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Real estate experts say the Bank of Canada’s third consecutive interest rate cut is welcome news for variable-rate mortgage holders, but it could still be some time before significant demand returns to the market.

“It’s good news that the Bank of Canada is continuing to lower the overnight rate, though we are not likely to see the effects in the housing market for quite some time,” said Ratesdotca mortgage and real estate specialist Victor Tran in a statement.

“The reality is the math just doesn’t make sense for many people who want to purchase a home. Mortgage rates have not come down nearly fast enough to stimulate much activity in the housing market. It’s just not affordable for people.”

The central bank brought its key lending rate to 4.25% on Wednesday amid softness in the economy and easing inflation.

Tran said that for every quarter-percentage-point decrease, a homeowner with a variable-rate mortgage can expect to pay approximately $15 less per $100,000 of mortgage in monthly payments.

Meanwhile, fixed-rate mortgage holders will not see the effects of any mortgage rate decreases until renewal.

“Though it sounds like a lot, even a drop of a full percentage point from current mortgage rates would not result in a significant increase in buying power given persistently high home prices,” said Tran.

Bank of Canada governor Tiff Macklem said if inflation continues to ease as expected, it is “reasonable” to expect more rate cuts this year.

But he added if inflationary pressures prove to be stronger than expected, the central bank may slow down the pace of interest rate cuts.

Canada’s annual inflation rate has been below three per cent for months, reaching 2.5% in July.

Penelope Graham, a mortgage expert at Ratehub.ca, said the bank’s previous two rate cuts in June and July “did very little to move the dial” on real estate demand as prospective homebuyers wait for more significant decreases before buying.

She said many buyers are likely to remain on the sidelines longer despite the third consecutive cut, given strong anticipation of more decreases to come later this year.

“With mortgage rates regularly changing, it’s crucial for mortgage borrowers to shop around for their best rate,” Graham said in a statement.

“Variable mortgage rates are looking more attractive as they’re poised to lower in the near future, but if we’ve learned anything from the Bank of Canada’s rate hiking cycle, nothing is certain.”

This report by The Canadian Press was first published Sept. 4, 2024.

Source: Canadian Mortgage Trends