Aspiring homebuyers hoping to see another rate cut from the Bank of Canada will have to wait until at least the next interest rate announcement at the end of July.
The Bank of Canada announced on June 4 that it would be staying the course with its 2.75% benchmark interest rate. The last cut came in January when Canada’s central bank dropped the rate 0.25% (25 basis points).
The Bank’s reasoning for keeping rates where they are stems from the uncertainly surrounding trade and tariffs, and hotter underlying inflation in May.
“The US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries,” states the media release from the Bank of Canada. “However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened.”
The Bank also said, excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up. Recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs.
It also noted “housing activity was down, driven by a sharp contraction in resales,” however CREA’s Senior Economist Shaun Cathcart noted that preliminary results from across Canada suggest that the market could be on track for somewhat stronger sales and stabilization in prices.
Is now a good time to buy a home?
Lower interest rates generally make it easier to qualify for a mortgage and can help make payments more affordable for owners who choose to go with a variable rate.
Currently, you can get qualified for a mortgage on REALTOR.ca with a rate as low as 3.74% (as of June). The average rate for five-year fixed terms is back above 4%. Two years ago, aspiring homebuyers seeking five-year fixed terms (a popular option for Canadians) were faced with rates reaching more than 6%.
Although interest rates have been steadily dropping, many Canadians remain leery when it comes to making big purchases and taking on more debt. Home sales in Canada have been declining, with the country’s biggest and most expensive markets — the Greater Vancouver Area and the Greater Toronto Area — feeling the effects the hardest. In May, for example, the Toronto Regional Real Estate Board recorded a 13.3% dip in sales compared to a year ago, while Greater Vancouver REALTORS® reported an 18.5% decrease.
More supply and less demand typically puts downward pressure on prices, but owners and investors who bought during the frenzied markets from mid-2020 to early 2022 are less willing to list their homes at a loss, which is contributing to a stalemate between buyers and sellers. However:
“Given the increasing potential for a rough economic patch ahead, the risk going forward will be if an average number of people trying to sell their homes turns into a large number of people that have to sell their homes, and that’s something we have not seen in decades,” Cathcart recently said.
Are interest rates expected to still come down?
Many economists are still forecasting further rate cuts in 2025, but it depends on several factors. Doug Porter, Chief Economist with BMO Capital Markets, said he believes the Bank of Canada’s rate will hit 2% by December.
“We still expect further rate cuts. We think, as does the Bank, we expect growth to weaken markedly in the next couple of quarters,” he was quoted as saying in an article from Reuters.
Financial markets are currently anticipating one, possibly two, further cuts this year.
What are the implications for home buyers?
It all depends on where you live. While Toronto and Vancouver are experiencing declines, other mid- and large-size Canadian markets remain more active. Ottawa, Edmonton and Saskatoon, for example, are seeing high competition for well-priced properties.
Incentives from the federal government have made it easier in some aspects. For example, first-time homebuyers looking to purchase new builds valued at or under $1 million can benefit from a tax cut that can save you up to $50,000.
“While interest rates have come down considerably from a year ago, they are still quite a bit above where they were for most of the last 15 years and home prices, in many parts of the country, reflect the rates people were getting back then,” Cathcart told us. “It’s still not easy to get into the market in a lot of parts of the country, but it’s definitely easier compared to the last three years.”
Why should you use a REALTOR®?
Your REALTOR® is your personal real estate MVP. While you’re figuring out financing, they can already get to work behind the scenes. If you’re buying, this means setting up searches for you, attending open houses on your behalf, and asking around to their connections about what might be coming available.
If you’re selling, your REALTOR® can get to work marketing your property right away, getting it ready for staging and compiling documentation, all without severely disrupting your routines.
By now you know interest rates impact the Canadian real estate landscape and that likely isn’t about to change any time soon. Making the right decision at the right moment seems like a lot of pressure when you don’t know where interest rates will be on a month-to-month basis.
Thankfull, REALTORS® monitor market trends and housing data to make sure, whether you’re buying or selling, your best interests are being kept top of mind.
Don’t put it off any longer. Scan the QR code below and find your professional REALTOR® today!
— REALTOR.ca