Saturday, February 8th, 2025

Bank of Canada needs deeper rate cuts to bring real estate sector off sidelines, say experts

The Bank of Canada slashed its overnight lending rate by 50 basis points to 3.75 per cent on Wednesday, marking its fourth consecutive cut this year. While the drop was welcome news for the real estate market, it was also widely expected and already priced into many mortgage rates leaving some industry experts skeptical that this latest cut will have a meaningful impact on growth or investment.

Among the cautious voices are leaders in commercial real estate (CRE), where the impact of lower interest rates is still seen as limited in the near term. According to Peter Norman, vice-president at Altus Group Ltd., the latest rate cut is welcome but not sufficient to drive a recovery in transaction activity.

“Even with a cut of this magnitude, CRE transactions will likely remain on the sidelines until there is confidence that we have more or less returned to balanced monetary conditions.”

Norman also noted that while rate cuts are designed to stimulate the economy, their effects typically take time to materialize, especially in sectors like real estate. He doesn’t expect a noticeable uptick in activity until mid-2025, when investors may feel more confident about market stability. “Investors want a relatively stable rate environment before they start transacting again,” he explained.

For developers, the outlook is even more cautious. Norman highlighted that many are waiting for deeper rate cuts before moving forward with major projects.

“Developers have told us before that we will need to see cuts of 200 to 300 basis points to really move the needles on pro formas. We are now 125 basis points into a cutting cycle, so once again, I think we can expect a surge in confidence sometime in 2025.”

Ray Wong, another vice-president at Altus Group, added that the Bank of Canada’s rate cut reflects broader concerns about the economy’s health. “When a large cut, like this one, is announced, it demonstrates a concern that consumers are running out of gas and that the Bank of Canada is hoping to ignite the markets before tipping into a recession.”

Despite the cautious sentiment in the CRE market, Wong sees a glimmer of optimism.

“We are seeing increased activity across the Canadian commercial real estate market, but not in the tangible sense,” he noted. “There is an uptick in interest, and there is more stability in the bid-ask expectation between buyers and sellers. Right now, it’s still costly to borrow money, but with each consecutive cut, investor sentiment improves in anticipation of future transactions.”

The impact of the latest rate cut may be more evident in the....[READ MORE]

Shawna Connelly

As a McMaster University graduate with an Honours degree in Commerce & a minor in Economics, Shawna brings over 10 y Read More...

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