Penelope Graham, Director of Content
To say that 2023 has been an eventful year for the mortgage market would be an understatement. Borrowers have withstood one of the steepest rate hiking cycles in history from the Bank of Canada, with the benchmark cost of borrowing shooting up from a pandemic-era low of 0.25% to 5% today. Rates rising at a record-breaking pace has resulted in a number of unprecedented phenomena as the industry and borrowers grappled to keep up – trigger rates, extra-long amortizations, and a new federal mortgage charter, just to name a few.
But as 2024 draws nearer, change is hovering on the horizon; signs the central bank is finally winning the inflation battle, and cooling economic factors such as GDP and labour numbers, point to reversal in monetary policy with rate cuts a possibility by the second half of the year. How will this impact mortgage holders and lenders alike?
James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender, shares his insights for what’s to come in the new year for the mortgage and housing market.
What’s in store for mortgages in 2024?
- The Bank of Canada will not increase rates further and will cut rates by 50 to 100 basis points in the second half of 2024
The Bank will hold the target for the overnight rate at 5% for the first half of 2024 and will start making cuts in the second half of the year.
2. Fixed mortgage rates will decrease throughout the year.
Bond yields will decrease throughout 2024, allowing fixed rates to follow suit.
3. The mortgage stress test has reached its peak and will only go down from here.
The stress test is currently the higher of 5.25% or the contract rate plus two per cent; since rates will not move higher, the stress test will not either.
4. Variable mortgage rates will be a popular choice.
With rate cuts on the horizon, many will choose a variable-rate mortgage.
5. Real estate prices will rise modestly.
Declining rates and immigration will support values, but a slowing economy will be a drag on prices.
6. New Canadians will drive demand for more housing.
The federal government is targeting 485,000 newcomers in 2024.
7. The federal government will not adjust CMHC insurance premiums and the purchase price limit for insured mortgages (as promised in the 2021 federal election platform).
- Some of the Liberals’ housing plan was well thought out and would be welcomed by first-time home buyers, including reduced CMHC insurance premiums and an increase to the insured mortgage limit.
- Reducing CMHC mortgage insurance rates by 25% means savings for home buyers.
- Increasing the insured mortgage cut-off from $1 million to $1.25 million will help first-time home buyers enter the housing market because it significantly reduces their minimum down payment required.
8. Renewing into higher rates will strain household budgets, but most homeowners will be able to manage.
- Most homeowners have been able to, and will continue to, move to higher mortgage rates at renewal.
- Defaults could go up from current levels, but they would hold within what is considered reasonable within historic standards.
- Bank of Canada holds its target interest rate at 5% in December announcement
- GTA home sales see slump in November due to steep mortgage rates
- Renewing your mortgage: What are your options?
- Just how risky are extra-long amortizations?
- Think mortgage rates will drop? The argument for getting a variable rate now
Penelope Graham, Director of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.