‍The Bank of Canada lowered its target overnight rate by 25 basis points to 2.25% on Wednesday, the second consecutive rate cut in less than two months. The move reflects ongoing economic weakness and an inflation rate expected to remain close to the 2% target.

Real estate professionals across the country are cautiously optimistic that the cut will stimulate activity in both commercial and residential markets. But the central bank's messaging suggests this may be the end of the cutting cycle, at least for now.

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"About the Right Level"

Governor Tiff Macklem made it clear that policymakers feel the rate is now roughly where it needs to be. "If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment," the Bank stated in its announcement.

That's a signal. The Bank isn't committing to more cuts. They're suggesting 2.25% might be the floor, assuming the economy behaves as expected.

"The Canadian economy faces a difficult transition," the Bank said. It cited structural damage from an ongoing trade conflict with the United States that "reduces the capacity of the economy and adds costs," limiting the role monetary policy can play in boosting demand.

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Real Estate Leaders Welcome the News

Commercial real estate executives see the rate cut as a positive development for deal activity.

"The Bank of Canada's move to cut the overnight rate is the good news we need right now," said Mark Fieder, President of Avison Young Canada. "Lower interest rates will further stimulate our market, generating appetite from those investors who have been cautiously holding off on the sidelines while fueling already-active investors with even more optimism."

Fieder added that some economic indicators are coming in better than expected, such as last week's inflation report, but he cautioned that unpredictability remains.

Residential brokers echoed that positive sentiment. "With the Bank of Canada cutting its key interest rate to 2.25%, the second consecutive reduction, we could see a much-needed boost in consumer confidence across Canada's housing market," said Don Kottick, president of a major national brokerage. "While inflation remains a concern, today's decision signals cautious optimism and may encourage more buyers to re-enter the market after months of hesitation."

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What This Means for Mortgage Holders

For Canadians with variable rate mortgages, the cut translates to real savings. According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% down payment on a $676,154 home with a five-year variable rate of 3.79% amortized over 25 years has a monthly mortgage payment of $3,229.

A 0.25% drop means that homeowner's variable mortgage rate falls to 3.54%, and their monthly payment decreases to $3,146. That's $83 less per month or $996 less per year on mortgage payments.

It's not transformative money for most people, but it's real. And if you're already stretching to make payments, an extra $83 a month provides some breathing room.

Fixed rate mortgage holders won't see immediate relief since their rates are locked in. But when it's time to renew, they'll benefit from the lower rate environment. And anyone shopping for a new mortgage will find that rates have come down meaningfully from the highs of 2023 and early 2024.

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Supporting Growth Is the Priority

Marc Lefrancois, a broker in Quebec, noted that the rate cut reflects the central bank's commitment to spurring activity despite inflation ticking up slightly.

"In September, Canada's Consumer Price Index rose 2.4% year over year, up from 1.9% in August. Despite this uptick, the Bank of Canada proceeded with another rate cut today, signaling its priority to support growth amid signs of economic softness," Lefrancois said. "For the real estate sector, lower borrowing costs could put even more pressure on a market that is already struggling to keep up with strong demand."

The Bank noted that while "underlying inflation remains around 2.5%," it expects pressures to ease in the months ahead. Some analysts suggested the central bank might tolerate inflation closer to 3% rather than pushing to get it to the traditional 2% target, given the risks to growth.

Business conditions, rising unemployment, and upcoming mortgage renewals are putting pressure on households. That could justify a more flexible approach to inflation targets, at least temporarily.

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Trade Tensions Loom Large

The rate cut comes amid escalating trade tensions with the United States. Just days earlier, President Donald Trump announced new tariffs on Canadian steel, cars, and lumber, further straining Canada's export sector.

The Bank's Monetary Policy Report emphasized that "trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries."

Canada's economy contracted by 1.6% in the second quarter, driven by a drop in exports and weak business investment amid heightened uncertainty. While household spending grew at a healthy pace, the Bank warned that trade actions by the United States "and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber."

Macklem was blunt about the limitations of monetary policy in this environment. "For many months, we have been stressing that monetary policy cannot undo the damage caused by tariffs. Increased trade friction with the United States means our economy will work less efficiently, with higher costs and less income."

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Growth Projections Are Weak

The Bank projects GDP will grow by just 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027. On a quarterly basis, growth is expected to strengthen in 2026 after a weak second half of this year.

That's not a recession, technically. But it's not going to feel good either. Macklem acknowledged as much when asked whether Canada would avoid a recession. He said the central bank continues to expect modest growth, but emphasized that whether the economy sees a slight pickup or a few quarters of negative growth, Canadians are "not going to feel very good" in either scenario.

