The Bank of Canada's (BoC) move Wednesday morning to trim another half point from its overnight interest rate in the wake of lower inflation is music to the ears of most executives in the country's housing, commercial real estate and development sectors.

The central bank reduced the overnight interest rate to 3.75 per cent this morning, its fourth consecutive interest rate reduction from a high of five per cent at the start of the summer.

The bank has eased on its monetary policy in the wake of months of lower and more stable inflation. Canada's Consumer Price Index fell to 1.6 per cent in September, which is within the bank's target range.

Though shelter cost inflation remains elevated, the BoC said it has also begun to ease - and part of this would be as a result of lower interest rates reducing the carrying costs of mortgages and other housing loans.

Excess supply and falling gasoline prices have also contributed to reduced inflation – which is no longer as broad-based as it has been for the past couple of years.

“All this suggests we are back to low inflation . . . Now our focus is to maintain low, stable inflation,” BoC governor Tiff Macklem said in Wednesday morning remarks following the announcement. “We need to stick the landing.” 

Canada's economic performance is uneven

The Canadian economy is expected to grow by 1.75 per cent in the second half of the year, with the BoC’s expectation for the global economy to expand by approximately three per cent over the next two years. But signs of a slowdown in the Canadian economy were noticed across the consumption and labour market sectors.

In the housing sector, residential investment growth is projected to increase “as strong demand for housing lifts sales and spending on renovations.”

The reductions should be positive for the housing industry, making borrowing for construction and development more affordable and easing mortgage payment burdens for new, or potential home buyers.

"With inflation now back around the two per cent target, Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the one per cent to three per cent range," the BoC announcement states. "If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further.

"However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. We will take decisions one meeting at a time. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the two per cent target."

A "refreshing change in market dynamics"

“The recent decision by the Bank of Canada to cut interest rates by 50 basis points marks a pivotal moment for the housing market,” Derek Fenton, the vice-president of marketing and sales for Vancouver-based Zenterra Developments, told RENX Homes in an email exchange. “This significant reduction serves as a compelling incentive for prospective homebuyers, likely leading to increased activity and a refreshing change in market dynamics.”

Fenton anticipates a more vibrant market environment to entice buyers back off the sideline, especially in growth areas in Metro Vancouver such as Surrey, Langley and the Fraser Valley. This is expected to be mirrored in growth areas surrounding other major urban centres.

Debbie Cosic, CEO and founder of In2ition Realty, a Toronto-based pre-construction condo brokerage, also welcomed the news.

There is substantial pent-up demand for pre-construction condos from buyers she called “tip-toe investors” who typically purchase units for family members. She said every interest rate cut brings more of these cautious buyers into the market.

The commercial real estate industry should also be pleased, Mark Fieder, principal and president of Avison Young Canada, said in an email to RENX Homes.

“With this move, I expect investments to become more attractive – opening the door for more entry from institutional investors in particular.”

But Peter Norman, vice-president and chief economist at Altus Group, said the BoC’s move is unlikely to trigger a spate of commercial real estate investments until there is greater confidence the country has reached “balanced monetary conditions.” 

Developers have told Altus cuts of 200 to 300 basis points will be needed to truly move the needle, he added. However, a surge in confidence should be expected in 2025, Norman said. 

More work needed to encourage new housing

Cosic said though this is a positive change, governments still represent the biggest roadblocks to homebuyers in Ontario.

She identified the need for longer amortization periods, a “functional” first-time homebuyer program for the pre-construction industry backed by a government bond, that banks must “loosen their purse strings”, and further reductions in government red tape.

“We're thrilled the interest rates are starting to head in the right direction, but this is only the beginning step to make homeownership affordable,” she said. 

If the Canadian economy develops in line with the BoC’s forecast, Macklem said more interest rate tapering should be on the horizon.

The next scheduled rate announcement is Dec. 11. The BoC will publish its next full outlook for the economy and inflation, including risks to the projection, on Jan. 29, 2025.