Interest Rate Announcement: Bank of Canada Cuts Rate to 3.75%

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In a significant move, the Bank of Canada has announced a jumbo half-point cut to its benchmark interest rate, reducing it to 3.75%. This marks the fourth consecutive interest rate cut, largely attributed to cooling inflation, which fell to 1.6% in September—its lowest level since February 2021. This decision reflects the Bank's ongoing commitment to support economic growth while maintaining inflation close to its target.

The Impact of Interest Rates on the Canadian Housing Market

The recent reduction in interest rates is expected to positively influence the Canadian housing market. According to a Leger survey conducted by RE/MAX as part of the 2024 Fall Housing Market Outlook Report, the mere anticipation of lower rates has significantly boosted confidence among first-time homebuyers. Notably, 25% of Canadians are actively saving for a home purchase, with the majority being Gen Zs aged 18-24 (35%).

However, the benefits of this lower interest rate may not reach all current homeowners. A concerning 14% of Canadians facing mortgage renewals have expressed the need to sell their homes in the near future due to financial strain.

Opportunities for Homebuyers

This 50-point rate cut is excellent news for prospective homebuyers, as it makes borrowing more affordable. With property prices still below their peak and an increase in housing inventory, buyers now have more options and time to make informed decisions. However, market conditions are expected to tighten in the spring of 2025, so interested buyers should act quickly to capitalize on current favorable conditions.

A Look Ahead: The 2024 Housing Market

As we move into the fall, the market often provides early indicators for activity leading into early 2025. With interest rates easing, more buyers are beginning to step off the sidelines, contributing to a more robust housing market. While the fall market may not reach historical highs, the consumer-driven trend is essential for shaping future conditions.

Christopher Alexander, President of RE/MAX Canada, emphasizes that the market's trajectory will largely depend on consumer activity and potential further actions by the Bank of Canada.

Upcoming Bank of Canada Interest Rate Announcements

The Bank of Canada typically announces its decisions regarding the overnight rate target eight times a year, usually on Wednesdays. Here’s the schedule for 2024:

·         Wednesday, January 24

·         Wednesday, March 6

·         Wednesday, April 10

·         Wednesday, June 5

·         Wednesday, July 24

·         Wednesday, September 4

·         Wednesday, October 23

·         Wednesday, December 11

The latest decision reflects the Bank's ongoing policy of balance sheet normalization and a response to the current economic climate.

Economic Overview

The Canadian economy has shown resilience, growing at approximately 2% in the first half of the year and projecting 1.75% growth in the second half. Consumer spending remains steady, although per capita consumption is declining. Exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The unemployment rate, standing at 6.5% in September, indicates a soft labor market, particularly affecting young people and newcomers to Canada.

Looking ahead, the Bank of Canada forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026, supported by lower interest rates that are expected to bolster consumer spending and residential investment.

Conclusion

With inflation now around the 2% target and signs of economic stabilization, the Bank of Canada’s recent interest rate cut is a pivotal moment for both consumers and the housing market. Buyers should take advantage of these lower rates while the opportunity lasts.

For more insights and updates on the Canadian housing market and interest rates, stay connected with RE/MAX President.