‘It’s a sign that things are starting to flip’: These two groups of homebuyers are set to benefit from Bank of Canada rate cut, expert says

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There are two types of buyers in Toronto’s real estate market that will benefit most from the central bank’s rate cut on Wednesday.

The quarter-of a-percentage-point reduction will see opportunities open for first-time buyers who needed a rate drop to qualify for a mortgage, as well as for repeat buyers who have been waiting for the right time to sell and purchase a new home, said Karen Yokelvski, chief operating officer for Royal LePage Real Estate Services Ltd.

“It’s good news for people,” said Yokelvski, who predicts a “slow and steady decline” in key interest rates after the Bank of Canada dropped its overnight lending rate to 4.75 per cent from 5 per cent, its first rate cut since March 2020. 

When interest rates rise, home prices tend to drop. When rates go down, prices tend to climb. 

“These buyers are looking to purchase their home before prices start to increase because of the drop in rates,” Yokelvski said.

While a quarter of a percentage point is a small change, housing industry experts say the downward shift — the first in years — sends a big message.  

“It’s a sign that things are starting to flip,” explains Pauline Lierman, vice-president market research for Zonda Urban, formerly Urban Analytics. “It’s a confidence twister.”

Buyers, sellers and realtors alike have shared pent-up frustration over interest rates and the lack of movement in the market since 2022.

Greater Toronto home sales declined 22 per cent in May with 7,013 transactions compared to 8,960 a year earlier. The number of new listings ticked up to 18,612 — a 21 per cent increase year-over-year. 

The average selling price of $1,165,691 was down by 2.5 per cent over May 2023 but up slightly compared to April 2024, TRREB reported.

Realtor Gillian Oxley of Oxley Real Estate agrees the rate cut will get first-time buyers off the sidelines but it also provides relief at the higher end of the market.
“There’s this sense of ‘ahhhh, that’s over,’” said Oxley. “Everyone was questioning, what’s next, what’s happening.”
The new luxury tax the City of Toronto imposed on homes earlier this year had a tangible impact on sales, she said. In January, the city began collecting a graduated land transfer tax based on a property’s value. The tax ranges from 3.5 per cent on homes that sold for more than $3 million to 7.5 per cent for homes valued at more than $20 million.
“I was working on a home sale that was listed just under $10 million,” Oxley recalled. “I thought everyone had come to terms. Then the client asked, ‘What’s the land transfer tax?’ You do the math and it comes out to $600,000. That’s a hard pill to swallow.”
The tax “really made that middle-to-high end of the market pause and think: Do we have to sell, do we have to move?”
Some areas of central Toronto along the subway line, she said, saw no sales above $7 million until March or April. “That was unheard of a year earlier,” Oxley said. “Now we’re seeing a loosening up.”
While Yokelvski thinks it may take another rate cut or two to get buyers into the market with a lending rate between 2.25 and 3.25 per cent, Oxley said people should temper their expectations of how low the Bank of Canada will actually go. 
“It’s not going to go down to 1.8 per cent,” she said. “That’s never happening again. That was Disney World.”

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