What does the BoC's latest move mean for homebuyers?
Observers were unsurprised by the Bank of Canada’s decision to cut interest rates to 2.75% on Wednesday – but it remains to be seen whether the latest move will stimulate activity in Canada’s housing market.
The decision to lower the overnight rate comes as the US imposes tariffs on Canadian steel and aluminum, exacerbating trade disputes between the two nations. BoC Governor Tiff Macklem expressed concerns that these trade conflicts could hinder Canada’s economic growth.
Experts also warn the impact of the tariffs on inflation and the job market. “The recent upside surprises to gross domestic product, employment and inflation are of little relevance given the toll that US tariffs could have on the economy,” said Stephen Brown, economist at Capital Economics, in an interview with The Wall Street Journal.
“Tariffs might be inflationary in Canada, and could also damage growth, but over the long term it makes a compelling case for lower rates,” said Jack Manley, executive director and global market strategist at JPMorgan Asset Management, in an interview with the Financial Times.
Surveys indicate that the uncertainty surrounding new tariffs has already dampened consumer and business confidence.
Implications for the housing market
Traditionally, lower interest rates reduce borrowing costs, potentially boosting housing market activity. However, the current environment presents unique challenges. Economic uncertainties may limit the effectiveness of this rate cut in boosting the housing sector.
“The Bank of Canada’s rate cut is a positive step, but it’s not going to dramatically change the spring housing picture. Trade tensions and worries about a recession are making buyers hesitate,” said Leah Zlatkin, a licensed mortgage broker and expert at LowestRates.ca. “While the rate cut helps a bit, it probably won’t be enough to get homebuyers feeling confident enough to jump into the market this spring.”
Zlatkin further noted that potential aggressive rate cuts in the coming months could stimulate renewed activity during the summer months.
The 25-basis-point reduction lowers the prime rate at most lenders from 5.20% to 4.95%. Variable rate mortgages, which are tied to the prime rate, are now available at discounts of prime minus 0.85% for insured mortgages and 0.75% for uninsured mortgages. Consequently, the lowest variable rates have decreased to 4.10% and 4.20%, respectively.
Regional mortgage payment reductions
The rate cut translates to modest decreases in monthly mortgage payments across various regions:
- National average: The average Canadian home sold for $670,064 in January 2024. With a variable rate reduction from 4.35% to 4.10%, monthly mortgage payments decrease by approximately $78.
- Toronto: The average home price was $1,084,547 in February 2025. The rate reduction leads to a monthly payment decrease of about $71.
- Vancouver: With a benchmark home price of $2,005,400 in January 2025, homeowners see a monthly payment reduction of approximately $132.
- Edmonton: The average home sold for $561,282 in January 2025, resulting in a monthly payment decrease of about $65.
Calculations assume a 15% down payment for homes under $1 million and 20% for homes above $1 million, with a 25-year amortization period.
Outlook
Canada Mortgage and Housing Corporation (CMHC) anticipates that, despite economic headwinds, housing market activity may improve due to lower mortgage rates and changes to mortgage rules. However, affordability issues and regional disparities are expected to result in an uneven recovery across the country.
What are your thoughts on the rate cut and its impact on the housing market? Share your insights in the comments below.
