How Bank of Canada's rate cut will affect real estate markets, according to experts

financialpost.com:

Just as the central bank’s last 25-basis point rate cut did little to move the housing market, this one probably won’t either, says Clay Jarvis, Nerdwallet Canada’s mortgage and real estate expert. An overnight rate of 4.5 per cent is unlikely to unleash homebuyers’ pent-up demand, he said.

The overnight rate only impacts variable mortgage rates, which should decline by 25 basis points in the next 24 hours, and while variable rates will get a little cheaper, they’ll still be significantly higher than the lowest fixed rates, Jarvis said. Even with the reduction, variable rate mortgages at Canada’s biggest banks will still be north of six per cent, and getting approved for one would require passing a stress test at eight per cent. Such a high qualifying rate could significantly reduce the amount a borrower is approved for, he noted.

Fixed mortgage rates, which remain much lower than variables, are offered for well below five per cent. But those rates haven’t been low enough to get the market moving, said Jarvis. Until variable rates fall by at least another one per cent, they won’t provide a more affordable option than what’s already available, he added, noting that this might require another four or five Bank of Canada rate cuts.

Penelope Graham, mortgage expert at Ratehub.ca, said those who’ve stuck it out so far with variable rates are being rewarded further today, as they’ll see their monthly payments reduced again or more of their payment go toward their principal.

Yet, it remains to be seen whether this second cut will be the incentive homebuyers need to re-enter the housing market as borrowing costs remain restrictively high, Graham noted. But with a slight uptick in sales as a result of the June rate cut, today’s