On September 17, 2025, the Bank of Canada reduced its key policy interest rate by 25 basis points, bringing it down to 2.50%. This is the lowest level in three years and its first cut since March.
This move came as the Canadian economy showed signs of weakness: GDP contracted by ~1.6% in Q2, more than 100,000 jobs were lost over two months, and unemployment rose to a nine-year high (excluding pandemic years).
Inflation is easing but remains within the target range—core CPI is hovering around 2.5% to 3%, and headline CPI is at 1.9%.
Governor Tiff Macklem emphasized the decision was unanimous and signalled further cuts may follow in October, potentially reaching 2.25% by late 2025.
What It Means for the Canadian Housing Market
1. Market May Heat Up Further
Lower policy rates generally reduce borrowing costs. Mortgage lenders are expected to pass on this reduction - variable mortgage rates are likely to drop by about 0.25%, undercutting current borrowing costs and potentially boosting affordability.
Cheaper loans may prompt buyers who had delayed purchasing to re-enter the market, especially in high-demand cities like Vancouver and Toronto.
2. Potential for More Qualified Buyers
As mortgage rates decline, more Canadians may now qualify for financing. With improved purchasing power, first-time buyers and investors re-evaluate affordability thresholds therefore, expanding the pool of active participants.
3. Competition May Increase
Increased demand typically brings more competition. Listings could draw multiple offers faster, particularly if supply remains constrained. Well-prepared buyers will have an edge.
🔍 What’s Next: Future Rate Cuts & Market Outlook
Analysts expect the Bank may continue easing with another cut possibly in October. Consensus forecasts suggest the terminal rate could land around 2.25% by year-end, some projections hold it at 2.75% into 2026 before gradual declines to 2.50% or below.
Still, trade-related economic risks, especially ongoing U.S. tariffs, could influence the Bank’s decisions and the broader housing market.
How to Position Yourself Now:
If you're looking to buy, sell, or refinance, here are three proactive steps:
1. Contact a Mortgage Broker
Understand your mortgage eligibility under the new rate. Ask what variable vs. fixed options are available, and whether refinancing might save you on monthly payments or increase your buying capacity.
2. Get in Touch with a Realtor
Realtors offer on-the-ground insights: hot neighbourhoods, shifting demand, and how competition is evolving. This can be invaluable whether you're buying, selling, or investing.
3. Understand Potential Market Outcomes
Know that a warmer market means faster-moving inventory and more competition. Whether you're shopping or listing, anticipate multiple offers and be clear on your strategy and financing pre-approval.
Summary
To get more information on where you stand Contact us at Coastal Key Homes.