Let’s dive into the Bank of Canada’s October 2024 Monetary Policy Report (MPR), released alongside its 50-basis point rate cut. This move dropped lenders’ prime rates to 5.95% — the lowest in two years — and set the tone for more easing on the horizon. With market uncertainty, sluggish growth, and signs of housing revival, this update unpacks the real impact of the BoC’s direction.

Economic Growth and Inflation Outlook Canada’s economy is limping forward. According to the MPR, per capita GDP is declining, although growth is expected to pick up gradually, potentially hitting 2.25% by 2025-2026. That uptick will be driven largely by consumer spending and increased business investment.

Inflation, which ballooned in previous years, has finally settled within the BoC’s 1-3% target range, hitting 1.6% in September 2024. However, with volatile global energy prices and fragile economic confidence, inflationary risks still linger.

Labour Market Conditions Canada’s job market has softened. Youth and newcomers are feeling the pinch more than others, and while unemployment is rising, wage growth remains around 4% — faster than productivity. This imbalance is inflationary, particularly in service-based sectors. The BoC’s easing efforts are designed to give the labour market room to breathe without reigniting inflation.

Impact on Mortgages and Borrowers Variable-rate borrowers got instant relief from the October rate cut. Monthly payments dropped by around $30 per $100,000 for adjustable-rate mortgage (ARM) holders, while HELOC users saved about $42 per $100,000. Fixed-rate borrowers, however, won’t see changes unless they renew or refinance. Bond yields, which influence fixed rates, haven’t moved much since the rate cut.

Residential Investment Recovery The housing market is beginning to stir. After a prolonged slump, lower mortgage rates, revised insurance rules, and surging demand are triggering renewed interest in real estate. Renovation activity is climbing, and house prices are nudging up in several regions. That said, construction costs remain high, tempering the speed of recovery.

New government initiatives like unlocking 70 federal properties for housing and reforms allowing refinancing up to 90% of home value for building secondary suites aim to meet the national target of 4 million new homes by 2031.

While some Canadian cities have borne the brunt of rate hikes, the tide may finally be turning. The Bank of Canada’s recent signal of more easing ahead could offer much-needed relief — but its impact will vary by region.

What Lies Ahead? Analysts expect further rate cuts in 2025, possibly totaling another 100 basis points. That would bring the BoC’s policy rate closer to its neutral range of 2.25% to 3.25%. Core inflation (CPI-median and CPI-trim) has dropped to 2.3% and 2.4%, while inflation expectations among consumers and businesses are stabilizing.

Still, affordability issues persist in Toronto and Vancouver, where the mortgage stress test remains a hurdle. Despite the easing, many potential buyers struggle to qualify for loans, particularly for fixed-rate mortgages which have dropped by about 150 basis points in the last year.

The US economy’s resilience and Canada’s limited fiscal stimulus suggest fixed-rate cuts may not continue, especially with 5-year bond spreads widening between Canada and the US. Experts say a return to sub-3% fixed mortgage rates is unlikely barring a more severe downturn.

Mortgage Strategy Recommendations Fixed mortgage rates have fallen significantly and may now present a safer bet for cautious buyers. With future bond yield declines largely priced in, locking into a five-year fixed rate may be the better move for long-term planners.

Variable rates, while lower for now, come with uncertainty. Trying to time the market is risky, so pick a mortgage that works for your current situation, and reassess when it’s time to renew. The key is to make decisions based on your financial stability, not rate speculation.

Final Thoughts The BoC’s latest move signals more relief is on the horizon, but the housing market’s complexity means there’s no one-size-fits-all solution. Variable-rate holders are finally catching a break, while fixed-rate shoppers might find now a good time to lock in.

Talk to a mortgage advisor before making your next move. Whether you’re buying, refinancing, or renewing, understanding the impact of policy shifts will help you make smarter, more confident choices.