Better mortgage rates but not prices for B.C. homeowners, buyers after BoC rate cut

Whether you have a variable rate mortgage or are looking to buy your first home, British Columbians can expect a bit of a break in the cost of borrowing after the Bank of Canada lowered its key interest rate by 25 basis points on Wednesday.

But it may not make homes any more affordable.

The third consecutive rate cut was widely expected by economists and brings the central bank’s benchmark interest rate to 4.25 per cent.

“We are going to start to see affordability conditions materially improve. However, it remains to be seen if it’s going to happen now or if they’re still awaiting further rate cuts,” hubrate.ca mortgage expert Penelope Graham said.

“If you’re a home buyer, you might really be questioning your timing if you have the luxury of waiting it out. And so we might still see people sticking to the sidelines. But I do think that we’re in store for a busier fall than certainly the spring and the summer.”

4:36 Bank of Canada cuts interest rate to 4.25%

Graham expects lenders to lower their prime rates to 6.45 per cent, and the lowest five-year variable mortgage rates to fall to around 5.3 per cent.

Homeowners with a variable rate mortgage can expect their next payment to be a little lower, while those with a fixed payment schedule will see more of their payment go towards their principle, instead of interest.

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Anyone shopping for a fixed rate mortgage may also be in luck, Graham says, as those rates are strongly influenced by the bond market, and bond yields have been dropping since Wednesday morning’s announcement.

“Last I checked, they are in that 2.8 per cent range and that will put downward pressure on fixed mortgage rates,” she said.

“That bodes very well for rate shoppers, whether you’re shopping for your first home or you’re coming up for renewal on your mortgage.”

5:08 Bank of Canada cuts key interest rate for 2nd time in as many months

However, since the Bank of Canada began cutting rates, housing market activity in the Lower Mainland has not seen a significant uptick, according to BC Real Estate Association chief economist Brendon Ogmundson.

Inventory increased, but Ogmundson says sales are still around 15 per cent below what are considered normal levels.

“I think a lot of it is affordability. Especially in a market like Metro Vancouver, where prices didn’t really come down very much when the Bank of Canada started cutting,” he said, adding without new supply, prices may not come down.

“It’s just a hurdle for a lot of buyers that are in the market right now.”

Other markets such as Chilliwack and Victoria have seen a little more activity, he says, and condo pre-sales have also seen a small increase.

Sales in the Okanagan have also slumped, according to Ogmundson, driven by a weaker economy and lower tourism in the early months of 2024.

4:17 Home buying optimism high among young Canadians according to Royal LePage survey

Economists are expecting at least two more quarter point cuts this year to bring the benchmark rate to 3.75 per cent.

Governor Tiff Macklem says the cut decision was motivated by continued progress on inflation and the need for growth to pick up again.

Macklem also signalled more cuts could come and a willingness to change the pace of cuts if inflation continues to ease.

Wednesday’s decision marks the first time since the global financial crisis in 2009 that the Bank of Canada has cut rates at three meetings in a row.

The policy rate has fallen 75 basis points since June.

While Ogmundson does expect continued cuts to stimulate activity, he admits it’s hard to predict if prices will ever decrease in the more expensive markets such as Metro Vancouver.

“I’ve never seen a market that’s been hit with this many shocks,” he said “And none of it seems to make a dent in the Vancouver market. So, I don’t know, maybe locusts and Four Horsemen of the Apocalypse, maybe would show up. But even if they did, they’d probably just buy condos.”

– With files from Craig Lord and The Canadian Press