Potential Homeowner Interest and Rate Cuts

The latest Bank of Canada rate announcement was to hold its overnight rate target at 5%, alongside a bank rate of 5.25% and a deposit rate of 5%. Cuts are expected, but the precise timing and magnitude of these cuts are still being debated. Meanwhile, some experts, although expecting cuts to eventually come, have been calling for more aggressive rate cuts to stimulate the economy.

Now, new information is coming out that may suggest rate cuts, which may lead to lower mortgage rates, could boost potential homeowners into buying again. 

A Bank of Montreal survey suggests that 72% of potential homeowners are holding off on buying a house until interest rates drop. This is an increase of 4% from the previous year. While this suggests that rate cuts could prompt greater confidence in buying, there are other financial and economic concerns noted in the survey that are discouraging potential homeowners from taking the plunge. This includes concerns about the cost of living, inflation, fear of unknown expenses, and overall finances. 

While this survey shows how cautious aspiring homeowners are being, it did also find, on a more positive note, that 85% of Canadians believe they are making “real financial progress”.

Another recent survey from RBC also had more positive findings. There is an uptick of people looking to buy in the next two years – 29% compared to 22% in 2023. A majority of 60% believe home or condo ownership is still a good investment, which is an increase from 2023. Furthermore, 41% of potential home buyers expect to be able to save enough for a down payment in four years or less.

However, this confidence is still tempered by financial concerns and fears about homeownership costs. It also noted that 50% of Canadians are saving less due to inflation, and 57% of respondents indicated they would require a side hustle or second job to afford a home. 36% report that they’re not saving monthly, which is a notable increase from the 8% reported in 2023. 

Despite economic challenges, there’s a continuing sentiment in Canada that homeownership remains a valuable investment. However, practical hurdles, such as affordability constraints, inflation, and interest rates, are causing potential homeowners to look at second jobs or other sources of supplementary income, or find other strategies to address the financial hurdles they are facing. Nevertheless, there are notes of optimism and signs of ongoing interest in real estate, especially if rates drop.