While a potential interest rate cut by the Bank of Canada could push variable mortgage rates below fixed rates, experts warn this won’t be a quick fix for Canada’s sluggish housing market.
CIBC economist Benjamin Tal believes the BoC has room to cut rates — not only this September but beyond — based on recent trends in employment, inflation, and housing. However, he cautions that the current policy rate is already close to a neutral level, meaning any cuts would offer only limited relief. Broker Ron Butler agrees that markets expect two cuts, though upcoming inflation data could influence the Bank’s decision.
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Variable mortgage rates may drop further, with lenders already offering some of the steepest discounts since before the rate hikes. Still, after the volatility of recent years, borrowers have grown cautious. Tal notes that the popularity of variable rates has sharply declined since the pandemic, and Butler adds, “The heyday of variable may have passed.”
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Fixed mortgage rates have already fallen—some three-year insured rates now hover around 3.69%, down from over 5% in mid-2024. Yet, despite improved borrowing conditions, real estate activity remains muted. Homes in markets like the GTA continue to sell below asking prices, and buyer demand hasn’t rebounded as expected.
According to Tal, the problem is less about interest rates and more about market sentiment. Confidence has been shaken by economic uncertainties, including inflation, government borrowing, and recent tariff worries. Re/Max Canada’s Don Kottick says many buyers and sellers remain in “wait-and-see” mode, while Butler points out that investor activity — once a major driver — has disappeared.
In short, even if rates come down, psychological and structural challenges are holding the housing market back.
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