BoC January Rate Cut: Why It Won't Move the Market

After hacking away with supersized cuts in October and December, the Bank of Canada took more of a whittler’s approach today, shaving 25 basis points off of its overnight lending rate.

Within 24 hours of the Bank’s announcement, most Canadian lenders will absorb the cut and drop their variable mortgage rates by 0.25%.

A modest decrease in variable mortgage rates is about as electrifying as it sounds. Even under normal circumstances it wouldn’t provide much of a jolt to the housing market.

But these aren’t exactly normal circumstances.

Financial pressures are mounting while the threat of U.S. tariffs hangs over the nation’s economy. Canadians might need something the Bank of Canada can’t deliver — like confidence or stability — before moving forward with a home purchase.

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Declining momentum

Overall, the housing market had a solid run during the fourth quarter of 2024. But the rise in home sales we saw in October were gone by the time the calendar flipped over.

Sales in October were up almost 8% compared to September, and climbed another 2.8% in November, according to the Canadian Real Estate Association. December was a different story, with sales declining by almost 6% compared to November.

The regression wasn’t all-encompassing — markets in B.C. and Quebec were white-hot in December — but it was surprising considering the lower rates and relaxed lending rules buyers had access to.

By mid-December, home buyers had 175-basis points worth of Bank of Canada rate cuts to work with. A new $1.5 million insured mortgage limit and a 30-year amortization option for first-time buyers were expected to grease the wheels, too.

It wasn’t enough, though. It’s possible that buyers’ fear of missing out, so often intensified by lower rates, has been replaced by fear of what’s to come.

Up against it

Lower interest rates, like those that’ll follow today’s Bank of Canada decision, only benefit people who are in a position to get a mortgage. If a person is behind on their debt payments or living paycheque-to-paycheque, buying a home isn’t a realistic goal.

That’s a worryingly common scenario.

A recent RBC poll found that 55% of Canadians describe themselves as “financially paralyzed,” while 48% said they can no longer maintain their standard of living. According to professional services firm MNP’s most recent Consumer Debt Index, 50% of Canadians are $200 away from insolvency.

A slight dip in variable mortgage rates isn’t going to change the game for any of these people, or for anyone in a similar, those less dire financial situation. With non-mortgage debt balances and delinquency rates both rising in 2024, taking out a mortgage will beis a non-starter for many Canadians in 2025.

Plenty of well-capitalized consumers with manageable debt loads will buy homes this year. But it won’t be rates that make the difference. It’ll be their overall financial health.

The Trump factor

Trump’s tariff threats have created a level of macroeconomic uncertainty Canadian home buyers didn’t encounter during his first term. Ontario Premier Doug Ford said on January 14 that the province could lose up to 500,000 jobs if Trump follows through with his tariff pledge.

Tariffs would impact industries across several provinces — forestry in B.C., oil in Alberta, auto manufacturing in Ontario, aerospace in Quebec — and likely trigger a recession. Home buyers are right to feel anxious about moving forward in the current climate.

A trade war between the U.S. and Canada might also lead to higher mortgage rates. If inflation were to spike because of retaliatory tariffs on American goods, the Bank of Canada could be forced to reverse course and increase the overnight rate.

Today’s Bank of Canada decision does nothing to alleviate the anxiety Trump’s presidency might be causing Canadian consumers.

Fixed rates are still cheaper

Once the Bank’s latest rate cut works its way through the financial system, the lowest variable mortgage rates at Canada’s biggest lenders will be around 4.75%. That’s still considerably higher than the best fixed rates offered by some brokerages, which are down around 4%.

Setting aside the fact that fixed rates don’t offer the flexibility or potential savings variables do, they’re still the objectively cheaper option — and have been for months.

If rates are preventing buyers from getting into the market, today’s cut doesn’t change much. If sub-4% rates are what they’re waiting for, they — and the housing market — will have to be patient for another few months.

What happens between now and then will determine the trajectory of the 2025 housing market.