Canada Just Cut Interest Rates. What Happens Now?

The Bank of Canada finally moved. After years of holding rates high, it cut its benchmark rate for the first time in four years, and the whole city is talking about it. For a lot of buyers who have been sitting on the sidelines, this feels like the green light they were waiting for. So let me walk you through what actually changed and where I think the market goes from here.

I am Moe Asgarian, Principal Real Estate Broker in Toronto and ranked number 47 worldwide at RE/MAX. This is the kind of shift that changes how people think about buying, so it is worth slowing down and looking at the real numbers behind the headline.

What actually happened

The Bank of Canada dropped its benchmark rate from 5 percent down to 4.75 percent. Two things pushed them there. First, growth. The Bank expected GDP to come in around 2.5 percent this year, but the first quarter of 2024 showed growth of only 1.7 percent. That is a soft economy. Second, inflation. It eased from 2.9 percent in March to 2.7 percent in April. Slow growth plus cooling inflation gave the Bank room to move, and it took it.

Why the housing market should wake up

When borrowing gets cheaper, buying gets easier. Most people in Toronto buy with a mortgage, so a lower rate means cheaper money and better terms. The early read is that the market shakes off some of its slump, prices drift higher, and a lot of buyers who waited a long time finally get serious. The Bank also signalled that if inflation keeps falling at this pace, more cuts should follow. One analysis I saw suggested the Bank has room for as many as eight cuts through 2026. Nobody knows if that plays out, but the direction is set. The Bank even noted that lower rates should ease pressure on rents over time.

Canada is not alone

This was not just a Canadian story. Right after Canada, the European Central Bank cut its rate for the first time in five years, trimming 25 basis points from 4 percent to 3.75 percent. Reporters pointed out that Canada and Europe were the first two major economies to start cutting. Europe's situation is a bit different from ours, but the timing matters. When the big central banks start moving in the same direction, it tells you something about where the cycle is heading.

Fixed or variable: the real question

Here is where people get stuck. Roughly 75 percent of Canadian mortgages are fixed, and right now a lot of buyers want fixed, often shorter terms, with the three year fixed being the popular pick. One thing to understand: this rate cut does not directly move fixed rates. It moves variable. Fixed rates track bond yields, and those bonds trade in the billions and are influenced by forces outside Canada too. Bond values change slower than the policy rate, but in the days after this cut, bond values came down, which means fixed rates should ease soon. If you are renewing and you plan to stay in the home for several years, the mortgage specialists I talk to are leaning toward a three year fixed at a strong rate, with the option to revisit after two and a half years. If you only plan to hold for a year or two, that math changes.

More sellers are coming too

One last piece people forget. The same rate cut that pulls buyers off the sidelines also pulls sellers off theirs. A lot of owners were waiting for better conditions to list, and now they feel that moment has arrived. So expect more homes coming to market, which is actually good news if you are buying, because more choice means more room to make a smart purchase.

Whether you are buying your first home or thinking about selling the one you have and moving up, my team and I can help you make a strong move at the right price and the right time. Fill out the form at the bottom of this page or book a free consultation and let's talk it through. Stay well and take care.