Bank of Canada Cuts Interest Rate to 2.75% Amid Trade War Uncertainty

by Realtii Group

Bank of Canada Cuts Interest Rate to 2.75% Amid Trade War Uncertainty

The Bank of Canada (BoC) has announced its seventh consecutive interest rate cut, reducing its benchmark rate by 25 basis points to 2.75% on March 12, 2025. This move comes as Canada grapples with the economic fallout from an escalating trade war with the United States, which has created what the BoC calls “pervasive uncertainty” in the economy.

Impact on Homeowners

For existing homeowners, particularly those with variable-rate mortgages, the rate cut offers some immediate relief:

•Homeowners with variable-rate mortgages will see their monthly payments decrease or a larger portion of their payment go towards the principal.

•For example, a homeowner with a $621,753 mortgage at a previous rate of 4.20% could see their monthly payment drop by $84, saving $1,008 per year.

However, homeowners should remain cautious. The ongoing trade tensions could lead to economic instability, potentially affecting job security and overall financial well-being.

Prospective Homebuyers

The rate cut, combined with recent changes to mortgage rules, may create opportunities for first-time homebuyers:

•Lower interest rates make borrowing more affordable, potentially bringing some sidelined buyers back into the market.

•The introduction of 30-year amortizations on insured mortgages for first-time buyers and reduced down payment requirements for homes up to $1.5 million could improve accessibility.

However, the trade war’s economic uncertainty is causing many potential buyers to hesitate. As mortgage expert Ron Butler notes, “There’s a level of uncertainty here I haven’t encountered since the onset of COVID or the financial crisis of 2008”.

Sellers and the Housing Market

For sellers, the current situation presents a mixed bag:

•The rate cut could stimulate demand, particularly in the spring market.

•However, the trade war uncertainty is causing many potential buyers to delay purchases, leading to a buildup of inventory in some markets.

Toronto, Canada’s largest housing market, has been particularly affected:

•Home resales dropped 29% between January and February 2025, the steepest monthly decline since the COVID-19 pandemic.

•While prices haven’t collapsed yet, experts warn that prolonged trade tensions could push them downward.

The Trade War Factor

The ongoing trade war between Canada and the U.S. is casting a long shadow over the housing market:

•U.S. tariffs of 25% on most Canadian goods and 10% on energy exports have prompted retaliatory measures from Canada.

•These tariffs could significantly impact construction costs, potentially raising them by 10-15%.

•Higher construction costs may lead to slower housing starts, exacerbating supply issues in high-demand cities like Toronto and Vancouver.

The Canadian Home Builders’ Association warns that these tariffs could “cripple” the new home sector, particularly in the pre-construction condo market.

Looking Ahead

As the situation evolves, further rate cuts may be on the horizon. RBC Economics projects that the BoC’s lending rate could drop to 2.25% by mid-year. However, the ultimate impact on the housing market will depend largely on how the trade tensions play out and their effect on the broader Canadian economy.

For now, the housing market appears to be in a holding pattern, with both buyers and sellers waiting to see how the economic landscape shifts in response to these unprecedented challenges

Bank of Canada Cuts Interest Rate to 2.75% Amid Trade War Uncertainty

by Realtii Group

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