Rate Update – Curves Ahead For Mortgage Rates?

Let’s start with the positive.

The overall tone from Tiff was slightly neutral and not filled with the previous words of concern. The global economy is cooling, consumer demand is slowing, and businesses are beginning to realize they can’t keep increasing prices in the name of inflation. These are all good things and bode well for paving the way for rate drops in 2024.

Where Tiff feels we are not entirely out of the woods yet is inflation slowing at a faster rate (it crept up in the most recent report) and wages not rising as fast. Though we have seen inflation ease, and with it the 5-year Government of Canada bond yield, these two points are what’s keeping Tiff and the banks from bringing rates back to their January 2020 levels. I will humbly disagree with one statement in the press release: Tiff’s thought that consumer spending in the second half of 2024 will pick up. From what I’m seeing, clients are tightening their belts as mortgages are maturing. Maybe that’s just a North Shore thing.

North Shore Real Estate in 2024.

If you’ve opened your BC assessment, you might be surprised to see an increase or a relatively small decrease in your property value. One might ask themselves, aren’t we in an inflationary induced economic spiral? Not quite. Though inflation has taken a bite out of your wallet, real estate tends to perform well during inflationary times, given that it’s a hard asset. Combine that with the limited amount of homes for sale, and you get a receipt for stable housing prices. The big question is, will it continue in the face of the Mortgage Maturity Tsunami coming in late 2024 through to mid 2026? The answer is yes. The reason is that we are seeing a massive amount of pent-up demand. At the time of writing, we have more clients on the sidelines waiting for rates to come down than we have ever had in 20 years of being in the mortgage industry. Couple this with the recent immigration surge and the Millennial baby boom; you have key ingredients for a healthy market. Will it be a super hot sellers’ market? I don’t think so; our feeling is it will be balanced with well marketed properties in desirable areas going into multiple offers. Having said that, there is an opportunity to be had by buying now, before the Bank of Canada fires off the start gun of the real estate race!

Fixed Mortgage Rates in 2024.

We touched on bond yields earlier in the update. Though bond yields have come down by close to 1% over the past month and a half, the banks have been slow to follow.

Why is that?

In simple terms, the banks know that this stage of the interest rate cycle is like that last part of the roller coaster at the Playland…just when you thought you were coming into the home stretch, there is a nasty twist waiting for you. Keep in mind ( as I’ve said in previous updates ) that banks have to commit to you now on something they don’t get paid on for potentially 120 days. If the rates go up, they lose money; if rates go down, you’ll ask for a lower rate. Until they can clearly see that straight away, back to where the roller coaster started, they are going to hang on for dear life. Meaning that the rates will be slow to come down until the Bank of Canada gives the all-clear signal.

What do you do with your mortgage in 2024?

Call us with any questions you have. Everyone’s situation is unique, now more than ever. We are talking to clients who are doing fine, talking to clients who are doing fine but are worried, and we are seeing clients who are starting to run into problems. For us to provide general advice like the three year fixed mortgage terms are the best option or variable is the best way to go at this point in the economic cycle would be a disservice. I heard an interesting statistic that a high percentage of people who get stuck on the mountain or hurt in an accident often try to improve their situation before asking for help. Not fix, but improve. We see the same thing with clients who want to improve their situation before they talk to us or a financial planner. My advice is just to call. It’s ok to be worried, and there is no shame in asking for help.

The Consumer – All Spent Out?

It must be our day for quoting studies! Here is another one done by Manulife Financial back in 2019. In a survey, they asked people how they felt about their financial health. A high number of respondents said they felt great, but they were worried about their neighbour’s financial health – specifically, what impact that might have on the value of their home. If the same study was done today, I’m sure it would read like this: if I’m a little bit freaked out by my financial health…I can’t imagine the mess my neighbour’s in! I’m here to set both perspectives straight – you and your neighbour will be ok. As a mortgage broker team, we see a lot of applications and talk to a lot of people about their financial health. Over the past year, we haven’t seen any real change in credit scores or increase in credit balances. We are seeing people adjust their spending, and we are seeing people refinance because they’ve renovated their home – or, if you’re like me, replace your basement suite floor and ceiling due to a burst water pipe – complements of the recent freeze! The bottom line is that North Shore consumers are more apt to hold off on big discretionary purchases ( car, boat, another mountain bike ) than incur an unsustainable amount of debt. All of which bodes well for real estate price stability.

And that’s a wrap for our first update! Keep your eyes peeled on our website and social channels for 2024. We have a bunch of new things about to be launched, which will help us keep you informed on all real estate-related things.

The next Bank of Canada meeting is March 6th, 2024

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Disclaimer Notice: The views expressed in this blog post are based on our opinion. The information has been sourced from the Bank of Canada and several Canadian news sources. Any forecasts or expectations of the direction of interest rates are based on the collective experience of the Nishka Riley Mortgage Team, and as such, any recommendations must be taken within the context of your personal situation. As with any forecast, there is no way to guarantee the outcome of the real estate market or interest rates, nor is a guarantee implied.