After a sluggish year for home sales, a potential shift is on the horizon as some lenders are now providing five-year fixed mortgages with interest rates below five per cent. This development is attributed to lower bond yields, influenced by the recent U.S. Federal Reserve announcement indicating three anticipated rate cuts in 2024. The potential for rate adjustments by central banks worldwide, including the Bank of Canada, further adds to the changing landscape.
Bekim Merdita, the Executive Vice-President of Rocket Mortgage Canada, explained, “Fixed rates are going to be driven by bond prices, whereas variable is going to be driven a little bit more by the Canadian prime rate, which is decided by the Bank of Canada.”
Anticipation of three rate cuts in 2024 from the U.S. Federal Reserve, coupled with similar expectations from the Bank of Canada pending inflation data analysis, is signaling a possible market turnaround. Local real estate agents view the upcoming winter and spring as prime time, with the lowered rates likely to intensify the typically slow season.
Goran Todorovic of RE/MAX Care Realty noted that historically, rate drops coincide with an increase in real estate prices, predicting a surge in activity during the upcoming months. He emphasized, “This gets the buyers back in the market, the people that have been sitting around, you know on the fence waiting for the rates to drop. This is their opportunity. This is the best opportunity they’re going to have.”
The average sales price for a home in November 2023 stood at $529,143, reflecting a 3.5% increase from November 2022. Mortgage brokers see this development aligning well with a spring market where buyers seek certainty in a demand-rich environment.
While most mortgage brokers anticipate a decline in rates, they don’t foresee a return to the lows seen during the pandemic at 1.39%. Approximately 60% of Canadian mortgages are set for renewal over the next three years, posing a potential challenge for homeowners when fixed-rate mortgages renew.
Vancouver-based mortgage broker Andy Hill cautioned, “There’s certainly going to be a renewal shock, regardless of how far rates go.” Despite market optimism, uncertainties remain as the Bank of Canada requires more inflation data to confirm a downward trend, and conflicting opinions persist regarding potential rate hikes.
As the market adjusts to these developments, stakeholders are cautiously navigating the evolving landscape, considering the potential impact on both buyers and existing homeowners.
