Lower mortgage rates, but not prices for homeowners and buyers in British Columbia after BoC cuts interest rates

Whether you have an adjustable-rate mortgage or are considering buying your first home, British Columbians can expect a small reduction in the cost of borrowing after the Bank of Canada cut its key interest rate by 25 basis points on Wednesday.

However, homes may not become more affordable.

Economists had widely expected a third straight rate cut, taking the central bank’s benchmark rate to 4.25 percent.

“We’re going to start to see credit conditions improve significantly. But the question is whether that’s going to happen now or whether they’re going to continue to wait for rates to come down,” said Penelope Graham, a mortgage expert at hubrate.ca.

“If you’re a homebuyer, you can really question your timing if you have the luxury of waiting. And so we may continue to see people holding out. But I think we’re in for a busier fall than we were in the spring and summer.”

Graham expects lenders to cut their prime rates to 6.45 percent, with the lowest five-year variable mortgage rates falling to about 5.3 percent.

Homeowners with a variable-rate mortgage can expect a slightly lower next payment, while those with a fixed-rate mortgage will see a larger portion of their payment go toward paying off principal rather than interest.

Graham says anyone looking for a fixed-rate mortgage may be in luck, as rates are heavily influenced by the bond market, with bond yields having been falling since Wednesday morning’s announcement.

“Last time I checked they were around 2.8 per cent, which will put downward pressure on fixed mortgage rates,” she said.

“This bodes very well for those looking for affordable housing, whether they are looking for their first home or are approaching the deadline for extending their mortgage.”

However, real estate activity in the Lower Mainland has not seen a significant increase since the Bank of Canada began cutting interest rates, according to Brendon Ogmundson, chief economist at the BC Real Estate Association.

Inventories have risen, but Ogmundson said sales are still about 15 percent below what would be considered normal.

“I think a lot of it is an affordability issue. Especially in a market like Metro Vancouver, where prices didn’t come down much when the Bank of Canada started cutting,” he said, adding that without new supply, prices may not come down.

“It’s just a hindrance for a lot of buyers who are in the market right now.”

He added that other markets, such as Chilliwack and Victoria, saw slightly more activity, and pre-sales of apartments also increased slightly.

Sales in the Okanagan were also down, according to Ogmundson, due to a weaker economy and reduced tourism in the first months of 2024.

Economists expect at least two more quarter-point cuts this year, taking the reference rate to 3.75 percent.

Governor Tiff Macklem said the decision to cut was driven by the continued advance of inflation and the need to restart economic growth.

Macklem also suggested that further cuts were possible and that he was prepared to change the pace of cuts if inflation continued to decline.

Wednesday’s decision marks the first time since the 2009 global financial crisis that the Bank of Canada has cut interest rates at three consecutive meetings.

The interest rate has fallen by 75 basis points since June.

While Ogmundson expects further cuts to spur economic activity, he admits it’s hard to predict whether prices will ever come down in more expensive markets like Metro Vancouver.

“I’ve never seen a market that’s been hit with so many shocks,” he said. “And none of that seems to be affecting the Vancouver market. So I don’t know, maybe the locusts and the Four Horsemen of the Apocalypse, maybe they’d show up. But even if they did, they’d probably just buy condos.”

– With files from Craig Lord and The Canadian Press