For the second time this year, the Bank of Canada cut its overnight lending rate today, this time by 0.25% to 4.5%. Since Canada's inflation rate dropped to 2.7% in June and is predicted to continue declining, many experts predicted this.
The overnight rate has dropped by a total of 0.5% in the last two months. However, the June rate drop did not result in a significant spike in the housing market. Will consumers be piqued enough by this most recent cut?
Buyers Are Still Concerned about High Home Prices
The initial rate drop in June did not cause home sales to increase as much as anticipated.Between May and June, national home sales fell by 10.9%, with sales in Greater Vancouver and Greater Toronto falling by more than 10%.
The Canadian Real Estate Association (CREA) revised its year growth prediction for home sales, predicting 6.2% growth instead of the 10.5% expected in April due to the weak spring market. The number of available houses is increasing as a result of this slowdown; according to the Toronto Regional Real Estate Board (TRREB), there have been 67.4% more listings this year than there were the previous.
Buyers may be reluctant for a variety of reasons, including concerns about factors other than interest rates. According to a recent Zoocasa study, rising housing costs were the top worry for 42.3% of respondents, followed by interest rates (25.6%) and economic uncertainty (14.9%).
In several locations this year, property values have increased or remained stable despite the lack of buyer interest. For instance, since January, single-family home prices in Calgary, London, and Winnipeg have increased by over 6%.
It is doubtful that two rate reductions will be sufficient to entice purchasers back given how serious a problem excessive housing prices are. The majority of respondents to the Zoocasa study said that they are delaying home ownership until after more significant rate reductions.
Rate Cuts: What to Expect
Although the number of rate cuts this year is uncertain, homebuyers should anticipate at least one or two more in 2024 if inflation continues to decline. The major banks in Canada anticipate four rate cuts this year, per a recent Reuters poll. This implies that there might be two more cuts following today's.
Since inflation in the US dropped below 3% in June, rate cuts there are also likely to occur shortly. Penelope Graham, a mortgage specialist at Ratehub.ca, believes this gives the Bank of Canada more confidence to keep lowering rates without endangering our currency or driving up inflation once more.
Mortgage Interest Rates Are Declining
The majority of 5-year fixed mortgage rates have decreased from the year's beginning. Some of these rates have decreased recently to as low as 4.64%. Buyers may want to take advantage of this opportunity to lock in a pre-approved rate, which can save thousands of dollars over the course of the mortgage.Graham does, however, exercise caution when selecting the appropriate form of mortgage rate. When cuts are probable, it may be tempting to choose a variable rate, but it is crucial to take your own risk tolerance and financial circumstances into account. We have seen over the past few years that rate direction is never predictable," she adds.