Mortgage Interest Rate Forecast 2024
Last Updated: July 27, 2023
- By mid 2024, it’s predicted that interest rates will be cut by 2%, bringing the rate to around 3.00%
- The Bank of Canada is expecting to cut rates starting in mid-2024, where adjustable rate mortgages will start to have reduced payments
- Mortgage rates will likely stabilize at the mid 4% rate in 2024
For more information about the upcoming 2024 Bank of Canada announcement schedule, read more here.
What is the interest rate forecast for 2024 in Canada?
Based on various factors, including a more relaxed labour market, a decline in core inflation, and signs of inflation returning to normal, Alex Leduc, Principal Broker at Perch, predicts that the initial rate reduction is unlikely to occur before mid-2024. By 2024, it’s expected that the Bank of Canada will reduce rates by 2% and holders of adjustable rate mortgages will experience reduced payments. Our projections indicate that the rates will likely stabilize at approximately the mid 4% range in 2024.
Are interest rates expected to rise, fall or stay the same in 2024? How will it impact mortgages?
It’s predicted by several bank economists including BMO and CIBC that interest rates will fall by mid 2024. Variable rate mortgages are directly influenced by central bank decisions. However, it’s expected that 3-5 year fixed rates will likely trend lower by late 2023 or early 2024. Fixed rates are connected to the Government of Canada bond yields, which change based on what people think the central bank will do with interest rates. Banks prefer to buy low-cost bonds as a source of fixed-interest income, but offering fixed mortgage loans to their clients is more expensive to manage. Since fixed mortgage rates compete on similar terms with bonds to attract capital, Banks look at the yield of less-costly bonds to determine how low or high to set the rates of more costly mortgage loans. As a result, fixed rates might go down, but it won’t be a steady decrease.
In late 2022, fixed rates hovered around the 5% range and by January 2023, they dropped to the mid 4% range until mid-May. In June, fixed rates went back to 5-6% as people anticipated the Bank of Canada to increase rates. However, it’s now expected that the first rate cut will happen in 2024.
For the 2024 mortgage rate forecast, it’s anticipated that fixed rates will eventually experience a significant decline, but this might not happen until early 2024. It’s projected that fixed mortgage rates will likely remain in the 5-6% range, with a potential rate normalization reaching the mid-high ‘neutral rate’ range, possibly around the high 3% range for mortgage rates.
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What approach will the Bank of Canada take in terms of monetary policy to support the economy in 2024?
Monetary policy is always forward-looking because it takes time for its effects on inflation to be fully realized in the economy. The Bank of Canada typically uses changes in the overnight interest rate as its main tool for monetary policy. However, when interest rates are already low, the bank can use additional tools like guidance on future rate changes, large-scale asset purchases (quantitative easing), credit easing, funding for credit measures, and even negative policy rates.
All of these tools influence the demand for Canadian goods and services by affecting market interest rates, domestic asset prices, and the exchange rate. The balance between this demand and the economy’s production capacity is the primary factor that determines inflation pressures in the economy.
Economic growth is predicted to slow down to an average of about 1% from the second half of 2023 to the first half of 2024. This is due to higher interest rates affecting household spending and business investment, as well as the fading of certain temporary factors. Additionally, weak foreign demand limits export growth. However, by the second half of 2024, GDP growth is expected to pick up as the impact of higher interest rates lessens, and foreign demand strengthens, boosting exports.
Inflation is expected to ease more slowly than previously anticipated, with inflation projected to remain around 3% for the next year. The economy is experiencing greater excess demand and persistent core inflation, which sustains underlying price pressures. The tight monetary policy is curbing demand growth, and the economy is projected to enter a phase of mild excess supply in early 2024.
As a result, inflation should gradually ease, reaching the 2% target in mid-2025, two quarters later than previously projected. The Bank’s July Monetary Policy Report (MPR) projects the global economy will grow 2.4% in 2024, followed by a 2.7% growth in 2025.
(Source: Bank of Canada)
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What are the predictions about the housing market in 2024?
In 2024, it’s anticipated that national home sales will experience a recovery, surging by 11.2% to reach 516,072 units. This rebound is a result of housing markets gradually returning to their normal trajectory, accompanied by a shift in monetary policy towards a more balanced stance. This projection would align with the average activity observed over the past decade, but it’s expected to remain below the levels recorded in 2007, 2016, 2020, and 2021.
The national average home price is expected to witness a modest increase of approximately 3% from 2023 to 2024, reaching approximately $723,250. It’s worth noting that this level is only slightly higher than the second-quarter value of 2023. The overall forecast suggests that home prices will largely stabilize until interest rates begin to decrease.
What is the outlook for employment and job growth in 2024?
In Canada, consumer spending is expected to grow at a moderate pace, supported by a resilient job market. However, the impact of high interest rates will continue to gradually affect spending and hiring from late 2023 through 2024. The Canadian labour market is projected to be weaker compared to the U.S., with the unemployment rate anticipated to rise by 1.5 percentage points, peaking at 6.5% in Q4 of 2024. This reflects a less tight job market in Canada, partly due to increased labour supply from strong immigration trends.
Inflation in Canada is likely to have reached its peak, and further easing of price pressures is expected in 2023 and 2024. However, due to the stickiness of inflation, the Bank of Canada’s core inflation rates are not expected to reach the 2% target until mid-2025.
The Bank of Canada is expected to implement a rate hike in Q3 of 2023 and maintain the policy rate at 5% until Q1 of 2024. Following this, the Bank of Canada is expected to initiate rate cuts due to the deceleration in economic growth and the downward trend of inflation. By 2025, the policy rate is projected to reach 2.25%.