Mortgage Rates Forecast Canada 2024-2029
The Bank of Canada’s (BoC) most recent announcement was a 50 basis point decrease, lowering the policy rate to 4.25%.
The impact of rate increases can take up to 4 fiscal quarters (1 year) before they impact the whole economy. Our economy now feels the effects of the 10 interest rate increases the BoC implemented.
Nearly half of all Canadian mortgages (2.2 million) are due to renew over the next 2 years, leaving many homeowners with much higher mortgage interest costs at renewal.?
Key Takeaways
What Is the Mortgage Rate Forecast For Canada in 2024? (Updated October 2024)
The mortgage rate forecast for Canada is for rate decreases to continue this year. The Big 6 Banks all agree that we may see rates come down this year by as much as 75 to 100 basis points. These predictions, however, are always subject to change depending on geopolitical and macroeconomic conditions.
Will Interest Rates Go Down in 2024? (October 2024)
The BoC Policy Rate increased by 75 basis points (1 basis point is equal to 0.01%) in 2023. A range of predictions from the Big 6 Banks in Canada so far indicate that interest rates should start to decrease by 25 basis points and close out the year with a decrease of around 75 to 100 basis points.
Will There Be a Bank of Canada Rate Hike in 2024? (October 2024)
It seems unlikely that interest rates will increase anytime soon. Most experts predict that we will see multiple rate cuts in 2024. The Bank of Canada Governing Council has agreed that monetary policy no longer needs to be restrictive as they are confident that inflation will continue moving in the right direction.
However, Inflation continues to be a top concern for the BoC, and an increase in geopolitical risks could add to inflationary pressures. This could keep inflation well above the 2% target and prevent interest rates from decreasing significantly this year.
Top Economist’s Mortgage Predictions for 2024
Douglas Porter (BMO ) predicts 7 more consecutive 25 basis point cuts will occur by July next year, bringing the policy rate to 2.50%.
The Bank of Canada’s (BoC) latest Market Participant Survey, which gathers and publishes the views of senior economists and strategists in the Canadian financial market, forecasted the first rate cut occurring in June 2024 based on the median response.?
Results from the newly released survey for Q2 2024 suggested that the policy rate could be held at 4.50% at the next announcement before being lowered by 25 basis points in October.
December 2024 Canada Mortgage Rates Forecast?
The next Bank of Canada rate announcement will take place on December 11th. Some market predictions suggest that the rate could decrease by another 50 basis points. The Bank may leave the key rate unchanged to avoid sabotaging the gains it has made in its inflation fight. The Bank needs to be mindful not to tip the scale too far and cause a prolonged slump in the housing market and a contraction in employment.
Long-Term Mortgage Rates Forecast
The economy is finally beginning to feel the effects of the interest rate increases implemented, as it can take up to 24 months for the rate hikes to work through the economy. The Bank has achieved its goals within 12 to 18 months in past rate tightening cycles. However, this cycle has proven to be quite challenging for the BoC and most other central banks of advanced economies .?
The impact of interest rate increases is felt throughout the housing market as sales volumes have decreased. It’s predicted that the drop in home sales will continue into 2024 unless sellers are willing to slash prices to offset higher borrowing costs or interest rates finally begin to decrease.?
The economy has also started to slow, though inflation has fallen less than experts predicted during the past year. However, inflation still shows areas of increasing demand as prices continue to rise. So far, this data does not indicate a meaningful slowdown.?
Experts now predict we will likely see gradual rate cuts throughout year-end 2024. Rate cuts can accelerate if the Federal Reserve pivots to a more dramatic drop, as the BoC will have to align to keep the Canadian Dollar affordable for businesses stateside.?
Bank of Canada Interest Rate Hike Predictions for 2024
Inflation has remained persistently stubborn but has finally fallen below the BoC 2% target. It will be interesting to see how the Bank of Canada will respond to inflation throughout the remainder of 2024, especially if rental costs keep accelerating across the country.
Could another BoC rate hike take place? Interest rate hikes in Canada are not forecasted, but predictions over the next 5 years should only be taken as speculation based on current information. Rates are always subject to change due to economic developments and as new information surfaces.
Predictions indicate that interest rates will likely decrease further with the final announcement. Most experts now believe rates will close the year at 3.25% or 3.50%, depending on economic conditions.
Bank of Canada 2024 Rate Change Schedule
What Affects Future Bank of Canada Rate Decisions?
Inflation
The most recent inflation data shows a rise of 1.6% year-over-year. This month’s slowdown is attributed to slower year-over-year growth in gasoline prices. However, excluding gasoline, CPI rose 2.2% this month. Shelter continues to be the largest driver of inflation, up 5.0%.
Inflation is the most important driving factor behind the BoC’s rate decisions. To hit its inflation target of 2%, the BoC needs to adjust the policy interest rates to control inflation.?
