UPDATED WITH NEW QUOTES, DETAIL: The Bank of Canada has trimmed its overnight interest rate 25 bps to 2.25 per cent, its second consecutive cut. While it's a move welcomed by the real estate and development industry, it is not seen as a panacea for housing and other market challenges.

Canada’s central bank is continuing its efforts to cushion the economy amid flagging growth in Q2, a soft labour market, and higher-than-expected CPI inflation data in September.

The Canadian Mortgage Brokers Association of Ontario (CMBA Ontario) said it supports the rate cut in an emailed statement to RENX Homes. The Vaughan, Ont.-based association called it an effort by the Bank of Canada (BoC) to “encourage economic growth at a time of uncertainty,” fuelled by months of tumultuous trade negotiations with the U.S. that have taken “unpredictable twists and turns.”

The rate reduction supports government plans to increase housing supply and widen access to affordable housing, CMBA Ontario said. Combined with proposals from the federal and Ontario governments to eliminate taxes on homes for first-time buyers, it should further incentivize investment into building new housing.

“A rate cut is only one part of a much greater whole,” Michelle Campbell, president of CMBA Ontario, said. “We need a whole slate of actions in order to get more housing supply being built.”

How the rate cut will affect mortgages, commercial real estate

Though the rate cut is likely to only marginally shift five-year fixed rates for mortgages, Dan Eisner, the founder and CEO of Calgary-based brokerage True North Mortgage, said it will mean an improvement for first-time home buyers looking to get into the market with a variable rate.

In emailed commentary to RENX Homes, Eisner said the tapering of the interest rate will provide welcome relief to first-time homebuyers waiting for affordability to ease. It will also help millions of Canadians who must renew their mortgages in late 2025 and 2026, particularly people with three-year fixed rates.

"Stability is key," he wrote. "There’s a lot of trade talk fatigue out there, and people are beginning to ignore that rhetoric and focus on how things are actually affecting their own lives. If they’re not feeling much of an impact, that confidence starts to come back, and they start buying again. We’re already seeing an uptick in pre-approvals, especially given where we are in the calendar year."

While a quarter-point cut is unlikely to unleash a rush of home purchases, it will encourage prospective buyers by enabling them to borrow more and purchase housing at a lower monthly rate, Anne-Elise Cugliari Allegritti, Royal LePage’s director of research and communications, said in an interview with RENX Homes.

The cut was hailed as “the good news we need right now for commercial real estate,” with increasingly positive signs of activity across several sectors, Mark Fieder, the principal and president of Avison Young Canada, said in an emailed statement to RENX Homes.

Lower interest rates will further stimulate the commercial real estate industry, he continued, attracting sidelined investors and boosting the spirits of active investors.

What's needed to resuscitate the housing market

Robert Saunders, CEO of Toronto-based real estate legal firm Ownright, is somewhat less optimistic. In an email exchange with RENX Homes, he said low market confidence and a weak labour market are the key underlying issues in the housing sector today - not interest rates.

“Canadians aren’t hesitating because mortgage rates are too high. They’re hesitating because job security is low,” Saunders argued. Until the labour market stabilizes, “rate relief will just feel like a Band-Aid solution to a larger systemic problem.”

Uncertainty is affecting developers as much as homebuyers, Saunders observed, reflected in the struggle to develop new housing across Canada. The results are evident in many areas, including the postponements and cancellations of condos and other multifamily developments, or projects going into receivership. 

He anticipates a new housing supply problem looming, which will hit hardest if demand begins to pick up in 2026.

“The affordability picture hasn’t really improved - it’s just shifted, and the underlying risks haven’t gone away.”

For a “massive turnaround” in activity, Cugliari Allegritti said interest rates will have to bottom out. Once buyers are confident lending rates will not go any lower, “they will gradually continue to move off the sidelines as they find the right property.”

To catch the attention of homebuyers, developers will have to offer products that are priced affordably and meet demand for size and location, she added.

The BoC has been moving the benchmark overnight interest rate lower over the past 18 months since its first reduction from a peak of five per cent back in June, 2024, attempting to balance inflation with continuing to grow the economy.

In its most recent decision prior to Wednesday, it had resumed rate reductions with a quarter-point cut in September as the ongoing trade war and other factors weighed on jobs and the economy.