The Bank of Canada announced today that it is lowering the overnight lending rate by 25 basis points from 2.75% to 2.5%. It has been over three years since the overnight lending rate last stood at 2.5%, a level last seen in July 2022.
Today’s rate cut was highly anticipated after the unemployment rate rose to 7.1% in August, and Statistics Canada data released yesterday showed inflation rose to 1.9%. Real gross domestic product (GDP) also declined by 0.4% in the second quarter, driven by a drop in exports.
Average 5-year fixed rates reached their lowest point this year in April at 3.74% but have since risen to 4.04%. The lowest variable rate available was 3.95%, but it will decrease to 3.70% after today’s Bank of Canada announcement.
“The growing pressure on the US Federal Reserve to cut rates has caused bond yields to drop, including north of the border; the Government of Canada five-year yield is now in the 2.7% range for the first time since May, “ says Penelope Graham, mortgage expert at Ratehub. “This has put downward pressure on fixed mortgage rates, with the lowest five-year term in Canada back below the 4% threshold.”
Based on the average home price of $664,078, the average mortgage payment comes out to $3,100, assuming the minimum down payment, a 30-year amortization, and a 5-year fixed rate of 4.04%. Compared to a year ago, when the average mortgage payment was $3,087, this represents a slight improvement, but it is likely not enough to motivate sideline buyers. In a recent Zoocasa survey, 59% of prospective home buyers said they would wait a year or longer to make their purchase.
National sales and new listings both saw year-over-year increases in August, according to the Canadian Real Estate Association (CREA). The uptick in activity signals renewed enthusiasm in the fall market, yet balanced conditions give motivated buyers room to negotiate.
And if you’ve been eyeing a specific neighbourhood or property type, now might be the time to act. Prices are correcting from long-term highs in many cities, including in major metros.
The average price in Fraser Valley fell 5.6% year-over-year to just under $1 million, while Vancouver was down 1.9% to $1.2 million, and Toronto declined 4.9% to $1,022,143. Meanwhile, Kitchener-Waterloo’s average price dropped 5.3% to $733,562, offering Southwestern Ontario buyers an affordable opportunity outside of the GTA.
Buyers entering the market this fall will have a surplus of options to choose from, but as sales pick up, competition may too. Working with a qualified real estate agent can help give you the edge needed to secure the home you want.
“The door is certainly open to at least one more cut in 2025, should the economic data show further signs of weakness,” explains Graham. “However, given core inflation metrics remain elevated, the Bank won’t be keen to pass along too much stimulus too soon.”
On the other hand, a Reuters poll earlier this summer found that 60% of economists expect the Bank of Canada to cut rates at least once more after September.
Ultimately, any future decision from the Bank of Canada will depend on the resilience of Canada’s economy in the face of tariffs, job losses, and broader global headwinds.
If you’re waiting for rates to come down before making any real estate moves, then the coming months could be pivotal. With conditions shifting and another Bank of Canada cut still possible in 2025, staying prepared will put you in the best position to act when the moment is right.
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