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Almost two months have passed since the Bank of Canada announced the first rate cut in over four years, cutting the overnight rate by 25 basis points to 4.75 per cent. The move has yet to have any major effects on the housing market, with experts noting that the nominal drop isn’t enough to stir up demand or make a measurable impact on mortgage rates. Now, the BoC has another rate announcement scheduled for Wednesday — and all signs point to another cut.
“I think it’s a given that the Bank of Canada will move; there’s no question about it,” Benjamin Tal, deputy chief economist at CIBC, said. “And it will be another 25 basis points.”
The only question, Tal said, is what the BoC will say in their statement. “I believe that the statement will be that the lesson is moving in the right direction, the economy is behaving according to the plan. Clearly, we have a situation in which they will prepare for another cut in September.”
Tal predicted that, along with the July rate cut, of the three additional rate announcements scheduled for September, October and December, it’s “almost a given” that two of those will be rate cuts. “Expect another 75 basis points by the end of the year,” he said, which would bring the overnight rate to 4 per cent.
He noted that, also in the BoC’s announcement will be a mention of the United States. “They’ll address what extent the U.S. will cut, because the Bank of Canada cannot divorce itself from the U.S. But I think that at this point, this is not a major concern of the Bank of Canada,” he said.
Tal previously told Streets of Toronto that the BoC can only divorce itself about 50 basis points from the U.S. Federal Reserve, otherwise it will put more downward pressure on the value of the Canadian dollar.
When the first rate cut was announced back in June, some assumed the housing market would immediately pick up in response. But there’s been very little action since then; home prices remained almost flat, while new listings remained high and sales activity was unseasonably low. That differed greatly from the market response in Toronto to the Bank of Canada’s rate hold in spring of 2023, but Tal said that’s to be expected.
“I think that the conditions are very different than the spring of 2023. The economy is much slower, the labour market is weakened,” he said.
That being said, Tal is expecting some strength to return to the market soon, especially for the low-rise segment. “We might see some positive price growth there,” he said, though he was hesitant to agree with predictions of price growth in the double digits in the GTA before the end of the year.
But some markets won’t be so lucky: “The condo market is basically in a recessionary environment,” he said. “I don’t see the condo market clearing for the next year or two.”
For mortgage holders or soon-to-be buyers, Tal said it’s the variable rate that will see the effects of recent and future rate cuts. “The five year rate will not be going down significantly.”
Tal maintained his prediction that the interest rate will bottom out in early 2025. “The Bank of Canada will take it to 2.75 per cent or 3 per cent and then call it a day,” he said. “It will be much higher than it was before the pandemic, but that’s more or less what the new normal will be.”
