December 11th, 2024 | Canada

BoC Rate Cut 50 Basis Points | Implications & Predictions | December 2024

“Buyers will be impacted differently than Sellers”

The Bank of Canada (BoC) cut its policy interest rate by 0.50% today, bringing it down to 3.25%. This marks the fifth consecutive rate reduction since June and comes as inflation has stabilized near the BoC’s 2% target. The move is designed to provide relief after a prolonged period of high rates and inflation. However, the central bank signaled it will adopt a more gradual approach to rate cuts going forward, citing a balanced economic outlook .

Implications for the Economy and Real Estate Market

Unemployment has risen to 6.8%, reflecting a cooling labor market that aligns with the slowing economy. While inflation is under control, the BoC aims to avoid an economic downturn by making borrowing cheaper, which could stimulate investment and spending  .

In real estate, the rate cut is expected to ease mortgage costs, potentially boosting market activity. Homebuyers who were sidelined by high borrowing costs might re-enter the market, and sellers could see improved demand. However, market recovery may be tempered by affordability challenges in high-priced markets like Toronto  .

Pros and Cons for Buyers and Sellers

For Buyers:

Pros:

• Lower mortgage rates reduce monthly payments, increasing affordability.

• Easier borrowing conditions could enable buyers to qualify for larger loans.

Cons:

• Increased demand may lead to higher home prices, negating affordability gains.

• Some buyers may feel pressure to act quickly, fearing future price increases.

For Sellers:

Pros:

• Greater buyer activity can lead to faster sales and potentially higher offers.

• A competitive market may return, reducing the need for significant price reductions.

Cons:

• Buyers may remain cautious, especially with concerns over economic stability.

• Sellers in luxury or investment markets might still face sluggish demand.