For the first time since the onset of the COVID-19 Pandemic, the Bank of Canada on June 5 announced that it would be cutting its overnight interest rate by 0.25 per cent, bringing the policy rate down from 5.0 to 4.75 per cent. And again on July 24, BoC reduced the rate to 4.5 per cent.

These announcements were widely anticipated by the general public, especially by those who work within the real estate industry who have felt the negative impacts of the turbulent economy affecting their businesses, and those who are patiently waiting on the sidelines to enter the market and transact.

Additional announcements

With three more scheduled Bank of Canada rate announcements for 2024, the predictions amongst economists are quite aggressive but probable in predicting an additional rate cut per announcement. Although the initial rate cut won’t necessarily boost the economy, it will certainly start to shine some positive light on the housing market as a whole.

Prior to the glimpse of hope we received earlier this month, the inflated interest rate environment created a negative snowball effect impacting those from the development space to home purchasers. Due to the increase in the cost of borrowing, the profitability of development projects has become marginal, and developers have become reluctant to launch future projects at the rate in which they did in previous years. Additionally, developers are left with an influx of unsold product on their books while purchasers are simultaneously leaving money on the table and walking away from their contractual obligations given the stringent mortgage approval guidelines.

Market optimism

The continued interest rate cut forecast suggests that we will start to notice some relief when it comes to household budgeting and less hindrance on small business growth and prosperity. Although we are not likely to return to a pre-pandemic rate environment and that rates are still relatively higher now than what they have been in previous years, the data supports a downward trajectory, nonetheless.

Like many things in life, perception is the key indicator of individual actions, and when it comes to real estate, it is no different. After a prolonged period of what seemed to be never ending economic strain taking a negative toll on the real estate market, this recent news has reignited hope among Canadians. It has created some optimism which will likely ramp up real estate transactions, housing initiatives, business development, among many other activities that will assist in economic recovery and stimulus. All signs point towards a fruitful and financially stimulating third and fourth quarters of 2024, along with a strong start to 2025.