On September 4, 2024, the Bank of Canada (BoC) made a third consecutive 25 basis point cut to its policy interest rate, lowering it from 4.5% to 4.25%. This decision aligns with the central bank's efforts to stimulate the economy as inflationary pressures gradually ease. The BoC has signaled further cuts may be on the horizon depending on incoming data and economic conditions, raising the possibility of deeper reductions in the future.

What Prompted the Rate Cut?

Several key factors influenced the BoC's decision to lower rates:

• Easing Inflation: Inflation in Canada has been steadily declining, with the July Consumer Price Index (CPI) showing a rise of 2.5%, down from 2.7% in June. The BoC is aiming to bring inflation closer to its 2% target(Daily Hive Van,Yahoo Finance Canada).
• Global and Domestic Economic Conditions: Canada’s economy showed sluggish but positive growth in the second quarter, though excess supply and price increases in key sectors like housing continue to keep inflation elevated(Wealth Professional Canada).
• Housing Market Concerns: High shelter costs remain a key contributor to overall inflation, though Governor Tiff Macklem indicated that these costs are starting to ease. However, housing prices could still rise as pent-up demand among buyers re-enters the market(Yahoo Finance Canada).

Impact on Homeowners and Buyers

The latest interest rate cut has immediate implications for Canadians, especially those involved in the real estate market:

• Mortgage Rates: For homeowners with variable-rate mortgages, monthly payments will decrease. This will provide some relief to borrowers, though experts suggest that the cut is not substantial enough to significantly revive housing activity(Yahoo Finance Canada).
• Home Affordability: While fixed-rate mortgages are less directly impacted by the overnight rate, the BoC’s policy still indirectly affects them via bond yields. Continued rate cuts may improve affordability, allowing more buyers to enter the market.

Economic Outlook and Predictions

Economists anticipate further rate cuts in the upcoming months. There is speculation that the BoC may opt for more aggressive cuts, with some predicting the policy rate could fall to 3.75% by year’s end. The BoC's cautious yet optimistic outlook suggests it will closely monitor inflation data and economic performance before making additional moves(Wealth Professional Canada, Yahoo Finance Canada).

Tips for Homebuyers and Sellers

• Buyers: If you're in the market for a new home, this rate cut presents an opportunity to secure more favorable mortgage terms. With housing costs stabilizing, it may be a good time to consider making a move.
• Sellers: As the market adjusts to these lower rates, sellers may see increased activity, especially if borrowing costs continue to fall in the coming months. Pricing your property competitively will help attract buyers looking to take advantage of the lower rates.
• Investors: Keep an eye on economic indicators like inflation and job growth. Real estate investments may become more attractive as borrowing costs decrease and demand picks up.

Conclusion

The Bank of Canada's decision to cut rates for the third consecutive time highlights its commitment to addressing inflation and supporting economic growth. As the market adjusts, buyers, sellers, and investors should remain informed and ready to capitalize on the opportunities presented by these changing conditions.

For more insights on how these changes will impact the real estate market, visit Fraser Valley Real Estate Board and Real Estate Board of Greater Vancouver.