When inflation rises above this target, the BoC increases the policy rate. In turn, commercial banks and lenders raise their prime rates, which directly affect loans and mortgages. This discourages borrowing and spending and helps the BoC’s efforts to bring inflation back to its target of 2%.?
If inflation were below the 2% target, the BoC might lower the policy interest rate to stimulate the economy. Lenders, in turn, decrease their prime rates to encourage borrowing and spending.??
Consumer Price Index (CPI) Release Dates 2024
Employment
Statistics Canada’s Labour Force Survey ?data highlights that September’s employment increased by 0.2% (+47,000) while the employment rate, which is the proportion of people aged 15+ who are employed, fell 0.1% to 60.7%. The unemployment rate fell 0.1% to 6.5%, the first decline since January.
Full-time employment increased 0.7% (+112,000) in September, the largest gain since May 2022. This was partially offset by a decline in part-time work (-1.7%) (-65,000). Year-over-year, part-time employment rose at a faster pace than full-time employment.
Employment increased in Ontario (+0.5%), Quebec (+0.5%), Manitoba (+0.7%), and Nova Scotia (+0.6%). Meanwhile, employment declined in British Columbia (-0.6%) and New Brunswick (-1.0%).
BoC rate decisions aim to support maximum sustainable employment levels while maintaining output growth by keeping inflation predictable and stable while stimulating the economy. For the economy to maintain inflation at the 2% target, it needs to maintain its maximum sustainable level of employment. This means the economy operates at its highest productive capacity and can sustain itself without triggering inflation.?
When employment falls below the maximum sustainable level, people cannot find work and their earnings and savings decline. This affects spending habits, pushing inflation lower, possibly below the 2% target. When employment is higher than this level, employers cannot find enough workers to keep up with demand, which drives prices and wages higher and increases inflation. Finding the perfect balance between inflation and the employment rate is difficult as both are measured on data gathered about their performance from the previous month – and not in real-time.
The US Economy
The latest from the Bureau of Labor Statistics shows that the U.S. CPI remains unchanged, with an increase of 0.2% in September, the same as in August and July. The index for shelter rose 0.2%, and with the addition of the index for food (+0.4%), these together accounted for over 75% of the monthly increase in all items. The all items index rose 2.4%, the smallest 12-month increase since February 2021.
Following the release of CPI data, financial markets in the US are pricing in a high probability of the Fed easing rates on November 7th. This could push the BoC for further rate cuts as inflation in both countries moderates.
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Historical Context: What Does a Slowing Economy Typically Mean for Mortgage Rates?
The COVID-19 shutdown of the economy and supply chains increased the demand for much-needed supplies. Our demand outstripped supply with lower interest rates and more significant cash flows, creating high inflation. Since inflation is a lagging indicator, and Statistics Canada measures inflation differently for resales of existing homes, it became apparent that inflation was quickly running rampant. As a result, the BoC started ramping up the benchmark key policy interest rate to curb inflation quickly.
What’s different about these rate increases in previous inflationary cycles ? In the 1980s, we did not have the same debt levels. Today, Americans make $1 for every $1 of debt, while Canadians make $1 for every $1.65 of debt. North Americans were not as indebted as in the 1980s. Say you had a $100,000 mortgage, and your income on average was around $20,000; the monthly payment on your mortgage was likely less than $845 at 10% if you had a 35-year mortgage or, say, $1,604 if rates increased to 20% on that same mortgage. Credit cards and HELOCs were not used as often back then, so mortgage debt was likely all you had.?
As rates jumped from 10% to 20%, their interest impact doubled (magnification of 2x). However, now the effect might be much more magnified. A rate increase from 0.25% to 5.00% on the BoC’s Key Policy Rate means a magnification of 19x on the interest component of your mortgage payment. That means on a 25-year mortgage, your $100,000 mortgage’s monthly payment would jump from $436 to $716.? The big difference between 2024 and 1982 is that we no longer have 35-year prime mortgages with average house prices near $72,800 and average mortgage balance hovering around $41,200 .
Navigating High-Interest Rates to Save Money on Your Mortgage
As the full effects of past interest rate hikes are felt, consumer demand will be impacted. As demand drops, so too should rates, and navigating them to save money will depend on your situation.?
What goes up must come down, but it might not come down fast enough for everyone. Mortgage rates are projected to come down, but rates may not come down perfectly linearly, as possible bond yield upticks can occur on longer-term declines.?
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.
Utilizing Fixed-Rate Mortgages to Reduce Interest Rate Risk
Conventional thinking is to lock yourself into a fixed-rate mortgage at the first sign of rate hikes. However, if inflation is a lagging indicator and bond yields are a leading factor, then waiting for the right moment to lock in may be the most suitable way to proceed.?
