A recent survey by the central bank reveals that industry experts in Canada anticipate a decline in mortgage rates starting from April 2024, a month later than initial predictions. Home price growth across Canada is expected to remain sluggish in 2024, while price growth in Metro Vancouver, the most expensive real estate market in the country, is expected to rise 2% to an average of $1.52 million. 
The shift in interest rates is posed to impact the dynamics of the mortgage and realty market in the new year.
Homebuyers Navigate Affordability Challenges
Despite a 45% drop in overall housing unit sales from early 2021 levels, exacerbated by pandemic-induced challenges and interest rate hikes, many homebuyers are adopting a new strategy. The trend of potential homeowners becoming landlords is on the rise, with a focus on properties that offer rental potential to offset rising living costs and reduce mortgage payments
Long-Term Confidence in Real Estate Investment
A consumer survey by Mortgage Professionals Canada, indicates that nearly 80% of respondents view real estate as sound long-term investment, displaying confidence in the market’s resilience despite ongoing challenges.
Relief on the Horizon
Amidst concerns about affordability and economic uncertainty, there is a glimmer of hope. Bond yields, which lead fixed mortgage rates, have sharply declined, and expectations are growing that the Bank of Canada will initiate rate cuts in the first half of 2024. Lower rates could provide relief for existing homeowners and prospective buyers.
Affordability and the Neutral Rate
Experts suggest that fixed-term mortgage rates starting with a 4, may bring improved affordability. However, those expecting rates to start with a 2 might face disappointment. An analyst from BMO, emphasize that the neutral policy rate is expected to rise to 2.5%, challenging the conventional expectations established since the Global Financial Crisis. (The neutral rate is the level where interest rates are neither inflationary or restrictive.) The central bank’s goal is to hit both the target interest rate, and a neutral policy rate.
Cautious Optimism for Rate Cuts
While expectations include 100 basis points in cuts over the next year, caution prevails. The overnight rate is projected to remain higher than neutral, and funding costs are anticipated to stay double the familiar rate. The market might receive some boost, but significant acceleration remains an uncertainty.
Original articles: www.canadianmortgagetrends.com and www.betterdwelling.ca
