Why Did the Bank of Canada Reduce the Interest Rate?

What the Latest Bank of Canada Interest Rate Cut Means for Homebuyers and Sellers

Big news for Canadians! On October 23, 2024, the Bank of Canada lowered its key interest rate by 50 basis points, bringing it down to 3.75%. This move is designed to support economic growth and stabilize inflation, but what does it mean if you're thinking about buying or selling a home in the near future?

Why This Matters for Homebuyers

For potential homebuyers, this rate cut means lower borrowing costs, making it easier to afford a home. Here’s how it could impact you:

• Lower Mortgage Rates: With the reduction in the policy rate, you can expect mortgage rates to follow suit. If you’ve been on the fence about buying, this could mean lower monthly payments, allowing you to qualify for more home or free up some cash flow.

• Affordability Boost: Lower interest rates can also make it more affordable for first-time buyers to break into the market. With borrowing costs dropping, now might be the time to explore your options, especially with housing demand staying strong.

• Fixed vs. Variable Mortgages: If you’re already a homeowner with a variable-rate mortgage, this could bring immediate relief in the form of smaller payments. Fixed-rate mortgages might also see more competitive rates if you’re thinking about locking in a great deal.

Why This Matters for Home Sellers

For sellers, the lower interest rate could also work in your favour:

• Increased Buyer Interest: Lower borrowing costs typically mean more buyers are motivated to enter the market, which could increase demand for your home. Whether you're selling to upsize, downsize, or move to a new location, more interest from buyers often leads to a quicker sale.

• Potential for Higher Offers: With buyers able to afford more, you could see more competitive offers on your property. The combination of lower rates and strong housing demand may help drive up prices in certain areas, making this a good time to list.

• More Confident Sellers: If you’ve been waiting to see how the market would shake out, this rate cut is a positive signal. It could be the opportunity you’ve been waiting for to make your move, whether it's selling a family home or an investment property.

Why Did the Bank of Canada Reduce the Interest Rate?

The decision to cut the rate reflects various factors:

• Cooling Inflation: Inflation has significantly decreased, from 2.7% in June to 1.6% in September 2024. The drop in global oil prices and reduced inflationary pressure in goods and services have contributed to this decline.

• Global Economic Outlook: The global economy is projected to grow by 3% over the next two years, with stronger-than-expected growth in the U.S. and weaker growth in China. These external factors influence Canada's economic outlook, especially in key areas like exports.

• Canadian Economic Performance: Canada's economy grew by around 2% in the first half of 2024, with a slight slowdown expected in the second half. While population growth has expanded the labour force, employment growth remains modest, contributing to a soft labour market. Residential investments and business investments are expected to pick up in the near future, fueled by lower rates and strong housing demand.

What’s Next?

While the rate cut is good news for many, the Bank of Canada hasn’t ruled out further reductions if the economy continues to need support. This could mean even more favourable conditions for both buyers and sellers in the months ahead.

However, the timing of your move is key. If you’re a homebuyer, locking in a lower mortgage rate sooner rather than later could be beneficial, especially with high demand for housing in many areas. As a home seller, with more buyers entering the market due to lower borrowing costs, now could be a great time to list your property while buyer demand is strong.

How Should You Prepare?

For homeowners, prospective buyers, and investors, it’s an excellent time to reassess your financial strategy. If you’ve been considering purchasing a home, refinancing your mortgage, or investing in renovations, the lower interest rates could present an opportunity. On the other hand, if you rely heavily on interest income from savings, it may be worth exploring alternative investments to maintain your returns.

Thinking of making a move? Whether you’re looking to buy your first home or sell your current property, the recent drop in borrowing costs could be the perfect opportunity to get ahead of the market. Reach out today to explore your options and see how these changes can work for you!