A calculated method is to position yourself to take advantage of lower rates. This is the best option for anyone navigating this tumultuous rate environment.?According to the BoC , it generally takes 18 to 24 months to tame inflation, so using this timeline, we are overdue to see rates start to trend down. Riding out your mortgage on a shorter fixed term could be a good option if you want stability and predictability with your mortgage payments.
Utilizing Variable-Rate Mortgages to Reduce Interest Rate Risk
Regardless of your chosen rate , your goal should be to be in a better financial position than before. If you can adjust your budget for any possible volatility for future rate changes, you could opt for an adjustable-rate mortgage (ARM ) to save as rates come down. This way, once rates revert to their downward trajectory, you will realize savings as the BoC reduces its Key Policy Rate.
It may make sense for a well-qualified borrower to renew into an adjustable-rate mortgage (ARM) rather than a variable-rate mortgage (VRM) if you can accept the risk with a floating rate in a decreasing rate cycle. This way, you can take advantage of decreases in mortgage payments over time as the payment on the ARM adjusts with changes in the lender’s prime rate.
Mortgage Rates Forecast for Buyers and Sellers in 2024 ( Updated October 2024)
It’s probably best not to have specific expectations from the economy. Even the experts keep missing the mark on predictions, making long-term forecasting even more difficult.?
While the policy rate remains higher than the neutral rate, the Governing Council stated that they are confident that inflation is moving in the right direction and that monetary policy no longer needs to be restrictive.
Uncertainty or the fear of buying too early in this rate cycle could leave homebuyers on the sidelines for too long. Once home prices are on the rebound, the cost to purchase will be much higher, leaving you with fewer cash savings to weather prolonged inflationary pressures.?
A 2% rate increase in monthly payments now might mean lower interest-carrying costs overall for the life of your mortgage. You can use part of the cash savings from purchasing a home today while home prices are lower to help manage higher interest rates and monthly payments during your initial term.
If you want to sell and have more than 50% equity and a healthy cash flow, deferring your decision for a year or two with a shorter-term or variable rate option until house prices bounce back will make the most sense. But keep in mind that nothing is for sure, and homes may not bounce back to 2021 levels – they were in a bubble in some coveted urban regional markets.
Bank of Canada Monetary Policy Forecast 2025
Core inflation, the measurement the Bank of Canada relies on when making policy rate decisions, is expected to ease, returning to 2% in the second half of 2025. With inflation at the 2% target, the BoC will likely reduce rates within the neutral rate range of 2.25% to 3.25%. The neutral rate is the policy rate that allows monetary policy to maintain the economy without stimulating or slowing it down.
Mortgage Rate Predictions 2025-2029 (Updated October 2024)
While it’s almost impossible to predict where interest rates are headed, most economists agree that we will likely see a more gradual reduction now that inflation appears to be under control.?
One thing that remains certain is that there is an endemic shortage of homes, and this will keep putting upward pressure on inflation—especially if consumers can’t afford to buy homes and decide to spend their money on other things.
The impact of higher interest rates will begin to affect more households in the next few years as those who took out mortgages with lower interest rates in 2020 and 2021 come up for renewal in 2024-25.?
Canada Interest Rate Forecast 2025
Bank of Canada Market Participants Survey Quarterly Forecast 2025-2026
The Bank of Canada’s forecast looks ahead to 2025-2026 and provides an outlook of what we may be able to expect for interest rates in 2025 and early 2026.?
nesto’s Interest Rate Forecast for Canada 2025-2029
Home Shopping Trends
The housing market is experiencing a slowdown. An excess of supply and many sellers have outpaced the buyers, as many remain waiting on the sidelines for interest rates to decrease. A slower spring market and growing supply have reduced expectations for the housing market’s performance in 2024.?
Based on sales forecasts from the Canadian Real Estate Association (CREA) , home sales are projected to increase by 5.2% from 2023. This is down from their initial estimates of 10.5% earlier in the year and the 6.1% estimate from July. In 2025, national home sales are predicted to climb 6.6% as interest rates continue to decline and demand slowly returns to the market.?
Sales prices are forecasted to increase by 0.9% to $683,200 annually. Estimates for 2025 predict that prices will increase by 4.4%, bringing the national average to $713,375.??
Final Thoughts
Mortgage rates will go up and down as they have since the invention of mortgages. When it comes down to it, it’s not the rate that matters but how much of your disposable income goes to servicing this obligation. Your goal should be to keep your mortgage payments predictable and manageable for your budget and feasible for the long term to match your financial plans .?
When choosing a mortgage strategy, you should be informed about the risks involved; with this in mind, we recommend that you speak with our mortgage experts before making your decision. Our commission-free mortgage experts at nesto will provide honest and transparent advice and guide you throughout this challenging decision-making process.
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