Finally, a break in the interest rate environment

For the first time in four years – since the pandemic, in fact – the Bank of Canada on June 5 finally made the long-awaited decision to reduce its target for the overnight rate to 4.75 per cent.

While not a large reduction, it’s the move that prospective homebuyers, homebuilders – and even homeowners with mortgage renewal on the horizon – have been waiting for. The hope is that it’s just the beginning of a succession of rate cuts, spurring activity in homebuying and building.

Jolt to the market

“With the rate cut, while not a big one, and not close to the four-per-cent increase over the last two years, the market may see one thing and one thing only, a changed sentiment,” says Jesse Abrams, co-founder and CEO of Homewise, a Toronto-based mortgage brokerage. “News articles, public opinion and market expectation will be that rates are lowering. Most Canadians don’t fully grasp how large the increase was to the policy rate over the last couple of years.

“It could lead those sitting on the sidelines to wake up and call their realtors, mortgage brokers and get back to thinking about home searching. It is a small decrease and the first of what should be more to come in the coming quarters. We should see the buyers start to trickle back in; the sellers, who have already been listing condos like crazy, start to consider selling now as well. Overall, this could be a jolt to the exceptionally slow real estate market.”

Upward pressure

Phil Soper, president and CEO of Royal LePage, adds, “Our research indicates that half of sidelined homebuyers in Canada plan to resume their home search plans once the bank rate begins to drop. This will no doubt spark activity and put upward pressure on home prices in the second half of the year.”

And from Ron McMillan, president of Reid’s Heritage Homes (see page 30), “With the announcement on June 5 of BoC’s rate cut, we’re optimistic that buyers will be confident that the market has nowhere to go but up, but we don’t anticipate a buying frenzy just yet.”

BoC’s next rate announcement is July 24.