Read October 2022 Canada interest rate forecast

Read December 2022 Canada interest rate forecast

Variable mortgage rates continue their rise

For the month of November, we believe variable rates will increase slightly as the Bank of Canada continues to increase its overnight lending rate, fixed rates will remain at similar levels for the most part, monoline lenders will continue leading the way with lower rate offerings to consumers. According to CREA, national sales activity in September declined sharply by almost 32.2% year over year. October, November and December will be similar, in part, due to lower inventory furthered by consumer’s fear of a looming recession and higher interest rates.

The rate hikes aren’t over yet, but we’re getting closer

There is one more Bank of Canada rate announcements for 2022. Homeowners, investors and markets closely watched for the October 19 CPI numbers and October 26 Bank of Canada meeting, while inflation numbers trended further downward and the BoC seems to be running out of room for further rate hikes, Tiff Macklem reassured Canadians that “This tightening phase will draw to a close. We are getting closer, but we are not there yet.” We’re expecting the BoC to raise its overnight rate by a further 25 basis points in the upcoming final BoC meeting on December 7.

A recession is assured

The Bank of Canada now expects soaring food, energy, interest rates and the ongoing labor shortages to push the economy into a moderate recession in 2023, which the Canadian economy is estimated to recover from in 2024. According to Tiff Macklem, the BoC expects “inflation will hover around 7% in the final quarter of this year, fall to around 3% by the end of next year and return to the 2% target by the end of 2024.” Global factors are at play here as the Russian and Ukraine conflict disrupt global wheat supply, rising energy costs furthered by OPEC+ decision to cut global oil supply and ongoing supply chain constraints which are affecting us here at home.

The government looks to immigration to combat labour shortages

In Q2, Canada’s population grew by the fastest rate in 55 years at .7%, an increase of 284,982 migrants, asylum claimants and permit holders, as well as people affected by the Russian and Ukraine conflict. While population growth via immigration is necessary to supplement Canada’s shortage of skilled labourers and aging workforce, an increase at this rate could prove problematic for a country already suffering from a shortage of housing supply, thus causing increased competition in the rental market and higher rent costs.

The federal Liberal government announced plans for an incremental increase in the number of immigrants entering Canada, 500,000 people each year by 2025. The Canadian government is seeking to address a critical labour shortage across the country. “Make no mistake. This is a massive increase in economic migration to Canada,” Minister of Immigration, Sean Fraser told The Canadian Press. 

Bond yields rise with interest rates

5 year bond yields in October reached levels not seen since 2008, pushing Lenders to increase short term rates. We also saw 5 year posted variable rates increase beyond 5 year posted fixed rates, a signal that markets are expecting near term high interest rates and long term lower interest rates. We see further no major incoming increases to fixed rates in the near term, variable rates will stagnate in 2023 and trend lower in 2024 once a BoC pivot takes place.

For potential homebuyers

 If you’re looking to enter the market while housing prices have cooled our current best 5-year fixed rate is 5.02% and a 5-year variable rate of 4.8%.

For first-time home buyers, there are some great opportunities in a market dampened by negative sentiment and overall lack of competition.

For homeowners who are coming up for renewal, continue to monitor our rate forecasts, it would be wise to renew into shorter terms until rates begin to decrease in the coming year. For homeowners who would like to see the benefit of switching lenders and breaking their mortgage early, Perch automatically calculates the net benefit once you input your existing property and mortgage details in your Perch portfolio.