By May Warren

Copyright thestar

The Bank of Canada has finally cut its key interest rate by 25 basis points to 2.5 per cent after holding steady throughout the summer.

With the busy fall real estate season in full swing, will the announcement be enough to spark the slumping Toronto market? Or is it just one factor among many that would-be buyers are considering? And what exactly does this mean for your monthly payments?

Victor Tran, a Rates.ca mortgage and real estate expert, said people with variable-rate mortgages and lines of credit will see a direct impact.

“Their rate would drop by a quarter per cent. And for every $100,000 borrowed, a 25-basis-point drop equals about $15 a month.”

Those with fixed-rate mortgages will not see a difference in monthly payments. But those considering buying and shopping around fixed rates will see them a bit lower soon, he added. Fixed rates are influenced by bond yields, which for the past couple of weeks “have been sliding” due to larger economic factors such as unemployment and inflation.

Penelope Graham, mortgage expert at Ratehub.ca, said the lowest five-year variable rate is sitting at 3.95 per cent and that’s expected to come down to 3.7 per cent after the announcement. The lowest five-year fixed rate is 3.9, which remains the same.

One of the factors impacting fixed rates was the predicted rate cut, she added.

Graham said the rate decision will “stoke some optimism” in the market, noting 2025 was supposed to be a hot year for real estate before the “hammer of tariffs fell.”

While the “tariff threats have not dissipated entirely,” people are a lot more comfortable living with them, she said.

That combined with a bit more affordability from the rate cut might get some buyers off the sidelines.

Tran doesn’t, however, think the rate cut will have a huge, immediate impact on Toronto real estate.

“It’s not like it’s suddenly created a buying frenzy,” he said.

There are a lot of other factors at play, including the rising unemployment rate — when workers are worried about losing their jobs they’re less likely to buy a home.

Return-to-office mandates also contribute to rising monthly costs and may mean some people aren’t able to buy in the neighbourhoods they were considering.

“Inventory and real estate is still piling up, so demand is just simply not there,” Tran added.

Tran noted rents are coming down a bit in the region, and renting can offer more flexibility.

“I think a lot of younger folks, people in their 20s and 30s, even people in their 40s, that haven’t purchased a home yet are just realizing that it’s not the end of the world if you don’t own a property, it’s OK to rent,” he said.

After historic lows during the pandemic, the central bank hiked interest rates to a high of five per cent in July 2023, before making a series of cuts down to 2.75 in March of this year.

The bank then left the key interest rate unchanged in its last three decisions.

At its most recent rate announcement in July, the bank cited ongoing economic uncertainty and inflation as reasons for keeping the status quo, but left the door open to future cuts.

Since then there’s been some data released suggesting a softer Canadian economy, which experts attribute to U.S. President Donald Trump’s tariffs.

In his decision Wednesday, governor Tiff Macklem said there was “clear consensus” from the bank’s governing council due to a weaker economy and less upside risk to inflation.

Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert, said the rate cut will not save variable-rate mortgage holders that much money.

“This being said, perception is almost everything in this world,” she said. When people hear the bank dropped rates they assume it means a big discount for everyone.

“So I do think it might heat up the market, despite the fact that it’s not really a big change.”

Her advice to buyers is the same she would give yesterday: find a good realtor and negotiate the price down.

“Buyers are in high demand,” she said.

Higher interest rates are one of the factors that experts blame for the drop in housing prices in the GTA — more than 23 per cent in average sales price for all property types since the peak of the market in February 2022.

Patrick Smith, vice-president, real estate secured lending at TD, said the rate cut will make a difference in affordability.

“It’s going to mean lower payments for borrowers that are making a new purchase or have renewals coming up, or if they’re going to refinance for a purchase or renovation or something like that,” he said.

“This provides consumers with reason for optimism and maybe nudges some people off of the sidelines.”