The Bank of Canada’s announcement on October 23, 2024, of a 50-basis-point interest rate cut, reducing the key policy rate to 3.75%, is significant for residential buyers in British Columbia. This is the fourth consecutive rate cut since June, aimed at addressing inflation, which has now fallen below the Bank's 2% target. This shift away from focusing on inflation signals a push to stimulate economic growth.
This is the largest interest rate drop since peak COVID pandemic in March 2020.
The interest rate adjustments of the last six months have sparked movement in the real estate market. As rates have come down, inventory has opened up. Our monthly real estate update shown sales volumes increasing through September as buyers and sellers – who had been previously sitting firmly on the sidelines – are starting to re-engage.
But activity is still relatively muted as hesitancy remains the dominant mindset. What does this mean for buyers who are ready to take action? It's impossible to time the bottom of the market, but it appears we are past the trough phase.
For potential homebuyers, this rate cut could lower borrowing costs, especially for those with variable-rate mortgages, as lenders adjust their prime rates downward. Some analysts predict prime rates could fall to around 5.95%, which means variable-rate mortgage holders will see reduced monthly payments or less interest being paid on their mortgages. Fixed-rate mortgages might also benefit if bond yields decrease, potentially leading to lower rates in the near future.
However, experts note that while this cut could encourage more buyers to enter the market, many might still wait for the December rate decision before acting. The real estate market could see a surge in activity, potentially driving up home prices as demand increases. Buyers looking to enter the market now may find it beneficial to lock in shorter-term mortgages to take advantage of future rate reductions
2024 has been a big year for mortgage renewals in Canada and many mortgage holders have been anxious about renewing at a rate considerably higher than what they may have secured three to five years ago.
If you’re getting ready to renew your mortgage in the coming months, the past year’s rate changes should offer some relief. And if rates keep decreasing, variable rate mortgage holders could continue to benefit, regardless of whether their mortgage is up for renewal or not.
The combination of a 50-basis point rate reduction and the impending mortgage rule changes in December creates an opportune moment for buyers to make their move. With an abundance of properties available, the current market conditions are exceptionally favourable for potential homebuyers.
Buyers waiting for further rate cuts may be entering a hotter housing market. Once rates decrease to a point that the majority of buyers are comfortable with, the housing market will heat up quickly and prices will rise at the same time. Potential buyers should consider buying now if they can and take a higher rate for a shorter-term length to get into the market,
Dustin Miller is the managing broker of 8X Real Estate. When he's not on the road, he is on his computer looking at real estate. You can often find Dustin at his office enjoying a bowl of won-ton soup.
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