September 25, 2025 | Uncategorized
Rate Cuts Support Confidence in Canada’s Housing Market
The Bank of Canada (BoC) cut its overnight rate by 25 basis points to 2.50% at its September meeting, as expected. Markets are anticipating further cuts, but BMO economists caution that moving too fast could undo recent housing stabilization and spark renewed exuberance.
Real and Negative Interest Rates
The real interest rate is simply the nominal rate minus inflation. With the overnight rate at 2.5% and headline inflation at 1.9%, the real rate sits just above zero at 0.6%. By some measures of core inflation, including CPI common at 2.5%, CPI trim at 3.0%, and CPI median at 3.1%, the real rate is already at or below zero. In practical terms, this makes borrowing costs more attractive, which can stimulate housing demand.
Housing Fueled by Easy Money
Canada’s housing market has been closely tied to interest rates for decades. “Housing has been a Canadian obsession for at least two decades, with ultra-low rates providing jet fuel to the market since the GFC,” explains BMO Canadian Rates & Macro Strategist Benjamin Reitzes.
During the pandemic, near zero rates accelerated price growth, while the return to higher rates cooled activity even amid record population growth. “A normalization of interest rates has prompted some sanity to return to the market with a decent amount of froth coming out of prices,” Reitzes adds.
The Road Ahead
BMO warns that the BoC must strike a delicate balance. Cutting rates too far could overheat the market, while moderate easing can support healthy activity. “A return to negative real rates and or nominal rates with a 1 handle will likely spark renewed housing exuberance that policymakers should not want to see,” cautions Reitzes.
With labour markets softening and inflation trending lower, some easing makes sense, but policymakers will be careful not to reignite a bubble. For buyers and homeowners in Halton, this environment still points to opportunity: borrowing costs are easing, demand remains strong, and long-term fundamentals continue to support the value of real estate.
Get The Newsletter
Join our mailing list to get updates from our experts about the Toronto market, the latest listings, and our industry insights.
