Rate Cuts Won’t Save the Housing Market — It’s Not About Cost Anymore
Canada’s housing market just got a small break — but don’t expect a rebound. The Bank of Canada (BoC) delivered a widely expected 25-basis-point cut to its overnight rate, potentially setting the stage for variable mortgage rates to fall below fixed rates. But despite cheaper borrowing, industry experts say buyers aren’t biting — and may not anytime soon.
Rate Cuts Are Here — But With Limits
CIBC economist Benjamin Tal says the BoC had the green light to cut rates based on inflation, employment, and housing data. And while more cuts are likely, he warns the policy rate is already near “neutral,” meaning rate relief from here will be minimal.
Mortgage broker Ron Butler agrees, noting that markets had already priced in two rate cuts — and lenders were already slashing variable rates even before Wednesday’s move. Discounts below prime are the deepest they’ve been in years.
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Variable Rates: Cheap, But Not Popular
Even with these drops, the appeal of variable mortgages isn’t what it used to be. “We used to see 75% of people go variable when rates dropped,” Tal explains. “That’s no longer the case.” Too many borrowers were burned during the pandemic’s interest rate whiplash, and caution now dominates.
Butler is more direct: “The heyday of variable may have passed.”
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Fixed Rates: Some Relief, No Rally
Fixed mortgage rates have also come down sharply from 2024 highs. Some three-year insured terms now sit as low as 3.69%, down from the mid-5% range. Yet the real estate market remains cold. “You’d think rates dropping from 5.69% to four would spark demand,” says Butler. “It hasn’t.”
Why not? Because the ceiling for further relief is already in sight. Tal points to U.S. deficits, sticky inflation, and Ottawa’s borrowing — all factors pushing long-term bond yields higher. “Any change in the five-year rate will be too small to change the narrative,” he warns.
It’s Not About Rates — It’s About Confidence
The core issue in today’s housing market isn’t cost, it’s confidence. “The main challenge isn’t interest rates anymore,” Tal says. “It’s psychology.”
Buyers and sellers are hesitant, stuck in a “wait-and-see” mindset that began with tariff uncertainty and hasn’t lifted. Speculators and flippers have exited completely. “Nobody’s buying to rent or flip,” Butler says. “That excess from 2021? It’s gone.”
Kottick from Re/Max Canada notes the dynamic has shifted: sellers today know they must “price to the market” — or they don’t list at all.
Renewals: The Quiet Pressure Point
Meanwhile, mortgage renewals continue to apply pressure. Butler says many clients who locked in at 1.7% during the pandemic are now facing renewals near 4%, pushing payments up by 20–25%. In extreme cases, payment hikes hit 50%. Still, few are panicking.
“We can manage, but it hurts,” is a common refrain, Butler says. “And we already saw the worst-case scenario — rates jumping from 1.45% to over 6%. The world didn’t end.”
Bottom Line: Affordability Crisis Isn’t Over
Even with rate cuts, don’t expect a quick housing recovery. “You can’t solve a 30-year affordability problem with one rate cut,” Tal warns.
Long-term, experts agree: Only more supply can fix what cheaper borrowing can’t.
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