Bank of Canada rate cut could be ‘tail wind’ for GTA real estate

Article content

A lot of prospective homebuyers are waiting on the sidelines, hoping that the Bank of Canada starts cutting rates as soon as next month, according to a Toronto real estate official.

Article content

Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board (TRREB), noted GTA housing sales were down 5% in April compared to the same time last year. And new listings were up by 47% during the same period.

Article content

“And so the market is sort of primed to see more buyers moving into the marketplace,” he said.

With inflation falling to 2.7% in April, the Bank of Canada’s next possible rate cut will come on June 5.

“There are a lot of buyers, or would-be home buyers, who are sitting on the sidelines right now, and they want to see that tangible evidence that the Bank of Canada is indeed going to start cutting borrowing costs. They need to see lower mortgage rates to meet their affordability threshold, if you will,” said Mercer.

Article content

Article content

He noted TRREB has been predicting an uptick in sales in the second half of 2024.

James Orlando, TD Economics’ senior economist, said it’s more likely that we’ll see the Bank of Canada announce a rate cut on July 24 than next month.

“(Lower inflation) raises the probability of a cut in June, but it’s still our view that the most likely path that the Bank of Canada, who hasn’t signalled a rate as of yet, would be to use that June meeting to tee up a rate cut in July,” said Orlando.

“Right now, for example, markets are prepared for July, as a time period when a rate cut could happen,” he added. “So, if the Bank of Canada came out and cut rates, and it’s not expected, that could cause financial marketing volatility, for example. So we still have July as the first rate cut.”

Article content

Recommended video

Orlando predicted the first cut will lower the central bank’s key rate of 5% by .25% to 4.75%.

“The fact that inflation has decelerated is a sign that it’s going to keep decelerating, moving towards the Bank of Canada’s target of 2%,” said Orlando.

“And so that inflation report we got (last) week is just more confirmation that inflation is more under control in Canada, which should raise confidence for the Bank of Canada.”

As for the impact of a decreased interest rate cut on real estate in the GTA, Orlando said that so far in 2024, sales and prices “are both trending less than what most people thought was going to happen in the spring buying season.

“I think most of it still is an affordability issue,” he said. “But if we’re right and the Bank of Canada starts cutting (interest) rates, and at a fairly quick clip in the second half of 2024 and into 2025, that would be your tailwind to the real estate market.”

Article content