In its last announcement of the year, the Bank of Canada made another supersized cut to its key lending rate.
In its scheduled December 2024 release, the central bank announced that it had lowered the target for the overnight lending rate by 50 basis points to reach 3.25%. This marks the fifth consecutive cut to rates in 2024, and the second consecutive 50-basis-point cut.
In October, Canada’s Consumer Price Index (CPI) increased 2.0% on a year-over-year basis, up from a 1.6% increase in September. Despite this increase, current levels continue to meet the Bank’s 2% inflation target. Weaker-than-expected GDP growth, in addition to reduced immigration levels and the possibility of new trade tariffs with the United States, justified the Bank’s decision to lower rates again in order to stimulate the economy while keeping inflation under control.
“With inflation back to target, we have cut the policy rate by 50 basis points at each of the last two decisions because monetary policy no longer needs to be clearly in restrictive territory. We want to see growth pick up to absorb the unused capacity in the economy and keep inflation close to 2%,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement. “The Governing Council has reduced the policy rate substantially since June, and those cuts will be working their way through the economy. Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.”
Another rate cut increases likelihood of early spring market
With lower borrowing rates comes the likelihood of more robust activity throughout the winter months and an earlier-than-normal spring market, leading to upward pressure on home prices.
According to the Royal LePage 2025 Market Survey Forecast, the aggregate1 price of a home in Canada is set to increase 6.0% year over year to $856,692 in the fourth quarter of 2025, with the median price of a single-family detached property and condominium projected to increase 7.0% and 3.5% to $900,833 and $605,993, respectively.2 Sidelined buyers are being encouraged back to the market following several rate cuts by the central bank and the optimism of more to come. Coupled with the implementation of new mortgage policies — including the increased insurance cap and 30-year amortizations for first-time buyers and pre-construction buyers — lower rates are expected to spur activity heading into the spring.
“Starting in late spring 2024, we have seen the Bank of Canada continue to lower the cost of borrowing, a process that has prompted homebuyer demand to steadily rise, with a sharp uptick in activity following their first 50-point cut in October. This latest significant rate cut will help to sustain activity throughout the winter months, typically the slowest period for real estate transactions in Canada,” said Phil Soper, president and CEO of Royal LePage. “Buyers have woken up to the reality that property prices are rising again, and more will feel an urgency to act before affordability erodes. As a result, we are anticipating a ‘pull-ahead’ of activity and an early start to the traditional spring housing market. Adding to this momentum is the change in lending policies that come into effect on December 15th, which we believe will coax more sidelined purchasers to take advantage of their expanded borrowing power.”
Many sidelined homebuyers have been waiting for rates to drop significantly before reentering the market. With another cut now in the books, many will feel that interest rates have dropped enough for them to revisit their home purchase plans. According to a Royal LePage survey, conducted by Leger, 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.
The Bank of Canada will make its next interest rate announcement on Wednesday, January 29th, 2025.
Read the full December 11th report here.
1Royal LePage’s aggregate prices are calculated using a weighted average of the median values of all housing types collected.
2Price data, which includes both resale and new build, is provided by RPS Real Property Solutions, a leading Canadian valuation company. Price forecast reflects Q4 2025 over Q4 2024 projections.
