Bank of Canada Expected to Announce Another Half-Point Rate Cut: RBC Economics

The most recent data from RBC Economics suggests that, following the half-point rate cut in October, a second consecutive 50-basis-points reduction from the Bank of Canada is likely to occur in December.

The Big Five bank predicts that further easing could gradually revive homebuyer activity across the country, as evidenced by a modest 1.9 per cent rise in sales from August to September. Robert Hogue writes in RBC’s Monthly Housing Market Update that, “We think interest rate cuts will open the door to a growing number of buyers who’ve been sitting on the sidelines for some time,” highlighting the prospect of affordability improvements for potential homebuyers.

September marked the second consecutive month of growth in sales, and RBC economists believe the trend could gather momentum as the central bank eases monetary conditions further, particularly with expected deeper cuts. The report notes, “Our view is that sales will continue to pick up as the Bank of Canada cuts rates further.”

Sellers respond to demand with boosted listings

The increase in sales is just one aspect of the market’s recent shifts. Sellers have been noticeably more active, with listings up 4.9 per cent in September—the largest monthly gain since July 2023—bringing inventory levels back to pre-pandemic levels. This surge in new listings may reflect seller expectations for stronger fall demand as lower interest rates encourage more buyers to enter the market.

With new listings surpassing sales, inventory levels have been increasing, helping to rebalance the supply-and-demand dynamic that was heavily skewed during the pandemic. Currently, the national sales-to-new listings ratio has adjusted to reflect more balanced conditions, with regions like Ontario experiencing notable changes. In Toronto, an increase in new condominium completions has resulted in more units on the market, easing some of the previous pressure on buyers.

Prices remain stable despite shifts in supply and demand

Property prices have remained relatively flat since spring. The national MLS Home Price Index edged up a mere 0.1 per cent from August to September and is down 3.3 per cent from last year. Some regions are experiencing significant changes; for example, Vancouver’s sales-to-new listings ratio dropped to 0.4 in September, tipping the market in favor of buyers for the first time in recent months. RBC notes that this has led to a 0.5 per cent price decline, primarily in single-detached homes.

While price growth is modest in larger markets, other areas such as the Prairies, Quebec, and parts of Atlantic Canada are still seeing mild price increases due to tighter inventory conditions. Calgary’s previously tight market, although now balanced, continues to show one of the nation’s highest appreciation rates.

2025 rate cuts to influence market recovery pace

RBC economists highlight that interest rate adjustments will remain a focal point for market participants in 2025. While the anticipated rate cut in December may further stimulate buyer interest, affordability challenges are likely to temper any potential surge in demand. RBC expects a gradual pace of appreciation to return as the Bank of Canada’s rate cuts continue into next year, although regions with severe affordability challenges, such as British Columbia and Ontario, may lag behind other areas.

With economic and labor market uncertainty increasing, RBC Economics’ Claire Fan forecasts a softer overall economic outlook, noting that the rate cuts will provide “a necessary reprieve” but probably without a significant acceleration in market activity. As Fan outlines, “The reduction won’t be the last one… the BoC hinted at future rate cuts to support a return to stronger GDP growth.” RBC projects that the central bank’s overnight rate could reach 2.0 per cent by mid-2025, which could foster a more robust housing recovery in the latter half of next year.