British Columbians received some good news as the Bank of Canada lowered its key interest rate by 25 basis points, bringing it to 4.25 per cent. While this may not make homes more affordable, mortgage expert Penelope Graham believes that affordability conditions will improve. Home buyers may question their timing but could potentially see lower rates in the fall. Lenders are expected to lower prime rates to 6.45 per cent, with five-year variable mortgage rates falling to around 5.3 per cent. Homeowners with variable rate mortgages can expect lower payments, while fixed rate mortgage shoppers may benefit from lower rates influenced by the bond market.
For those shopping for fixed rate mortgages, rates are expected to drop as bond yields have been decreasing since the Bank of Canada rate cut. Despite the rate cuts, housing market activity in the Lower Mainland has not significantly increased. BC Real Estate Association chief economist Brendon Ogmundson notes that inventory has increased, but sales remain below normal levels due to affordability challenges. However, markets such as Chilliwack and Victoria have seen more activity, and condo pre-sales have increased. Sales in the Okanagan have slumped due to a weaker economy and lower tourism in early 2024.
Economists are anticipating at least two more quarter point cuts this year to bring the benchmark rate to 3.75 per cent. Governor Tiff Macklem stated that the decision to cut rates was driven by progress on inflation and the need for growth. Macklem also indicated a willingness to make more cuts if necessary. This marks the first time since 2009 that the Bank of Canada has cut rates at three consecutive meetings, with a total decrease of 75 basis points since June. Ogmundson believes that continued cuts may stimulate activity but is uncertain if prices will decrease in expensive markets like Metro Vancouver.
Ogmundson acknowledges the challenges faced by the Vancouver market and its resilience to various shocks. He humorously suggests that even locusts and the Four Horsemen of the Apocalypse might not make a dent in the market. Despite the unpredictable nature of the market, economists remain hopeful that further rate cuts will provide a boost to activity. It remains to be seen how the housing market in British Columbia will respond to the rate cuts and whether affordability will improve for potential home buyers. Overall, the Bank of Canada’s decision to lower interest rates is expected to have a positive impact on mortgage rates and borrowing costs for consumers in the province.
