What the Rate Cut Means for Mortgage Rates and the Real Estate Market

Condo towers in downtown Vancouver on July 25, 2024. The Canadian Press/Darryl Dyck

The 2 million Canadians set to renew their mortgages soon will see only modest relief after the Bank of Canada slashed interest rates for the first time since March, with real estate experts also warning housing affordability will remain relatively unchanged.

Bank of Canada Governor Tiff Macklem announced on Sept. 17 that it would lower rates from 2.75 percent to 2.5 percent because of a softening labour market, lowered inflation pressures, and less upside risk to inflation because of Ottawa removing retaliatory tariffs on the United States.

Daniel Foch, chief real estate officer at Valery.ca, said the rate cut announcement will bring “a little bit of relief” for Canadians with fixed-rate mortgages. Around 2 million fixed-rate mortgages are set to renew at the end of the year, and many of those are expected to renew at higher rates.

“They have a limited ability to actually improve the equation. It’s really just trying to create some relief for the supply side of the equation,” he told The Epoch Times.

Ben Rabidoux, founder of Edge Analytics and North Cove Advisors, said the interest rate cut could bring a “little bit more confidence” back into the housing market, which has had negative sentiment in recent months.

“It doesn’t really do much for affordability, but it may help sort of thaw out some of the confidence, and so from that perspective, it’s helpful for the real estate market. The big question is where we go from here.”

Mortgage Rates

The Bank of Canada’s announcement is welcome news for those with variable rate mortgages, as these are directly tied to the Bank’s prime policy rates. Thus, banks will lower their prime rate from 4.95 to 4.7, reducing mortgage payments for many of those Canadians.

Foch said for Canadians with fixed-rate mortgages, which are tied to government bond yields and tend to rise and fall with interest rates, the Bank of Canada’s decision will also “ease the pressure on those households where the majority were going to reset at higher rates.”

Canada’s 5 Year Bond yields, which many fixed-rate mortgages are tied to, fell from 3 percent to 2.75 percent over the last two weeks as the bond market anticipated interest rate cuts. The Bank of Canada said in a January 2025 report that 60 percent of outstanding mortgages will renew in 2026, and around 40 percent of mortgages could be subject to a higher interest rate at renewal over the same period, as many locked in their rate in 2020 when interest rates were at 1 percent or less.

Foch noted that according to the Canada Mortgage and Housing Corporation, more Canadians are switching to variable-rate mortgages in order to “capture that future downside in rates.”

According to Rabidoux, the bond markets had already priced-in interest rate cuts, and thus the reaction in that market was “pretty muted.” He also said that since variable rates were around 10 to 15 basis points above fixed rates, the cheapest mortgages will be just 10 basis points lower than before the cut, “which is helpful, but is not really going to move the needle on the affordability picture.”

Rabidoux said if the Bank of Canada were to cut interest rates another couple of times due to a weakening labour market, that would be “a very different situation from an affordability perspective.”

Housing Prices

Housing affordability has been a prominent issue in Canada for several years, causing the federal government to take on more of a role in the sector compared to the provinces, including by most recently launching Build Canada Homes to build affordable housing on government land.

When it comes to housing prices, Foch said lowering mortgage rates is not effective for increasing overall affordability. Foch said he believes more people will enter the market if housing prices continue falling, but the lowering of interest rates will not be a catalyst for this.

The average selling price of a home in Canada fell by 3.4 percent year-over-year to $686,800 in August 2025, compared to an all-time high of $851,000 in March 2022. Housing prices have also decreased by 0.9 percent compared to July.

Foch said when interest rates first began falling, many realtors suggested this would be the “last chance to buy” before housing prices were going to start increasing again. “That just turns out not to be true, and it takes the realtors two or three cuts to realize that that’s the case,” he said.

Rabidoux also said he does not believe interest rate cuts will assist with housing affordability, as real estate markets are “pretty well supplied” in many parts of Canada. He predicts that housing prices will remain flat or trend downward from here.

“I just don’t think this particular cut has done anything to sort of change that calculus. However, if we start getting signals that there will be more than that one additional rate cut priced in, that’s where I think things start to get more interesting,” he said.

Rabidoux said the real estate market is currently being held back by poor sentiment as opposed to affordability. He said with one more rate cut from the Bank of Canada, housing prices would return to levels seen in mid-2021, and yet home sales are currently 50 percent lower than they were at that time.

“Affordability has been crap for years, and we’ve had a much stronger real estate market than we have currently. I think, more than anything, this is a sentiment issue right now,” he said.