10.28.2024 | Market Update

The Bank of Canada’s Big Rate Cut: What It Means for Toronto’s Real Estate Market

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The much-anticipated moment has arrived: the Bank of Canada has cut interest rates by 0.5%, bringing the policy rate down to 3.75%—the lowest it’s been since October 2022. This significant move marks the largest rate cut since March 2020 and could have important implications for Toronto’s real estate market.

But let’s get real about what this means for you.

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Understanding the Impact Without the Hype

While a rate cut is always newsworthy, it’s essential to keep expectations in check. If you couldn’t afford a home last week, this rate cut might not change that overnight. However, if you’re already in the market, this reduction could increase your borrowing capacity just enough to make a meaningful difference.

For Buyers
  • Slight Increase in Purchasing Power: The lower interest rate might allow you to qualify for a bit more financing. This could open doors to a slightly larger condo or a neighborhood that was previously just out of reach.
  • Reassess Your Options: It’s a good time to revisit your mortgage broker to see how this change affects your buying power.
For Sellers
  • Potential for More Qualified Buyers: If your property has been sitting on the market because buyers couldn’t meet your price, this rate cut might bring more qualified buyers to your doorstep.
  • Strategic Timing: With the spring market potentially looking very different, now might be an opportune time to prepare your home for sale.

The Bigger Economic Picture

Inflation has returned to around the 2% target, which heavily influenced the Bank’s decision to reduce the policy rate. By lowering rates, the Bank aims to support economic growth and keep inflation within the 1% to 3% range.

Governor Tiff Macklem has indicated that more cuts could be on the horizon, thanks to the progress made in lowering inflation.

Robert Kavcic, a senior economist at BMO, notes:

“By next spring, Canadians could be presented with mortgage rates that start to make things make more sense.”

This suggests that while the market hasn’t responded dramatically to the initial rate cuts, continued reductions could stimulate more significant activity in the coming months.

Current Market Conditions in Toronto

According to the Toronto Regional Real Estate Board (TRREB):

  • Home Sales Are Up: September saw 4,996 home sales—an 8.5% increase compared to September 2023.
  • Increase in New Listings: New listings totaled 18,089, up 10.5% year-over-year.
  • Stable Prices: The average selling price was $1,107,291, down just 1% compared to the same time last year.

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Jennifer Pearce, TRREB President, commented:

“As buyers take advantage of changes to mortgage lending guidelines and borrowing costs trending lower, home sales will steadily increase in relation to population growth. With every rate cut, a growing number of GTA households will afford a long-term investment in homeownership, including first-time buyers.”

Looking Ahead: What to Expect

Potential for Further Rate Cuts
The next Bank of Canada announcement is scheduled for December 11, 2023, and economists are anticipating additional cuts. RBC forecasts another 0.5% reduction in December, with the overnight rate potentially reaching 2% by July 2025.

Spring Market Could Be a Game-Changer
There’s a strong possibility that the spring market will be more active than what we’re experiencing now. If further rate cuts occur, more buyers may enter the market, increasing competition and potentially driving up prices.

Strategic Considerations for Buyers and Sellers

Buyers: Plan Ahead but Stay Grounded

  • Assess Your Finances: While you might qualify for slightly more, it’s crucial to buy within your means.
  • Consider a Neighborhood Upgrade: The rate cut could make a better location or a slightly larger property accessible.
  • Think Long-Term: With more rate cuts expected, locking in a mortgage now might be advantageous.

Sellers: Prepare for Increased Activity

  • Reevaluate Your Listing: If your home has been on the market without much interest, this could change soon.
  • Timing Is Key: Getting your property market-ready now could position you well for a potentially busier spring season.

Jason Mercer, TRREB Chief Market Analyst, observed:

“The annual improvement in September home sales was more than matched by the increase in new listings. This resulted in a better-supplied market and increased negotiating power for buyers. The ability to negotiate on price led to moderate year-over-year price declines, particularly in the more affordable condo apartment and townhouse segments.”

Mortgage Renewals and Economic Factors

Nearly 2.2 million Canadian mortgages are up for renewal over the next two years. Many of these were secured at lower rates in 2021, and with salaries not having risen significantly, homeowners could face higher payments upon renewal. This scenario adds pressure on the Bank of Canada to continue cutting rates to ease financial strain on Canadians.

Final Thoughts: Making Informed Decisions

While the rate cut is significant, it’s not a silver bullet that will transform the market overnight. However, it does present opportunities for those ready to act.

John DiMichele, TRREB CEO, stated:

“We are pleased with the positive changes to mortgage lending guidelines announced over the past month. The ability for existing mortgage holders to shop around for the best rate without facing the stress test will result in more affordable renewals. Longer amortization periods and the ability to insure mortgages for purchases over $1 million will give home buyers more options as the GTA housing market recovers.”

How Homeplicity Realty Group Can Help

Navigating these changes can be complex, but you don’t have to do it alone.

  • Personalized Guidance: We’ll help you understand how these market shifts impact your specific situation.
  • Strategic Planning: Whether buying or selling, we’ll develop a tailored plan to help you achieve your goals.
  • Market Expertise: With our finger on the pulse of Toronto’s real estate market, we provide insights that keep you ahead of the curve.

If you’re considering buying or selling and want to discuss how these developments affect you, I’m here to help. Contact me at 647-973-8392, and let’s navigate this changing market together.

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