Long awaited BoC interest rate cut could fuel demand, but increase home prices in Calgary

The Bank of Canada has cut its overnight lending rate by 25 basis points, a move not seen since March 2020, and one that real estate experts say could further drive demand for homes in Calgary’s already hot housing market.

Wednesday’s announcement puts the policy rate at 4.75 per cent, down from the 5 per cent it has been sitting at since July 2023.

Amie Hautz, a Calgary realtor with Century 21 Bamber Realty, says this rate drop won’t make a huge difference in bringing out more home buyers from the sidelines, but it does create more purchasing power.

“What this allows them to do, is to spend a little more money on a house so maybe they can get into something a little bigger or go from a one-bedroom to two-bedroom condo for example,” she said.

“It allows people to offer a little bit more aggressively as well. We are still seeing lots of competing offers in the market so that's what I see being the effect here in Calgary. I know other markets across the country are very different from ours, but our market has been very strong.”

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Hautz adds that some houses in the city are going about 10 per cent over asking price right now and being purchased without financing or home inspection conditions in what’s described by many as ‘a seller’s market.’

The rate cut really only helps the demand side now though in a situation where Calgary is seeing less than a month’s supply worth of homes in most communities.

“The only thing that's going to help the supply side and help prices stabilize or potentially even come down in the future is if we have less people moving to Alberta, we've just had such an influx,” Hautz said.

“They're all adding to the demand side and anyone that's moving within Calgary and selling, they're not adding to the inventory at all, so builders are really doing what they can to try and build houses.”

According to a recent Royal LePage survey, more than half of Canadians (51 per cent or approximately 2.4 million people) who put their home buying plans on hold in the last two years said they would return to the market when the Bank of Canada reduces its key lending rate.

Corinne Lyall, a Calgary owner and broker with Royal LePage Benchmark says despite this cut, it might not be enough of one to establish consumer confidence and buyers might wait for further cuts to jump back into the market.

“If we get more buyers that enter into the already oversaturated space of people looking for property, then that's just going to continue to push prices up,” Lyall said.

“I mean, that's really the forecast for the next year and a bit and if interest rates continue to fall, then that might encourage other buyers to get into the market that weren't before. But again, the opportunity cost is the longer you wait the more likely prices will go up.”

Alberta leads Canada in delinquency rates as debt skyrockets

According to the latest Q1 2024 Credit Industry Insights report from TransUnion, total consumer debt in Canada has now increased to $2.38 trillion.

A new survey also finds there has been an increase in delinquencies and about 10 per cent of Canadians only make the minimum monthly payment on their credit cards.

That’s bad news in Alberta, where the province saw its serious consumer-level delinquency rate (more than 90 days past due) increase to 2.28 per cent in the first quarter of 2024, ranking as the highest in the country.

Some financial literacy experts suggest that an interest rate cut of 0.25 per cent is almost negligible for those already dealing with credit or debt issues.

Laurie Campbell with Doyle Salewski, a licensed insolvency trustee firm, says that inflation and other pressures are causing more Canadians financial distress.

“At our firm alone, we’re up 15 per cent in the volume of our clients, so certainly while we see interest rates taking a little bit of a dive, we still have a long road ahead for us,” said Campbell.

“It’s going to be a difficult number of quarters for many Canadians as they renew their mortgage still at a higher rate than previously and one quarter of a per centage point doesn’t make that much of a difference on top of that higher credit card debt and high inflation.”

Campbell notes that her best advice for anyone in debt is to seek the help of a trusted and licensed, insolvency expert, set a realistic budget, and to realize that ‘you’re not alone.’

“Sit down with family members, make sure everyone's on the same page so you're actually getting out of debt together rather than one out there spending and using credit while the other ones are trying to get out of debt,” she said.

“Ask yourself, ‘are you using credit cards for day-to-day purchases because you don’t have the money in the bank?’ If you are renewing your mortgage and you do have some equity and you can take some of that credit card debt that is at a much higher, higher interest rate and put that into your mortgage, that is also a very good thing to do.”