Interest rate cuts spark hope for financial relief and housing market activity

High interest rates have impacted Canadians’ finances for quite some time, with 65 per cent saying lower interest rates will make a positive, meaningful impact on their financial well-being, according to Dye & Durham’s Canadian Pulse Report for Q2 2024.

On June 5, they got some relief with the Bank of Canada reducing its target for the overnight rate by 25 basis points, to 4.75 per cent. The next announcement is scheduled for July 24, 2024.

Phil Soper, president and CEO of Royal LePage, shares his thoughts: “The long-awaited cut to the overnight lending rate has arrived. The Bank of Canada held its key lending rate at a two-decade high of 5 per cent for the past 11 months, and more than four years have passed since the last time that the rate was reduced.

Our research indicates that half of sidelined homebuyers in Canada plan to resume their home search plans once the bank rate begins to drop. This will no doubt spark activity and put upward pressure on home prices in the second half of the year.”

Over 80% feel lower rates will make many large purchases more affordable, including a home

The report found that 38 per cent of respondents have waited to make a major purchase in the past year due to high interest rates. Of the 42 per cent who expect to make a major purchase once rates begin to decline, similar to the Royal LePage findings, 57 per cent plan to wait for significant cuts first.

“It’s clear that higher rates have done their job, cooling consumer spending significantly and helping to bring inflation down to much more manageable levels,” says Martha Vallance, chief operating officer, Dye & Durham. “Consumers have said they’re ready to start spending again and are just waiting for the Bank of Canada to make its move, though few should expect rates to return to where they were before. Industries like real estate, automotive sales, construction and more — along with those industries that play critical roles in supporting them — should take note and prepare for a fast-moving market once meaningful cuts are made.”

81 per cent of Canadians believe lower interest rates will make it more affordable to purchase or put funds towards expenses like mortgage costs (81 per cent), a new home or property (70 per cent), the sale price of an owned home or property (66 per cent), home renovations (65 per cent) and personal/emergency savings (58 per cent) or RRSP/retirement savings (48 per cent).

Other key findings

Many Canadian homeowners who renewed mortgages in 2023 and 2024 have seen their monthly payments increase by thousands of dollars. 41 per cent with a residential mortgage plan to refinance once rates begin to decline. Albertans in particular (58 per cent) view this as a way to reduce monthly expenses.

Renters also see lower interest rates as some hope to get into the housing market, with 57 per cent noting lower rates will make it easier for them to buy a home in the future and 50 per cent saying they’ll more likely be able to buy a home in the future if rates come down.

76 per cent of Canadians aged 18-34 feel lower rates will make it easier to afford a new home and 70 per cent feel it’s more likely they’ll be able to do so at some point.

Read the full report here.