Are interest rate cuts a good sign for homeowners, current and future?

As the Bank of Canada cuts its interest rate for the third straight time, one real estate expert says it could help homeowners and buyers alike, but not right away.

“It’s good news that the Bank of Canada is continuing to lower the overnight rate, though we are not likely to see the effects in the housing market for quite some time,” wrote Victor Tran of RATESDOTCA, in a Wednesday statement.

The central bank slashed its overnight rate by 25 basis points to 4.25 per cent on Wednesday.

For every decrease of that size, Tran wrote, a homeowner with a variable-rate mortgage can expect to pay about $15 less in monthly payments per $100,000 of the total mortgage value. Fixed-rate mortgage holders will not see any mortgage rate decreases until renewal.

“It’s just not affordable for people,” Tran wrote. “Mortgage rates have not come down nearly fast enough to stimulate much activity in the housing market.”

To hear him tell it, the reality is that housing market activity in major urban centres like Toronto and Vancouver didn’t take off as much as expected when interest rates were cut in recent months. What’s more, housing prices and mortgage rates remain elevated, Tran wrote.

It will take a significant decrease in mortgage rates before housing market activity picks up again, he writes.

“Though it sounds like a lot, even a drop of a full percentage point from current mortgage rates would not result in a significant increase in buying power, given persistently high home prices,” the Wednesday statement reads.

Take the example of a one-percentage-point decrease on an insured, five-year fixed rate mortgage with a 25-year amortization — to 3.49 per cent from 4.49. This would result in an increase of only about $65,000 in buying power, Tran writes, all while the national average price of a home is about $700,000.

“It will likely take several more decreases in the overnight rate before we start seeing significant enough declines in mortgage rates to spur movement in the housing market,” he said. “It’s going to take more time.”