This past Wednesday, the Bank of Canada (BoC) once again cut it’s prime lending rate by one quarter of one percent to three percent.  While this further interest rate reduction will reduce consumer’s borrowing costs for loans, credit cards and yes mortgages it may be too early to start signing “Happy Days Are Here Again” a song written back in 1929 which coincidentally was the start of the Great Depression.

Once the announcement was made, it triggered a degree of exuberance with posts from the real estate community in the media and online all of which seemed to feel this would fuel an eminent rebound in the current housing market.

In addressing this latest BoC reduction and the rationale behind it, an executive of one of Canada’s leading real estate companies stated: “Inflation is clearly under control and has been since last summer.” 

This statement had me somewhat aghast.  While I studied economics I am by no means an economist but I follow numbers closely particularly when it comes to real estate.

Like you, I am a consumer and whether I am at the grocery store, the gas pump or elsewhere, I for one don’t feel that “inflation is under control” and I suspect many of you share the same thoughts.

Reading an article in Canadian Mortgage Trends, released a few days before the BoC rate drop “Economists weigh in on BoC rate cut chances after inflation drop,” provides a different perspective on inflation. Canada’s inflation rate did ease in December to 1.8% some of which was brought about by the federal governments GST/HST holiday that took affect December 14th.  The article further went on to say:

“The Bank of Canada’s preferred core inflation measures continued to ease on an annual basis in December but increased compared to November. As a result, their three-month averages rose and remain above the Bank’s neutral target range.

Further, in terms of the core inflation rate here’s what one of Canada’s major banks said in the above mentioned article:

  • Scotiabank: “What matters here is that Canadian core inflation remains hot and continues to put upward pressure on the BoC’s 2% inflation target. That’s true in terms of the Bank of Canada’s preferred core inflation readings and it’s also true for traditional core CPI that only excludes food and energy that climbed by the most since May.”

When asked about the GST/HST holiday the article featured the following comments from other Canadian banks:

National Bank: “Excluding indirect taxes, which fell as a result of the GST/HST holiday, inflation was 0.06%, the biggest increase in December since 2007 (0.6% m/m after seasonal adjustment, largest in 16 months). Core inflation measures, which exclude the impact of indirect taxes, rose in December also at rates too high for the central bank’s target.”

CIBC: “Canada’s inflation data is only going to get harder to dissect in January, with the full month impact from the GST/HST tax break taking hold.”

Essentially, Canada’s top economists are saying core inflation rate “remains hot.” Food and energy (gas) which are excluded from the core Consumer Price Index (CPI) posted the biggest increase since May while inflation in December reflected the biggest increase since 2007.

Taking all of this into account doesn’t put much credence into the above mentioned quote “Inflation is clearly under control and has been since last summer.” 

We are in a distinctly different real estate market today than where we were in 2020/2021 and the first quarter of 2022.  Having been both a Broker and Market Value Appraiser (MVA) for over 20 years today’s market is unlike any I have seen in my career. The COVID 19 pandemic which brought about the concept of for working from home combined with historically low interest rates fueled a real estate boom many of us had never seen.  During this period, inventory of homes listed for sale on the MLS® System was at a record low level, demand was high and multiple offers generated inflated sale prices.   During that robust period I told both my Seller and Buyer clients that this trend could not be sustained nor was it healthy of it did.

Looking Forward

The outlook for real estate in the next few months or perhaps throughout 2025 is at best a crap shoot but the following is whet we might expect to see in the Southern Georgian Bay area.

With the Bank of Canada cutting rates by 25 basis points to 3%, Southern Georgian Bay’s real estate market will see some mixed effects—but uncertainty surrounding a U.S. trade war could complicate things. Here’s how these factors might play out locally:

Modest Increase in Buyer Interest, But Affordability Remains a Challenge

  • Lower mortgage rates could bring some Buyers back into the market, especially those who were sidelined by high borrowing costs in 2023-2024.
  • First-time Buyers and move-up Buyers might benefit the most provided they budget for and purchase wisely without the hype of 2020/2021/
  • However, a 0.25% cut is small, and with some home prices still remaining high, affordability will still be a concern.
  • Luxury and high-end properties will still move slowly as and these is an abundance of homes listed for sale in the $2.5 million and up segments. See my Year End 2024 Luxury Market Report for details.

Price Stability or Slight Decreases

  • As we continue to shift to a more balanced market, prices will stabilize.  The median MLS® residential sale price in our area has been trending down since 2022, see my Year End 2024 Market Report.
  • Demand for condos, townhomes, and smaller homes may grow as Buyers adjust to still-high borrowing costs.
  • Sellers who price competitively may see quicker sales, while overpriced listings will sit longer. Sellers still need to price realistically – this isn’t 2021’s market and some Sellers and or their Listing Agent have yet to grasp that.

U.S. Trade War Uncertainty Could Undermine Market Gains

As a boater, I consider the current economic situation with the U.S. to be uncharted waters but the following is what we should consider:

  • Southern Georgian Bay attracts retirees, second-home buyers, and those that can work remotely many of whom rely on financial stability.
  • If the U.S.-Canada trade war drags down the economy or worse triggers a recession, job losses, slower wage growth, and investor uncertainty could outweigh the benefits of lower interest rates.
  • The BoC may pause further rate cuts if inflation returns, keeping mortgage rates from dropping further.

Provided the economy holds up, Southern Georgian Bay remains attractive for Buyers looking to relocate however, economic uncertainty could prevent a strong rebound in demand.

What Should Buyers & Sellers Do?

For Buyers:

  • If you’re waiting for lower rates, consider buying before more cuts bring increased Buyer competition.
  • If your personal situation allows, look at condos, single family or townhomes slightly outside major areas for better affordability.

For Sellers:

  • Price competitively—overpricing will lead to longer time on the market.
  • If your home is in the mid-range market ($600K–$1M), you may see stronger demand that for properties in the upper price segments of the market $2 million and higher.

Summary

Not only has the real estate market shifted so has the role for those of us in the real estate profession.  Never has it been more important for us as real estate professionals to know the statistical data in the immediate market area for which we serve.  Consumers have never had so much information available to them in terms of homes and other properties listed for sale.  What both Sellers and Buyers need however is accurate and timely market intelligence to assist them in making sound decisions with respect to their needs and or financial objectives.  It’s the reason why I write this blog and prepare monthly and quarterly Market Reports.

Inflation is far from “under control.”  It remains to be seen what will happen with the proposed U.S. Trade Tariffs and how Canada responds.  This time of year Canadian consumers depend heavily on good from the U.S. such as fresh fruit and vegetables, orange juice and more.  We may expect to see those items jump in price shortly.  While this latest rate reduction by the BoC is welcomed, it is by no means the final chapter in what may be a long and prolonged trade war with the U.S. which brings with it the chance of a recession.

In closing, real estate is and always has been a sound investment if done with fact based decisions and sound advice from a real estate professional with expertise in the market area where you are looking to buy and or sell.  As always feel free to Contact Me if you have any questions or comments about your particular circumstances.

NOTE: The author is a Broker, Market Value Appraiser-Residential with Sotheby’s International Realty Canada and a Past President (2008) of the Lakeland’s Association of REALTORS®.