followed by prime rate cuts at Canada’s leading lenders, showed the central bank wasn’t inflexibly sticking by its rate hold since March and could be eyeing further moves.
“I think this is a flip of the dial in the right direction for the housing market,” Porter said. “I think it’ll be helpful. It shows that the Bank was not locked in, that they are poised to possibly cut further. Alongside that, of course, we’ve actually seen bond yields moving down pretty heavily in the last six weeks.”
Downward pressure on those yields as expectations of a Bank cut ramped up in recent weeks meant fixed rates ticked lower, a welcome boost to mortgage borrowers and homebuyers.
“Depending on which part of the yield curve you look at, yields are at their lowest level now in months. And some of that’s going to filter through, I believe in longer-term mortgages – it’s not just the variable rates that may be affected by this,” Porter said.
“So I do think it will add some support to the market. A quarter point isn’t going to be a game changer, but I think it’s a move in the right direction for sure.”
Home sales have risen in each of the last five months across Canada, although that’s only a mild improvement from the chilly 2024 housing market.
Back-to-back cuts could be an unlikely prospect for now
Most experts believe the market is likely to remain relatively quiet for the foreseeable future although some market watchers also have their eye on the Bank of Canada’s next decision, scheduled for October 29, to see whether another cut might drum up activity.
But Porter currently sees a temporary October pause by the Bank as its most likely move – partly because the federal government’s fall budget, scheduled to arrive just days after that decision, already looks set to widen its multibillion-dollar deficit.
Prime minister Carney said US tariffs and support for impacted industries, as well as commitments to boost NATO spending and the federal tax cut, will make the federal deficit “bigger than it was last year.”
That looming budget could play a role in shaping the Bank’s thinking in October, Porter said. “This is actually one of the reasons why we do lean to the view that the Bank might take a pass in October just so they can see exactly what’s in the budget,” he said.
“There is the potential for Ottawa to spend a lot more money and have an even bigger budget deficit. We don’t know yet, but that is a wild card for the Bank and they might want to hold off and wait to see what’s in that budget before deciding again.”
Don’t hold your breath on an impending market boom
Even a couple of cuts by the Bank of Canada between now and the end of the year probably wouldn’t cause a surge in housing market activity.
REMAX Canada’s fall housing market outlook indicated average prices across the country will likely fall by 6.5% in the coming months – boosting affordability, but likely not enough to bring a flock of buyers back to the market.
What’s more, the market’s performance is likely to vary sharply from one region to the next. “From seller-driven markets across much of Atlantic Canada and the Prairies, to buyer-friendly conditions in Ontario and BC, the nation’s housing market reflects a delicate balance,” REMAX Canada president Don Kottick said.
CMP
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