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Bank of Canada slashes overnight policy rate to 2.25%: An update on housing
KEY FINDINGS
- The Bank of Canada has reduced the overnight policy rate by 25-basis points to 2.25%, marking the second consecutive cut this year after a 50-basis-point reduction in September.
- Inflation rose to 2.4% in September while unemployment remains high at 7.1%, with trade uncertainty and job losses in key sectors weighing on economic growth.
- 82% of Canadians plan to delay home purchases by at least a year, citing affordability challenges, economic uncertainty, and rising unemployment.
- Interest in variable-rate mortgages is growing due to recent rate cuts, but most Canadians still prefer fixed rates for their stability and predictability.
- The pre-construction condo market is in crisis with sales hitting record lows, 22,602 unsold units in the Greater Toronto and Hamilton Area, and new home sales down 80% from the 10-year average.
The Bank of Canada (BoC) lowered its overnight rate by 25-basis points to 2.25% this morning, marking the second consecutive cut since the last announcement in September.
These cuts were a response in part to a sharp spike in inflation to 2.4% from 1.9% between August to September.
In addition to this, Canada’s labour market has seen minimal growth since January, hampered by trade uncertainty and an unemployment rate of 7.1%.
However, in a special housing report Robert Hogue, assistant chief economist at RBC Economics, wrote: “buyer restraint is being reinforced by persistent affordability challenges and softening labour market conditions, which continue to constrain household purchasing power.”
As a result, many Canadians in major cities are holding off on buying.
A survey from Royal LePage found that 82% of Canadians plan to wait at least another year, despite more favorable market conditions.
Why BoC cut rates today
The central bank’s 25-basis-point rate cut today follows a 25-basis-point reduction in September. These cuts aim to support the economy while keeping inflation near the 2% target.
“U.S. tariffs and trade uncertainty have weakened the Canadian economy,” said Governor Tiff Macklem during this morning’s announcement, shrinking GDP by 1.6% in Q2 due to weaker exports and business investment. While household spending and residential investment remain steady, the labour market is struggling, with job losses in trade-sensitive sectors and unemployment at 7.1%.
Inflation is mixed: CPI inflation was 2.4% in September, while underlying inflation is around 2.5%. Weak growth is holding prices down, but higher business costs from the trade conflict are adding inflationary pressure, keeping inflation near target.
Macklem explained this morning, that Canada’s challenges are long-term, not temporary. The U.S. trade conflict has weakened Canada’s economy by reducing its ability to produce and increasing costs. While the rate cut helps with the adjustment, it can’t fix the damage caused by tariffs.
These economic shifts have directly impacted the real estate market. In major areas, rising inventory and falling prices are giving homebuyers more choices and leverage.
Whether you’re a homebuyer or seller— here’s what you need to make informed decisions in today’s shifting housing market.
Is today’s rate cut going to stimulate the housing market?
While lower borrowing costs might seem like something that could spur a market rebound, Victor Tran, mortgage broker and Rates.ca expert believes other factors will keep activity soft.
“I don't think demand is going to steadily increase, or that sales activity or volume will increase either,” he says, adding, “we've seen quite a bit of Bank of Canada rate drops already, and it barely did anything.”
Tran points to persistent economic uncertainty and inflation as two key financial concerns for many households, as well as rising unemployment rates.
“There are a lot of fixed costs that are always going to go up,” says Tran, listing property taxes, utilities, and condo fees as just a few. “There are so many things that are impacting people's budgets, and I think a lot of people are afraid to jump into the housing market.”
While the rate cut helps to reduce mortgage burden slightly, it isn't enough to overcome these broader financial anxieties.
Read more: Should you buy a house right now, or wait until interest rates come back down?
Return to office mandates complicating homebuying plans
Adding to this buyer hesitation is the increasing number of companies mandating return-to-office policies, disrupting the plans of many potential homebuyers.
Someone previously planning to buy in a more remote but affordable area while working from home may now be limited by their work commute.
"Someone that was maybe working [a hybrid schedule]... may have had plans to purchase in a certain area, but now their mandate is to go to the office five days a week," he says. "That throws a wrench in the picture."
Related: How to pay your mortgage after a job loss
The preconstruction condo market is spiralling
When it comes to traditional starter home options, Tran is blunt: Toronto’s pre-construction condo market is “really struggling,” pointing to cancelled projects and a tough environment for the industry.
Prices for many new builds are as high as resale units, which makes pre-construction less attractive. “You’re better off just looking for a resale unit,” Tran advises.
The risks for buyers are front and center. He warns it’s “too risky to purchase a pre-construction and tie your money up for the next four or five years” given today’s uncertainty. Many buyers are hesitant to commit to something they can’t see or walk through.
As of Q3, there are 22,602 unsold new condos across all stages of development in the Greater Toronto and Hamilton Area (GTHA). Builders are grappling with higher interest rates and rising construction costs, which only add to the pressure.
