The Bank of Canada announced the second rate cut of 2025 today, bringing the overnight lending rate down by 25 basis points to 2.75%. This was a highly anticipated move after tariff uncertainty left many Canadians feeling shaky about the economy. A weak Canadian jobs report released last week further contributed to the expectation of a rate cut today.
The last time the overnight lending rate was below 3% was in September 2022. Similarly, the average 5-year fixed mortgage rate was 3.89% in February, the lowest since the summer of 2022. As buyers navigate 3-year lows in borrowing costs, will it be enough to boost enthusiasm in the market?
Leading up to the implementation of US tariffs on most Canadian goods in early March, home buyers were taking a cautious step back from the market. The Canadian Real Estate Board’s Senior Economist, Shaun Cathcart, suggested that a sales weakening in January resulted from uncertainty around tariffs and the economy.
On March 6, Trump suspended 25% tariffs on certain goods from Canada until April 2, but the future is still uncertain. Despite some hesitancy among buyers in January 2025, national sales were up by 2.9% year-over-year. Some markets, like Edmonton and Montreal, experienced sales gains of over 10%, while most Ontario markets experienced sales drops from 2024.
So while some buyers may opt for a wait-and-see approach this spring, others are actively pursuing their home-buying goals. Compared with January, the average listing days on market have dropped substantially for the Toronto Region, from 37 to 28 days. A faster turnaround time indicates that the market is still active for well-priced listings.
If economic instability deters some buyers from shopping this spring, then the buyers who are active will benefit from less competition, more choice, and improved affordability. Although competition may fluctuate, sellers of in-demand properties in good neighbourhoods will likely continue to attract buyers throughout the spring market.
According to the Canada Mortgage and Housing Corporation (CMHC), 1.2 million mortgages will come up for renewal in 2025, with the vast majority of those facing higher interest rates than when their term began.
Penelope Graham, mortgage expert at Ratehub.ca, advises acting swiftly. “The safest course of action for mortgage borrowers, whether getting a new rate or coming up for renewal, is to get an application or rate hold in with a lender as soon as possible; this will help them hedge against rate volatility in the near future, while providing access to the lowest rates available to them today.”
In today’s uncertain economic climate, it may be helpful for uneasy buyers to concentrate on the aspects they can control, like the terms of their mortgage. Most lenders offer the option to renew your mortgage during the last 120 days of your current term. Take advantage of this opportunity to explore various term lengths and rates to find what suits you best, offering more stability in a fluctuating market.
On top of this, future interest rate cuts aren’t guaranteed, so holding out for lower rates may prove to be riskier than locking in with a rate now.
“The trajectory for future central bank cuts hangs largely on how long tariffs remain in force; if they persist, the BoC will need to adjust its target rate to counter the damage being done to the economy, despite the inflation risks that come alongside a very accommodating rate,” explains Graham. “While core inflation will continue to be a focus for the BoC, it may have to sacrifice keeping it at its 2% target in the future if economic stimulus is needed.”
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