Canada’s central bank has reduced the overnight interest rate by 25 bps to 2.5 per cent, its first cut since March and a decision welcomed with open arms by the country's housing, commercial real estate and development industries.

The Bank of Canada made the move as the economy showed signs of weakness and the risk of higher inflation decreased. It noted the country’s GDP declined by approximately 1.5 per cent in Q2 due to tariffs and trade issues, with exports and business investment also facing a downturn.

While consumption and housing activity grew at a “healthy pace,” the central bank said it expects household spending to be weighed down by slowing population growth and weakness in the labour market.

CPI inflation was 1.9 per cent in August.

Both the Bank of Canada and the U.S. Federal Reserve moved in lockstep, with the U.S. central bank also announcing a 25 bps cut Wednesday afternoon for similar reasons. 

The Canadian Mortgage Brokers Association of Ontario praised the rate cut, saying it encourages "economic growth at a time of uncertainty” and efforts to maintain "consumer and investor confidence.”

The association said the decision aligns with the Canadian government’s actions to grow the housing sector and incentivize investment into building new housing supply, supporting housing affordability.

Canadians with variable-rate mortgages will also benefit in the short term, while fixed-rate mortgage holders will have to wait to reap any rate relief.

How the rate cut could affect housing, CRE

Lower borrowing costs “should stimulate some fresh momentum heading into the fall, traditionally the second-busiest season for home sales,” Phil Soper, president and CEO of Royal LePage, said in an emailed statement to RENX Homes.

For higher-priced provincial markets such as Ontario and British Columbia, the rate cut may be the spark that entices buyers to take another look in the months ahead, he continued.

For the multifamily sector, a 25 bps cut means developers and bridge borrowers benefit immediately, according to Dayma Itamunoala, vice-president of Colliers' national multifamily advisory group. 

Organizations carrying floating debt or bridge loans will be “direct beneficiaries” of the reduction, as a lower prime rate reduces carry costs. This is valuable to companies currently building or in the middle of a value-add program, he said.

Itamunoala gave the example of a developer using bridge or construction financing with a $20-million loan. The rate cut will mean the developer will pay approximately $50,000 less in annual interest. 

However, long-term owners will see little change until the five-year yield moves, he added. Currently at 2.74 per cent, the cut “won’t materially affect five-year debt for stabilized multifamily assets, since the move is already priced in,” Itamunoala said. The bond curve must decrease for that needle to shift.

On the commercial real estate front, the rate cut was also cheered. 

Called the “most welcome news for our commercial real estate clients” and the industry overall by Mark Fieder, principal and president of Avison Young Canada, he said it will provide relief and momentum for investors, some of whom have been on the sidelines for extended periods of time.

Under-performing asset classes will be seeing the most progress, Fieder said. For example, the office class “could re-emerge for the right investors in a lower interest rate environment.” 

He predicts the multifamily and industrial classes, which have been consistently strong performers, will continue to grow. Fieder says he will closely observe the retail class, particularly grocery-anchored properties.