“They need to sell a significant number of units before they can even break ground,” says Tran. “But they’re not getting anything. So naturally, those projects are going to be cancelled anyway.”
In a new report, RBC’s Hogue writes that the pre-construction market is in a “deep freeze,” with sales hitting lows not seen since the global financial crisis.
He points to a “sobering reassessment of investment fundamentals,” with cooling rental demand and more modest expectations for price growth as key reasons why pre-construction condos have lost their appeal.
Meanwhile, existing units are plagued with impractical design issues.
“The layouts are not functional—small units, built for investors,” Tran says, noting that most new builds don’t prioritize end-user needs.
The September report from the Building Industry and Land Development Association (BILD) found that only 438 new homes were sold in the GTA, down 29% from September 2024 and 80% below the 10-year average. In Toronto, just 28 new condo units sold, highlighting persistently low sales across all GTA housing types.
The bottom line: don’t expect a turnaround for the pre-construction segment in Toronto any time soon.
Read more: Ask the Expert: Solutions for a flatlining condo market and new year predictions
The hotter the market, the bigger the fall – a tale of two real estate markets
While headlines highlight a slowing real estate market in general, Toronto and the surrounding 905 region are experiencing distinct trends within the GTA.
“There are certain pockets in the city that are still doing well," Tran says. For example, in areas along Yonge St, like Summerhill, Midtown, Lawrence Park, and the Annex, demand remains steady, and homes are still selling—just at a slower pace.
For the high-income earners in these areas, he says, "the market will continue moving," even amid wider market uncertainty.
But in the Greater Toronto Area suburbs, the situation is less stable. "The 905 has definitely seen a much greater decline," Tran notes, linking this to the rapid price increases these areas experienced in the past.
He explains that the extent of the market correction is proportional to the previous price surge, saying, "the hotter you go, the bigger the fall."
The condo market shows an equally nuanced divide. While Toronto condos are struggling, (with inventory up “less than 3% over last year,” according to Tran), GTA condo listings surged nearly 19% compared to last September.
Tran encourages buyers and sellers to look closely at specific neighbourhoods and housing types rather than relying solely on broad statistics.
Related: Ask the Mortgage Expert: Why this could be your window of opportunity into Canadian real estate
You need to change your selling strategy and readjust expectations in today’s changing market
Success in today’s real estate market depends on honest expectations and careful planning, especially for those buying and selling at the same time.
If you’re both buying and selling, you should sell your current home first.
Unlike previous years, buying before selling is now much riskier. “It could take a little while for the home to sell,” he warns. Play it safe: sell first, and once it's sold firm, then you can start shopping for a home.
To have the best shot of selling, homeowners should temper expectations when setting their home prices. Tran says, “if someone is in need to get out and sell, then they really need to have realistic expectations. And that's the problem that we see right now with a lot of sellers.”
Most sellers can be stubborn. They think that their home is worth a lot more than it really is. He adds that holding onto peak price expectations from 2021 or 2022 is holding many sellers back: “They're not willing to adapt to reality. So, it's just managing expectations basically, not getting in their own way.”
Today’s rate cut: Are Canadians shifting toward variable mortgages rather than fixed?
Interest in variable-rate mortgages is up, but most Canadians still prefer fixed rates.
According to Tran, recent rate cuts and speculation about further reductions have sparked more conversations and consideration around variable rates. With both rates sitting in the low-to-mid 4% range, monthly payments are similar, prompting borrowers to consider which option suits them best.
Even though both rates are comparable right now, Tran says, "more people will still go for a fixed rate because of stability, and people still don't want to take the risk of fluctuating payments."
Variable rates attract mostly experienced homeowners with flexible budgets, but for most, fixed rates remain the safer, more predictable choice.
Fixed rates are locked in for the length of the mortgage term, meaning fluctuations in fixed rates tied to bond yields won’t impact a borrower’s payments during their term. However, lenders have already adjusted fixed rates downward for new borrowers, reflecting recent bond market trends, according to Tran.
Variable rates, meanwhile, fluctuate with BoC’s rate changes. For those with adjustable variable rate mortgages, today’s rate cut translates directly into lower monthly payments. However, some variable rate mortgages have fixed payments, meaning the monthly payment amount remains the same even if rates drop, with the change instead affecting how much of the payment goes toward interest versus principal.
No matter your situation, Tran’s advice is clear: stay informed, adapt to the realities of today’s market, and don’t let assumptions get in the way of making sound, confident decisions.
Read next: Do fixed mortgage rates provide better value than variable?
Arshi Hossain, Associate editor
Arshi Hossain is the associate editor at Rates.ca. She has 4+ years of experience in delivering strategy-backed digital content through various mediums. Her expertise lies in breaking down complex information, meeting people where they are, and in the moments that matter.
Prior to joining Rates.ca, she worked in the editorial and digital content space at Wealthsimple, supported digital strategies, and UX writing for payment products and solutions at Bank of Montreal. She has also worked with startups to support editorial, content writing, communications, copywriting, and marketing needs.
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