New Year, New Rates: Mortgage Insights for 2024

Discover what the future holds for mortgage rates in 2024 and gain insights on how it may impact your financial decisions.

Happy New Year! I hope you had a wonderful holiday season filled with joy and relaxation.

As we kick off the new year, it's essential to stay informed about current trends and forecasts, especially when it comes to interest rates and mortgages. In this blog post, I will provide you with valuable insights into what we can expect in the coming months. 

Interest Rate Forecast

Interest rates play a significant role in the real estate market as they directly affect mortgage rates and affordability for homebuyers. In recent years, interest rates have been relatively low, allowing many individuals to enter the housing market. However, as we move into 2024, there may be some potential changes on the horizon.

According to a forecast from major Canadian banks, including the Bank of Canada, it is likely that interest rates will see a decline over the course of the year. This decline is mainly attributed to the potential reduction in Bank of Canada rates and the prime interest rate. The projected decrease in interest rates ranges from 1% to 1.5%.

While these forecasts provide us with a general idea, it's imperative to note that actual events and the actions of the US Federal Reserve will heavily influence the trajectory of interest rates. Additionally, the behaviour of inflation in the coming year will also play a crucial role. The Bank of Canada has indicated that interest rate cuts may be considered even before achieving a 2% inflation target as long as the path toward reaching that target is evident.

For existing homeowners with a variable adjustable rate mortgage, these potential interest rate cuts would offer relief. Currently, the prime rate stands at 7.2%, and if the projected decrease of 1% materializes, it could decrease to 6.2% by the year's end. Further reductions in prime rates down to the mid-four range are expected by the end of 2025.

Fixed Rates and Bond Yields

Fixed rates are another essential aspect of mortgage trends. They are influenced by bond yields, which reflect the interest rates that governments pay to borrow money. Observing the current bond yields can offer insights into potential changes in fixed mortgage rates throughout the year.

Currently, the five-year bond yield stands at just over 3%. While the forecasts suggest a potential reduction, there isn't a significant downward pressure on bond yields. Even if we assume a modest decrease of 0.3%, we may still see a decline in fixed rates. This could result in rates falling just under 5%, depending on whether the mortgage is insured or uninsured.

It's worth noting that the three-year fixed-rate mortgage has been quite popular recently. However, with its current rate of 3.8%, it's higher than the five-year fixed rate, creating an inverted yield curve. For those seeking the most cost-effective option, the five-year fixed-rate mortgage remains the most attractive. However, if rates are expected to be lower in three years, the flexibility of a shorter-term mortgage may be favourable.

Variable vs. Fixed Rate Mortgages

Choosing between a variable or fixed-rate mortgage is a crucial decision for homeowners. Historically, variable rates have tended to be lower on average, but recent years have demonstrated that this isn't always the case. The decision ultimately depends on your risk tolerance and financial flexibility.

Variable rates have the advantage of lower costs in terms of interest penalties and new mortgage structures. On the other hand, fixed rates offer stability and predictability over an extended period. The choice between the two depends on factors such as how long you plan to stay in your home and the need to exit your mortgage within a specific timeframe.

Impact on the Real Estate Market

Interest rate changes can have a profound impact on the real estate market. If rates do indeed decrease as forecasted, we might see increased demand and activity in the housing market. Potential buyers may be motivated to enter the market while existing homeowners could choose to sell and upgrade or downsize. These dynamics could contribute to a more stable and active housing market in 2024.

However, it's important to recognize that current homeowners who are renewing or restructuring mortgages at higher interest rates may experience payment shocks and cash flow impacts. Managing these changes effectively will be critical for individuals and families across the country.

Overall, the forecast for the real estate market in 2024 suggests a stable and perhaps even more active year. Lower interest rates, if they materialize, could boost housing market activity, making it a favourable time for buying, selling, or refinancing.

Conclusion

As we embark on a new year, it's essential to stay informed about interest rates and mortgage trends. The projected decrease in interest rates, potential changes in fixed rates, and the choice between variable and fixed-rate mortgages all require careful consideration.

While forecasts provide a general outlook, it's important to stay informed about actual events, such as the actions of the Bank of Canada and the US Federal Reserve, as well as the behaviour of inflation.

By staying informed and understanding these trends, homeowners and potential homebuyers can make informed decisions about their mortgages. Remember, if you have any questions or need assistance, our team is always here to help. Wishing you a prosperous and successful year ahead!