Real estate market analysts say the Bank of Canada’s (BoC) much-anticipated decision to lower its key interest rate could be the sign that many would-be homebuyers have been waiting for to make their move. This second consecutive key interest rate cut by the BoC recently has many Canadians wondering: Is now the time? With interest rates starting to drop, is it time to enter the housing market?
The Bank of Canada’s recent interest rate cut may slightly improve affordability, but mortgage rates remain relatively high. While lower rates could increase housing demand later in the year, many experts say conditions have not yet improved significantly for most buyers. Whether it’s the right time depends on your personal finances, the housing supply in your area, and your long-term affordability goals.
BoC Interest Rate Cut by a Quarter Percentage Point
The central bank announced the quarter-percentage-point cut on Wednesday, its second in as many months. This means its key interest rate now stands at 4.5%. The BoC says its decision to lower its policy rate by a quarter percentage point is motivated by easing price pressures and weakening economic conditions. High borrowing costs are causing a pullback in spending by both consumers and businesses.
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How Do Bank Of Canada Interest Rate Cuts Affect Home Prices?
The BoC’s key interest rate cuts come after some of Canada’s largest cities have seen ballooning home listings in recent months. Droves of sellers list their properties in the hopes of seeing a good return on their investment. However, demand from potential buyers is not keeping pace with the growing availability. Last month, the Greater Toronto Area (GTA) saw a 21.1% year-over-year increase. Over 18,612 properties were put on the market, though home sales continue to decline.
In Toronto, there were 21.7% fewer sales in May year-over-year, the Toronto Regional Real Estate Board (TRREB) reported Wednesday. TRREB President Jennifer Pearce says homebuyers were waiting for “clear signs” of declining mortgage rates before going ahead with purchasing a property
“As borrowing costs decrease over the next 18 months, we are expecting more buyers to enter the market, including many first-time buyers,” Pearce said in a press release. “This will open up much-needed space in a relatively tight rental market.”
Are Mortgage Rates Still Too High To Enter The Housing Market In Canada?
While some real estate professionals anticipate that the rate cut may boost housing market demand, others say borrowing costs are likely still too high.
Leah Zlatkin, a licensed mortgage broker, says in a statement that the latest move by the Bank of Canada is “not likely” to “move the housing market in a significant way. We’ve seen a 50-basis point drop since June, but rates are still comparatively high, and many potential buyers are waiting for further rate decreases to increase their buying power before they make a move,” she said.
An Uptick In The Market Is Likely
Are you considering entering the housing market? Analysts believe that once borrowing costs are brought down to levels most buyers are comfortable with, the housing market will “heat up quickly,” with prices rising. As a result, they recommend that potential buyers “consider buying now” if they can afford the higher rates for a short period to enter the market while prices are lower. With the increase in listings of late, those willing to gamble on rates falling in the Fall will have a broader selection and less pressure than when rates go down again.
Should Canadians Buy A Home Now Or Wait For Further Rate Cuts?
So, what should Canadians expect going forward in terms of rate cuts? TD Bank senior economist James Orlando has his own predictions. He believes the path to future rate cuts will be slow, despite acknowledging that the economy no longer needs such high interest rates.
“It will proceed cautiously and ensure inflationary pressures don’t rebound, as seen in the U.S. in recent months,” he said. “It also doesn’t want to reignite the housing market, where buyers are waiting for more rate certainty. We expect the bank to follow a cut‑pause‑cut path, with the next cut likely in September.”
Are potential home buyers ready to take the plunge?
About 56% of Canadian adults who have been active in the housing market say they have had to postpone their property search. Why? The Bank of Canada began raising its key lending rate from near zero way back in March 2022. This is according to a Leger survey commissioned by Royal LePage in 2024. Among those waiting on the sidelines, just over half say they would resume their search if interest rates went down. This includes one-in-10 who indicated a 25-basis-point drop would be enough for them to jump back in.
The Leger survey found more than two in five prospective homebuyers were waiting for a cut of at least 50 or 100 basis points before resuming their search.
Real estate experts have mixed opinions on whether the Bank of Canada’s further reduction in borrowing costs will spur activity in the Canadian housing market, according to Karen Yolevski, COO of Royal Le Page Real Estate Services.
“Interest rates going down will, over time, lower monthly carrying costs, and that will ease some of the burden that homebuyers feel, particularly first-time buyers, if they’re feeling stretched.”
Research from Royal LePage indicates buyers have been waiting for a “concrete signal” from Canada’s central bank. She adds that she expects the rate cut will spur a “slight boost in activity” over the near term. This will be followed by a more significant increase in buyer demand in the fall.
Interest Rate Cuts and Home Buying in Canada: What You Need to Know
Will interest rate cuts make houses cheaper in Canada?
Not necessarily. Lower rates can increase demand, which may push prices higher.
Should I wait for more Bank of Canada rate cuts before buying?
It depends on your budget, mortgage approval, and local housing conditions.
Do interest rate cuts increase home prices?
Historically, lower rates often lead to higher demand and upward pressure on prices.
How can I tell if interest rates are still dropping?
You can tell the current state of interest by visiting the Bank of Canada’s Policy Interest Rate page.
What Do Falling Interest Rates Mean for Home Buyers?
Lower interest rates can offer significant benefits for first-time home buyers. This includes lower mortgage payments, greater affordability, and a higher chance of loan approval. However, it’s essential to be aware of potential challenges, such as increased market competition and future rate changes. By staying informed and planning carefully, you can make the most of the current interest rate environment and take a confident step towards homeownership
So, has the drop in interest rates made you consider entering the housing market? Be sure to speak with one of our isure representatives to ensure you have the right coverage for your needs. Home insurance is an essential aspect of protecting your property and ensuring your financial security. You can even save on your home insurance by bundling or advising what type of coverage you don’t need. Call us today!
Update for 2026: Interest rates are currently on hold following a major rate-cutting cycle. The Bank of Canada held its benchmark rate at 2.25%. While economists forecast the rate to remain stable throughout the rest of the year, variable mortgage rates are trending near 3.3%, and fixed rates start around 4%. For more information on interest rates in Canada, check out the Bank of Canada’s Policy Interest Rates page.
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