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Waiting in the Wings: Homebuyers Pause as They Anticipate Interest Rate Cuts

Of the Canadians who postponed their plans to buy homes in the last two years, 51% indicate they will re-enter the market once the Bank of Canada lowers its key lending rate.


Homebuyers pause as they anticipate interest rate cuts due to the raise of borrowing costs has led millions of Canadians to evaluate their plans to buy a home in the past two years. Since the Bank of Canada started increasing its key lending rate in March 2022, over a quarter of the country's adults (27%) have been active in the market. However, more than half of these individuals (56%) have had to postpone their property search due to rising interest rates, according to a recent Royal LePage survey conducted by Leger.


With the rate of inflation having come down over the past year, close to the desired 2% target, it is expected that the Bank of Canada will make its first cut to the overnight lending rate later this year – a welcome relief for variable-rate mortgage holders and those who have been forced to put off their home buying plans. Among those who have had to postpone their purchase, 51% say they will resume their search if interest rates reverse – 10% say a mere 25-basis-point-drop will prompt them to jump back in, 18% say they are waiting for a cut of 50 to 100 basis points, and 23% say they need to see a cut of more than 100 basis points before they will consider resuming their search.


“Following the first rate hold by the Bank of Canada in March of last year, we saw an immediate surge of activity in the market as consumer confidence strengthened. I expect a similar wave of buyer demand at the first indication that highly-anticipated cuts by the central bank are on the horizon,”

-- Said Phil Soper, president and CEO, Royal LePage


“Buyer behaviour is strongly linked to their confidence that the home they want to buy today will not be less expensive tomorrow. We expect the spring will mark that pivotal moment.”


Homebuyers Pause as They Anticipate Interest Rate Cuts
Homebuyers Pause as They Anticipate Interest Rate Cuts

One-fifth (20%) of sidelined buyers say they no longer plan to purchase a home, while another 12% say they are prepared to jump back in if the BoC’s key lending rate remains unchanged.


Among those who plan to re-enter the market once rates come down, 44% intend to obtain a four-year or five-year fixed-rate mortgage, the most popular mortgage type and term in Canada. That’s double the number of respondents who say they will choose a variable-rate mortgage (22%). Another 12% say they will obtain a short-term fixed-rate mortgage.


“In the first few weeks of the year, we have seen activity pick up in markets large and small, right across the country. Appointment bookings, property showings and requests for mortgage pre-approval through our lending partners are all up sharply. Our people on the front lines report that today’s real estate consumers are well informed, watching trends and fully prepared to engage when they perceive conditions are improved,”

Of those who have postponed their home buying plans due to rising interest rates, 65% remain engaged in the home buying process. This includes those who are casually browsing listings (39%), continuing to save for a down payment (19%), have applied for a mortgage pre-approval (12%) or have obtained a mortgage pre-approval (7%). However, some have disengaged from the home shopping process entirely – 26% of respondents say that they have abandoned their home buying plans for the time being. 


The Bank of Canada’s overnight lending rate currently sits at 5.0%. The next interest rate announcement is scheduled for March 6th*.


To conclude, the impact of rising interest rates on the Canadian housing market has been significant, lending many potential homebuyers to delay their plans. Nevertheless, with the expectations of a rate cut by the Bank of Canada lkaster this year, there is optimism for those looking to re-enter the market. As spring approaches, it may mark a major turning point for many buyers waiting on the sidelines. 


If you’re considering buying or selling a home, don’t hesitate to contact Royal LePage Estate Realty. Our experienced real estate agents are here to help you navigate the market and make informed decisions. Contact us today to get started on your real estate journey!

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Written by Anne-Elise Cugliari Allegritti – Director of Communications, Royal LePage.


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