Workforce market conditions remain soft. The unemployment rate held at 7.1% in September, and wage growth is slowing. Employment gains in September followed two months of sizeable losses, and hiring remains weak across trade-sensitive sectors.

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Housing Market Under Pressure

The housing market remains under pressure despite lower interest rates. While reduced borrowing costs might help homebuyers, builders continue to grapple with high construction costs and tighter lending conditions.

"A further rate cut could help sustain momentum in markets like Montreal and Ottawa, where activity is already recovering," said one analyst, "but in larger centres like Toronto and Vancouver, it's unlikely to move the needle until confidence in employment and financing returns."

That's the challenge. Lower rates help, but they don't fix everything. If people are worried about job security, if they're uncertain about the economy, if they're concerned about whether home values will hold, they're not rushing to buy even with cheaper financing.

And on the supply side, developers are still facing high costs. Labour is expensive. Materials are expensive. Land is expensive. Permitting takes time. Financing is tighter than it was a few years ago. Lower interest rates reduce one cost, but they don't eliminate the others.

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What Happens Next?

The Bank's next rate decision is scheduled for December. Based on the language in Wednesday's announcement, don't expect another cut unless economic conditions deteriorate significantly.

The Bank signaled it's comfortable with rates where they are, assuming inflation and growth evolve as projected. That's conditional, of course. If the economy weakens more than expected, if unemployment spikes, if trade tensions escalate further, the Bank could cut again.

But the baseline expectation is that 2.25% is roughly the floor. The rate-cutting cycle that started in spring 2024 may be over.

For real estate markets, that means this is the interest rate environment for the foreseeable future. Variable rates in the mid-3% range. Fixed rates not far behind. Not as low as pandemic-era rates, but significantly better than the highs of 2023.

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The Trade War Wild Card

Everything hinges on trade. The Bank was unusually direct about that. "Because U.S. trade policy remains unpredictable and uncertainty is still higher than normal, this projection is subject to a wider-than-usual range of risks," the Monetary Policy Report stated.

If tariffs ease, if trade relationships stabilize, if investment picks up, the economy could perform better than projected. If tensions escalate, if more sectors get hit with tariffs, if business confidence collapses further, the economy could underperform.

The Bank can't control any of that. All it can do is set interest rates based on the data it has and hope the economy responds as expected.

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What This Means for Buyers and Sellers

If you're a buyer, this rate cut gives you slightly more purchasing power. Your monthly payment on a variable rate mortgage just dropped. If you were on the fence about whether you could afford a particular property, the math just got a bit easier.

But don't expect this to trigger a buying frenzy. The market is cautious. People are waiting to see what happens with the economy, with trade, with employment. Lower rates help, but they're not enough to overcome broader uncertainty.

If you're a seller, lower rates could bring more buyers into the market. But it's a gradual process. Don't expect a sudden surge in activity. Markets like Montreal and Ottawa, which are already showing signs of recovery, might see sustained momentum. Larger markets like Toronto and Vancouver will need more than a rate cut to restart in a meaningful way.

If you're holding a variable rate mortgage, you just got a break. If you're coming up for renewal on a fixed rate mortgage, you're renewing into a significantly better rate environment than what you locked in two or three years ago.

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How Coldwell Banker Horizon Realty Can Help

At Coldwell Banker Horizon Realty, we understand that interest rate changes affect your real estate decisions in complex ways. Whether you're a first-time buyer trying to figure out if now is the right time, a homeowner wondering if you should refinance, or a seller trying to price your home in an uncertain market, we provide the expertise and guidance you need.

Lower rates create opportunities, but they also create questions. How much home can you afford at the new rates? Should you lock in a fixed rate or stay variable? Is the market improving enough to justify making a move now, or should you wait?

These aren't simple questions, and the answers depend on your specific situation, your financial goals, and your risk tolerance.

Contact Coldwell Banker Horizon Realty today to discuss how the Bank of Canada's rate cut affects your real estate plans and how we can help you make informed decisions in this evolving market.

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The Bottom Line

The Bank of Canada cut rates to 2.25%, and that's good news for borrowers. But the central bank also signaled this might be the end of the cutting cycle, at least for now.

Real estate professionals are cautiously optimistic. Lower rates should help stimulate activity. But trade uncertainty, weak growth projections, and soft labor market conditions mean this isn't a return to the boom times.

For buyers, sellers, and homeowners, the message is clear. Rates are lower than they were, but they're probably not going much lower. The economy faces challenges that monetary policy alone can't fix. And the next few quarters are going to be difficult, no matter what the Bank of Canada does.

Make your decisions based on where rates actually are, not where you hope they'll go. Because 2.25% might be as good as it gets for a while.