UPDATED: The fifth consecutive rate cut by the Bank of Canada (BoC), 50 BPS to an overnight interest rate of 3.25 per cent, will likely stimulate homebuying in 2025. But real estate industry insiders expect many condo buyers to remain on the sidelines - for now. 

Canada’s central bank made its second straight half-point reduction on Wednesday. 

The three key inflation indicators have reached the BoC’s target range of one to three per cent, but a one per cent increase to GDP in Q3, November labour data showing unemployment rose to 6.8 per cent, and reductions to immigration levels suggest softer growth on the horizon.

“Inflation is back to the two per cent target and lower interest rates are beginning to pass through to stronger spending by households,” Tiff Macklem, governor of the BoC, said in a statement Wednesday morning. “But the economy remains in excess supply and the growth outlook now appears softer than we projected in October.”

Housing activity has picked up, the governor said, a shift that has not gone unnoticed. Data from the Canadian Real Estate Association showed a 7.7 per cent spike in transactions from September to October. This pushed activity to the highest level since April 2022, driven largely by monetary policy.

Lower rates boost buyer confidence

Momentum from the rate cuts is expected to carry over into 2025, Phil Soper, CEO of Royal LePage in Toronto, told RENX Homes last week. He said the 50-basis-point cut in October led to transactions jumping 44 per cent in Toronto and 32 per cent in Vancouver year-over-year, activity which had not been seen following the three earlier quarter-point reductions.

The BoC has trimmed 1.75 per cent from the policy rate since it began the reductions during the summer.

Reaction to the announcement has been swift and generally positive.

"With another interest rate cut announced today, we anticipate this will further help build buyer confidence and drive housing demand, particularly in urban centres where affordability has been a significant barrier over the past couple of years," Sunny Hahm, founder of Vancouver-based Tandem Real Estate Strategy, wrote in an email to RENX Homes.

"This lowered interest rate will likely draw more buyers back to the market, establish a price floor for listed inventory, and help stabilize price expectations for both buyers and sellers heading into 2025."

Cut re-energizes the market

“I’m extremely excited” is how Adrienne Lake, a managing broker at Kitchener, Ont.-headquartered Corcoran Horizon Realty, feels about the latest cut. Corcoran Horizon operates across the Toronto region, and expects higher unit sales to continue in the Greater Toronto Area because of the move.

“It just makes the consumer feel much more buoyant, much more interested in re-engaging in the market.”

She agreed the 50-basis point cut in October was a major incentive for buyers. It had a stronger psychological impact on the market than three previous, smaller, 25-basis-point cuts, driving the increase in activity.

Lake predicts a strong start to the housing market in 2025, which will be positive for buyers and agents.

Mirroring Lake’s opinion is Steve Gupta, founder and chairman of The Gupta Group, a Toronto-based condo developer and hotel operator and owner. “I think it’s a step in the right direction,” for the market and homeowners with mortgages due in early 2025, he said.

But he also said buyers want more tapering. Prospective customers are sitting on the fence because they cannot meet the affordability test for a unit. Another 50-basis-point reduction would “really help the economy,” and further cuts would be a tremendous leg-up, Gupta added.

In terms of housing prices, Lake does not anticipate significant increases in 2025. She anticipates the condo market will catch up to other housing sectors next year but not until the current oversupply of inventory is consumed.

Further interest rate cuts will depend on job numbers and inflation, she said. If those factors are tamed, especially inflation, Lake expects more trimming, though likely restricted to quarter-point increments.

The looming, Trump-sized influence

In his comments, Macklem did note one wild card: threats that U.S. president-elect Donald Trump would impose tariffs on Canadian exports. He called that “a major new uncertainty.”

“These are things the Bank of Canada will do their best to head off and, once again, this points to more easing on the Canadian side,” Peter Norman, the vice president of Altus Group, said in an email exchange with RENX Homes.

Ray Wong, another vice president of Altus Group, expects further rate cuts in 2025, but the speed could depend on the U.S. Federal Reserve and other external factors.

“The bid-ask gap is slowly closing, and I think we’re going to see steady increases in activity next year, as a reflection of this year’s rate decisions,” Wong said. “Some owners and investors may try to get into the market a little earlier than their competitors, in which case they may come to the table with a slightly higher price to meet the bid-ask gap to secure certain properties”

Further reductions on the table

Macklem indicated the need for further rate cuts will be evaluated, as rates have been substantially reduced since the BoC reversed its actions to control inflation.

He anticipates a more gradual approach “if the economy evolves broadly as expected”, he said in a press conference.