The Bank of Canada’s latest interest rate cut will provide some relief to homeowners renewing their mortgages. However, experts say it is unlikely to significantly boost homebuying activity.
Although borrowing costs have decreased, mortgage rates remain more than double what they were in 2020 and 2021, when interest rates were below 2 per cent. Many homeowners who secured those historically low rates are now facing much higher renewal costs, putting pressure on household budgets.
On Wednesday, the central bank reduced its benchmark rate to 2.75 per cent from 3 per cent. Despite this, economic uncertainty exacerbated by an escalating trade war is keeping potential homebuyers on the sidelines. Many are adopting a wait-and-see approach, preferring to delay purchases until market conditions stabilize.
Real estate professionals note that both buyers and sellers are hesitant to make moves in the current climate. Even with lower interest rates, affordability remains a key concern. A 25-basis-point rate cut is unlikely to persuade buyers to enter the market if job security is uncertain.
Mortgage delinquency rates indicate growing financial strain. In Ontario, the rate of homeowners missing payments for at least 90 days reached 0.22 per cent in the last quarter of last year nearly double the rate from late 2023. While lower rates can slow delinquency growth, they do not erase financial challenges built up over time.
Following the Bank of Canada’s rate cut, lenders reduced rates on variable-rate mortgages, which move in tandem with the benchmark rate. However, fixed-rate mortgage changes remain uncertain, as they are influenced by government bond yields. After the rate cut, bond yields increased due to trade war concerns, limiting the drop in fixed mortgage rates.
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