Today, the Bank of Canada lowered its overnight lending rate for the second time this year, bringing it down by 0.25% to 4.5%. Many experts saw this coming since inflation in Canada cooled to 2.7% in June and is expected to keep dropping.

Over the past two months, the overnight rate has fallen by a total of 0.5%. But, the first rate cut in June didn’t cause a big jump in the housing market. Will this latest cut be enough to get buyers interested?

High Home Prices Still a Concern for Buyers

After the first rate cut in June, home sales didn’t pick up as much as expected. National home sales dropped by 10.9% from May to June, with Greater Vancouver and Greater Toronto seeing sales drop by over 10%.

Because of the slow market in spring, the Canadian Real Estate Association (CREA) adjusted its forecast for the year, now expecting home sales to grow by 6.2% instead of the 10.5% predicted in April. This slowdown is causing a build-up in available homes, with the Toronto Regional Real Estate Board (TRREB) reporting a 67.4% increase in listings compared to last year.

One reason buyers might be hesitant is that they’re worried about more than just interest rates. A recent survey by Zoocasa found that 42.3% of people were most concerned about rising home prices, followed by interest rates (25.6%) and economic uncertainty (14.9%).

Even though buyer interest is low, home prices have stayed steady or even risen in many areas this year. For example, prices for single-family homes have gone up by more than 6% since January in cities like Calgary, London, and Winnipeg.

With high home prices being such a big concern, it’s unclear if two rate cuts will be enough to bring buyers back. The Zoocasa survey also showed that most people are waiting for bigger rate cuts before they consider buying a home.

What to Expect with Rate Cuts

While it’s hard to say exactly how many more rate cuts will happen this year, if inflation keeps going down, homebuyers can likely expect at least one or two more cuts in 2024. According to a recent Reuters poll, Canada’s big banks expect there to be a total of four rate cuts this year. That means after today’s cut, there could be two more.

In the U.S., inflation slowed to 3% in June, which makes it likely that rate cuts might happen there soon, too. This gives the Bank of Canada more confidence to continue cutting rates without risking our currency or increasing inflation again, says Penelope Graham, a mortgage expert at Ratehub.ca.

Mortgage Rates Trending Lower

Since the start of the year, most 5-year fixed mortgage rates have been going down. Recently, some of these rates have dropped as low as 4.64%. This could be a great time for buyers to lock in a pre-approved rate, which can save thousands over the life of their mortgage.

However, Graham advises being careful when choosing the best mortgage rate type. “While it might be tempting to go for a variable rate when cuts seem likely, it’s important to consider your own risk tolerance and financial situation. The last few years have shown us that rate direction is never certain,” she says.

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