Last week the Bank of Canada reduced its Key Lending Rate for the second time this year. Down to 0.5 per cent from .75 per cent, this move was in response to our ailing economy along with the slump in oil prices. With large banks and lenders preparing to follow suit, this leaves us to wonder what effects this will have on Canadian Housing Markets—particularly red-hot markets located in prime cities such as Vancouver and Toronto. The rate cut has prompted mixed opinions from industry professionals, with some saying that this move is merely adding fuel to the fire while others believe that it will contribute to the healthy expansion of markets.

Lower interest rates will inevitably boost bidding wars in Toronto, with buyers now having access to additional funds. The city’s population will continue to grow along with the demand for real estate and, in theory, all the factors mentioned will cause housing prices to increase, resulting in a strong real estate market.

Right?

It can be, depending on who you ask. Lower interest rates could also mean a flurry of borrowing, driving consumers further into debt. The price to income ratio of housing might reach a point that no longer makes sense and the only thing in sight will be a correction.

Perhaps … Just about anything is possible.

No matter how you slice it, what goes up must come down, or at least stop—“How hard or soft of a landing are we in for and when will it occur?” Are the questions. We can follow reports and predictions from the top economists, however, we will never know for certain. What we do know is that Toronto and Vancouver didn’t magically fall into the spotlight. Although housing markets in both cities have been scrutinized by economists from across the globe and regarded to be overvalued by up to 20 per cent, both Toronto and Vancouver are supported by strong economic conditions, cultural diversity and population growth. Additionally, the Loonie being at a 5-year low will boost tourism–an industry which provides a significant amount of fuel for local economies in both cities. Assuming that none of the aforementioned will come to screeching halt, it safe to say that the prices of real estate in Toronto and Vancouver aren’t going to decline anytime soon and the likelihood of a crash or even a moderate correction is slim to none.

On a national basis, however, we can expect declines in the real estate markets located in cities where local economies were highly dependent on specific sectors, such as oil or even construction. While those cities are under pressure, the Canadian real estate market has been in great shape so far this year and is expected to stay on track.

No matter what city you’re located in, if you are considering taking advantage of ultra-low mortgage rates, it’s best to remember to calculate an additional 2—2.5 per cent into your monthly housing budget. This will act as a safety net and protect you against radical changes, especially for fixed term borrowers when renewal time rolls around.