A blessing in disguise?

Together with the previous announcement on June 5 – the first reduction in four years – these were quite possibly the most anticipated rate announcements in years.

Succession of rate cuts

While perhaps not significant decreases, they are ones that prospective homebuyers, homebuilders and homeowners with mortgage renewal on the horizon have been waiting for. The hope was that the June reduction was just the beginning of a succession of rate cuts, spurring activity in homebuying and building.

Is the dip in ownership costs provided by the slight drops in interest rates and home prices a turning point for housing affordability? RBC Economics thinks it just might be.

“There’s a long way to go, but affordability is heading in the right direction,” RBC says in a report from July 5. “We think ownership costs have room to fall further in the period ahead. In June, the Bank of Canada initiated what we expect will amount to a full two percentage-point cut in its policy rate to three per cent by the end of 2025, which will bring down long term rates as well (but to a lesser extent). Steady gains in household income will also help reduce some of the (intense) stress homebuyers face.”

While these developments may take some time to play out, GTA real estate is characterized by supply and choice.

Window of opportunity

“The GTA housing market is currently well-supplied,” says TRREB Chief Market Analyst Jason Mercer. “Recent homebuyers have benefited from substantial choice and therefore negotiating power on price. Moving forward, as sales pick up alongside lower borrowing costs, elevated inventory levels will help mitigate against a quick run-up in selling prices.”

And while Canada’s employment picture has seen some challenging results recently, much of the rise in unemployment is coming from students and part-timers. This further means, RBC says, the June labour market data increases the odds that BoC will cut rates in July.

For well-prepared and confident prospective homebuyers, then, this represents opportunity. Over the long term, high population growth means strong demand for homeownership. Short- and mid-term, interest rate reductions, price relief and a cautious market all amount to something of a blessing in disguise.