In a move widely anticipated by economists, the Bank of Canada announced a 0.25 per cent interest rate cut and while the reduction is a step towards easing borrowing costs, industry experts caution that it will take time before any significant impact is felt in the housing market.
The decision to lower the benchmark interest rate to 4.75 per cent comes amid concerns about economic growth and inflation. While the cut translates to slightly reduced borrowing costs, potentially making financing for new construction projects more accessible, analysts stress that the real impact of the cut will unfold gradually.
“We don’t think lower rates will translate into a construction boom. Monetary easing will take time to stimulate projects currently on hold, and Canadian housing construction faces myriad structural challenges. These will likely limit our homebuilding and affordable housing ambitions for the next few years,” Desjardins said in its recent housing outlook.
“Interest rates don’t have an impact on the time it takes to build. It doesn’t have an impact on the approvals process and it doesn’t have an impact on any of the red tape that impacts builders,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd. “So certainly, a decrease in rates is welcomed news, but not a silver bullet that’s going to get housing built faster.”
Historical data supports this cautious outlook. Previous rate cuts have often had a delayed response in the real estate sector, as it takes time for lower borrowing costs to translate into increased developer confidence and construction activity. In the short term, developers may remain cautious, still grappling with high material costs, labour shortages, and regulatory hurdles.
