Two Rate cuts in a row! Will this be the announcement that encourages more sales activity?

The recent decrease of 25 basis points (0.25%) in interest rates will likely have a nominal  impact on the Muskoka real estate market, and will depend on several factors:

1. Affordability: Lower interest rates can make mortgages more affordable, potentially increasing the number of buyers who can qualify for loans and are willing to enter the market.
2. Investor Activity: Investors might find real estate more attractive compared to other investments, leading to increased demand and potentially higher property prices.
3. Market Sentiment: Consumer confidence and market sentiment play significant roles. If buyers perceive the rate cut as a sign of economic stability or recovery, they may be more inclined to purchase property.
4. Supply and Demand Dynamics: The impact also depends on the current supply of properties in Muskoka. If supply is limited, increased demand due to lower rates could drive prices up. Conversely, if there is ample supply, the effect on prices might be more muted. Recent stats show that we had more listings enter the market in Q2 compared last year, and with sales showing a marginal difference.
5. Local Economic Conditions: The overall economic conditions in Muskoka, including employment rates, local business health, and tourism (a significant factor in Muskoka), will also influence how much the rate cut affects the real estate market.

While the BoC increased rates in leaps as high as 1% at a time, on the way down, most expect smaller steps of 0.25% – like we have seen at the last 2 meetings.

Many economists are predicting another 0.50% total drop by the end of this year.

As this relates to affordability, generally a 1% rate drop translates to a 10% increase in mortgage borrowing power.

That means that, if at the start of the year, you qualified for a variable rate mortgage of $800K, today with rates currently 0.50% lower, you now qualify for approx $840K

And if we get another 0.50% by years end, you will qualify for approx $880K

Overall, while a 25 basis point decrease is relatively small, it could still contribute to increased activity and interest in the Muskoka real estate market, especially if it’s part of a broader trend of rate cuts or economic stimulus measures.