If you’ve been keeping an eye on the market, you’ve probably heard that the Bank of Canada has just announced another rate cut this morning. As we continue to see shifts in interest rates, I wanted to break down what this means for buyers, sellers, and homeowners here in Victoria and Vancouver Island.
Latest Rate Cut: What You Need to Know
On January 29, 2025, the Bank of Canada (BoC) announced a 25 basis point reduction in its benchmark interest rate, bringing it down to 3.0%. This marks the sixth consecutive rate cut since June 2024, as the central bank responds to economic conditions and inflation trends.
How This Compares to Historical Rates
Over the past 16 years, the BoC’s policy rate has averaged around 2.5%.
The current rate of 3.0% is slightly above that long-term average.
Where Rates Could Be Headed
Economists predict the BoC will cut rates by another 100 basis points by the end of 2025.
If this happens, we could see the overnight lending rate drop to 2.0%, improving affordability.
Inflation trends and global economic shifts, including U.S. trade policies, will play a major role in determining the pace of future cuts.
Mortgage Stress Test & Fixed Rate Trends
Where the B20 Stress Test Stands
The B20 mortgage stress test remains in effect, requiring buyers to qualify at the higher of:
The benchmark rate of 5.25% OR
Their contract rate + 2%
With the lowest available 3-year fixed mortgage rates around 4.49%, many borrowers will need to qualify at approximately 6.49% under the stress test rules.
Current Mortgage Rates & Market Trends
3-Year Fixed Rates: Around 4.49%, expected to continue declining.
5-Year Fixed Rates: Slightly higher but trending downward.
Variable Rates: More attractive as the BoC continues rate cuts.
The drop in fixed rates is already improving affordability and borrowing power for buyers, and we could see even better opportunities later this year.
Impact on Housing Affordability in Victoria & Vancouver Island
Lower rates mean lower mortgage payments, making it easier for buyers to afford homes. However, demand could increase, putting upward pressure on prices in popular areas like Victoria, Oak Bay, and Langford.
For Buyers: Lower rates improve affordability, but competition may rise.
For Sellers: More buyers qualifying for mortgages could lead to a busier spring market.
For Homeowners: If you’re considering refinancing, now might be a great time to explore options.
Potential Impact of U.S. Tariffs on Canada’s Economy
One major wildcard is the potential for 25% tariffs on Canadian exports under U.S. President Donald Trump. If enacted, these tariffs could slow economic growth in Canada, prompting the BoC to cut rates more aggressively to cushion the economy.
Economists at TD Economics predict that if these tariffs take effect, we could see the BoC slash rates to 2.0% by the end of 2025 to offset economic risks.
What This Means for You – Let’s Chat!
With interest rates shifting and market conditions evolving, it’s important to stay informed. If you’re thinking about buying, selling, or refinancing, let’s talk about how these changes might impact your plans.
Reply to this email or give me a call at 250-715-5414, and let’s discuss your options!
Stay tuned for more updates as the market continues to evolve.