A miniature house in a shopping cart with a downward trend(to show mortgage rates forecast) on a blue background.

When Will Mortgage Rates Go Down in Canada?

As we approach the end of 2023, many Canadians are wondering when mortgage rates will start to decrease. This year has seen a significant rise in rates, with an increase of 75 basis points. Currently, the target rate is set at 5%, and it’s expected to remain there for the rest of the year. Around August 2023, many banks started offering fixed rate mortgages at just under 5%. 

However, there’s a glimmer of hope on the horizon, as experts predict a potential decrease in interest rates starting from mid-2024. Continue reading this blog to learn the predictions and expectations new home buyers can have in the year ahead. 

The Current State of Mortgage Rates in Canada 

In December 2023, following the Bank of Canada’s decision on October 25th to pause rate hikes, the prime rate will stay at 5%. This stability is encouraging buyers to re-enter the housing market, a trend we observed after the last rate pause. Since early 2022, mortgage rates in Canada have been climbing due to the Bank of Canada’s interest rate increases. But, for the first time since May, some lenders are offering insured five-year fixed mortgages at rates below five percent.

Predictions and Expectations For Home Buyers

Most experts agree that an increase in interest rates is unlikely in the near future. They foresee rate cuts beginning in mid-2024. However, the Bank of Canada’s Governing Council has made it clear that they are ready to raise rates further if needed.

Long-Term Mortgage Rates Forecast

The effects of rate increases usually take several months to a year to impact the economy. Despite rising prices indicating strong economic growth, inflation has not shown signs of slowing down. Home sales have been robust in most provinces, demonstrating that demand remains strong despite higher interest rates. The sales to new listings ratios have shifted, favoring buyers. Experts now believe that we might see gradual rate cuts of 25 basis points per quarter starting in the second quarter of 2024.

A person using a calculator to calculate mortgage rates. There is a house model with a cyan colored roof placed on the table.

The Future of Home Prices in Canada

Home prices in Canada are also expected to decrease in early 2024. This is largely due to high interest rates and a shift towards a buyer’s market, especially in Ontario and British Columbia. TD Economics predicts a 5% drop in average Canadian home prices from their peak in the third quarter of 2023 through the first quarter of 2024. However, prices would still be 20% higher than pre-pandemic levels, indicating ongoing affordability challenges. From the second quarter of 2024, modest to moderate price increases are expected, influenced by factors like lower interest rates, population growth, and stable employment.

Housing Affordability in 2024

While some improvement in housing affordability is expected as interest rates decrease, this will be somewhat offset by rising home prices. Affordability will likely remain a challenge throughout the year. Governments at various levels are working on policies to improve housing affordability, particularly in Ontario and British Columbia. A lot depends on the effectiveness of these policies as they will directly influence home prices. 

Homebuyers and investors should stay informed and prepared for these changes as they unfold in the coming year. Leo Ragusa, your trusted mortgage agent in Kingston, is always here to help you understand the rate changes better. Get in touch with him today.