After a year of rate hikes, mortgage experts are predicting gradual cuts starting in mid-2024.
The major banks in Canada are predicting interest rates will come down this year, but not in time for spring lending season, as highlighted in nesto’s latest mortgage forecast report. How much this decrease amounts to by year’s end remains varied. The policy rate in Q4 could be anywhere between 3.25 and 4.00 per cent.
The BoC Policy Rate increased by 75 basis points (1 basis point is equal to 0.01 per cent) in 2023. The Big 6 Banks indicate that interest rates should start to decrease by 25-50 basis points mid-2024 and close out the year with a decrease between 100-175 basis points.
The forecast also underscores the unlikely reality of interest rates increasing in the near future. “The Bank of Canada Governing Council has said that they are prepared to raise rates further if necessary,” nesto reports. “Inflation continues to be a top concern and an increase in geopolitical conditions could add to inflationary pressures. This could keep inflation well above the 2 per cent target and prevent interest rates from coming down.”
The first BoC rate announcement will take place on January 24th. Most economists expect the rate to hold at 5.00 per cent.
The full effects of past interest hikes will impact consumer demand. “Mortgage rates are projected to come down, but rates may not come down in a perfectly linear manner as possible bond yield upticks can occur on longer-term declines,” the report maintains. “With $900 billion in mortgages coming up for renewal over the next few years, those needing to renew should plan for payment shock in Canada. Payment shock could further restrict household budgets and inadvertently cause a further decline in fixed rates.”
The full effects of higher interest rates will begin to affect more households in the next few years as mortgages with lower interest rates in 2020 and 2021 come up for renewal in 2024-25.
“If you are up for renewal, your mortgage rate should be selected based on your financial goals for your home,” the report states. “Your rate choice will also depend on stress testing of your mortgage if you choose to switch lenders. Make your decision based on your needs. If you don’t plan on selling or moving, go with a longer term.”
“Conversely, if you need to move, choose a term that works for your situation and shop for the best rate.”
The full report, Mortgage Rate Forecast For Canada in 2024, can be found here.
