The outlook for Canada’s housing market remains uncertain after the Bank of Canada cut its key interest rate on Wednesday amid what it calls “pervasive uncertainty” around the trade war imposed by the U.S.
The central bank cut its benchmark rate by 25 basis points, bringing it down to 2.75 per cent.
This was the bank’s seventh consecutive interest rate cut.
While announcing the rate cut, Bank of Canada Gov. Tiff Macklem said the uncertainty around tariffs was forcing Canadians to cut back on spending.
“In recent months, the pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest,” he said.
Clay Jarvis, a mortgage expert at NerdWallet Canada, said while a March rate cut is typically good news for the spring housing market, it is hard for Canadian homebuyers to have confidence right now.
“A March rate cut from the Bank of Canada would usually act as fuel for the spring housing market, but it’s hard to start a fire when the economy is soaked through with uncertainty,” Jarvis said.
He added, “Home buyers have had access to both shrinking rates and rising inventory this year, but many are lacking the confidence to go through with a purchase. No one knows what’s going to happen with tariffs. They could wind up decimating several industries. It’s hard to sign up for a mortgage when you don’t know if you’ll have a job later this year.”
Penelope Graham, mortgage expert at Ratehub.ca, said, “Tariff uncertainty has thrown cold water on what otherwise would have been a robust early spring market; home buyers are hesitant to buy properties as a potential recession looms, while sellers pile inventory onto an already saturated market.”
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Graham said a rate cut could “slightly” improve affordability.
“But it’s more likely that a chill will remain on the housing market until tariff fears dissipate for good,” she said.
Graham said the rate cut “offers some comfort” to variable mortgage borrowers, who will now see either their monthly payments, or the portion that services interest, immediately decrease.
Graham use the hypothetical example of a homeowner who put a 10 per cent down payment on a $670,064 (average home price in Canada for January 2025 according to the Canadian Real Estate Association) home with a five-year variable rate of 4.20 per cent amortized over 25 years.
According to Ratehub.ca’s mortgage payment calculator, such a homeowner would have a total mortgage amount of $621,753 and a monthly mortgage payment of $3,338.
With Wednesday’s 25-basis point rate decrease, their variable mortgage rate will decrease to 3.95 per cent and their monthly payment will decrease to $3,254.
“This means that the homeowner will pay $84 less per month or $1,008 less per year on their mortgage payments,” she said.
The Bank of Canada is expected to react to the tariff uncertainty with further rate cuts, economists are projecting.
Royal Bank of Canada is projecting that the central bank will cut interest rates down from the current 2.75 per cent to 2.25 per cent by mid-year, RBC economist Claire Fan said in a note Wednesday.
Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, said assuming that tariffs become the “new norm,” Canadians should expect another rate cut in April.
“We see them continuing to move at each meeting in the coming months to move closer to that two-per cent neutral rate. This is assuming that inflation moves within the bank’s one to three per cent target range. But we think that growth is more of a concern than inflation (for the Bank of Canada now),” he said.
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