July 25, 2024 | Real Estate News
Bank of Canada Rate Reduction and Its Impact on the Real Estate Market
The Bank of Canada has just announced a 0.25% cut to its overnight policy interest rate, bringing it down to 4.50%. This marks the second reduction in as many months, signaling a shift towards a “phase of rate cuts” throughout 2024 and into 2025 according to TD Economics. The key message is that rate relief is on the way. It’s likely that we will see two additional rate cuts this fall, and further cuts in 2025 as well. This decision is part of their ongoing balance sheet normalization policy and reflects confidence in the positive trends within the Canadian economy. In this blog, we break down the Bank’s reasoning behind this move and explore what it might mean for the future. Keep reading for a summary of their key observations and insights on what’s next!
What This Means for Real Estate: For the real estate market, this rate reduction could mean more favorable borrowing conditions for potential homebuyers, leading to increased activity in the housing market. Lower interest rates can make mortgages more affordable, potentially stimulating demand for homes. However, with ongoing inflationary pressures in the shelter sector, it’s essential for buyers and investors to stay informed about market conditions. The Bank of Canada’s commitment to price stability suggests a balanced approach to managing inflation and supporting economic growth, which can positively influence the real estate market.
Global Economic Outlook: The global economy is expected to grow at an annual rate of about 3% through 2026. While inflation remains above central bank targets in most advanced economies, it’s expected to gradually ease. In the U.S., economic slowdown is becoming evident with moderated consumption growth, and inflation is on a downward trend. The euro area is experiencing a recovery after a weak 2023, and China’s economy is growing modestly with strong export performance. Overall, global financial conditions have improved, reflected by lower bond yields, strong equity prices, and robust corporate debt issuance. The Canadian dollar has remained stable, and oil prices are in line with previous assumptions.
Canadian Economic Conditions: In Canada, economic growth likely increased to about 1.5% in the first half of this year. However, with the population growing at about 3%, the economy’s potential output is outpacing GDP growth, leading to excess supply. Household spending, including housing, has been weak, and there are signs of slack in the labor market. The unemployment rate has risen to 6.4%, and job seekers are finding it takes longer to find employment. Wage growth is moderating but remains elevated.
Real Estate Market Insights: Looking ahead, GDP growth is forecast to increase in the second half of 2024 and through 2025, driven by stronger exports and a recovery in household spending and business investment as borrowing costs ease. This is promising for the real estate market, as residential investment is expected to grow robustly. However, new government limits on non-permanent residents will likely slow population growth in 2025, which could impact housing demand.
Forecast and Inflation: Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026. As the economy strengthens, excess supply will be gradually absorbed through 2025 and into 2026. CPI inflation moderated to 2.7% in June and is expected to continue easing. Shelter price inflation remains high due to rent and mortgage interest costs, which are significant contributors to total inflation. However, as broad price pressures ease and inflation moves closer to the 2% target, the Governing Council has reduced the policy interest rate by a further 25 basis points.
Upcoming Announcements: The next scheduled date for announcing the overnight rate target is September 4, 2024. The Bank will publish its next full outlook for the economy and inflation on October 23, 2024. Stay tuned for these updates, as they will provide further insights into the economic landscape and its impact on real estate.
If you have any questions or would like to learn more about how the “Bank of Canada Cuts Key Interest Rates” and how you may be able to take advantage of these changes, click the article above.
Don’t hesitate to contact Urban Group Realty if you have any questions and let us help you find your perfect home, we are always happy to chat through your options & connect you with the right people.
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