With markets anticipating central banks to cut interest rates next year, some fixed mortgage rates are at their lowest levels in months. But with all the economic uncertainty, new buyers and homeowners in need of renovation are still facing some tough decisions.
Since the start of 2022, mortgage rates in Canada have been rising amid interest rate hikes by the Bank of Canada. However, for the first time since May, some lenders are now offering fixed mortgages secured for five years at interest rates below five per cent.
This is a result of falling bond yields, a reaction to the US Federal Reserve’s announcement last week that signaled three interest rate cuts in 2024, which could also mean rate cuts for other central banks around the world, such as the Bank of Canada.
“Employment is expected to rise in 2024, and we have seen inflation come down to 3.1 per cent,” Frank Napolitano, an Ottawa-based mortgage broker, told CTV News. “As a result, the bond market has shifted its view to interest rates falling in 2024.”
“I think first-time homebuyers have been staying on the sidelines, and I think that’s the optimism they’ve been looking for with interest rates falling,” he added.
Rising mortgage rates have put pressure on homeowners and become an obstacle for those looking to buy. Ottawa resident David Speakman has been waiting two years to buy a home, but despite interest rate cuts on fixed mortgages, he says he still plans to get a variable rate, anticipating further interest rate cuts.
“My feeling is that variable interest rates will fall faster than fixed rates in the near future, and probably more than half the term of my mortgage will be less than the fixed rate, so in the long run I will be saving some money,” he told CTV News. .
Most mortgage brokers expect interest rates to fall, but not to the lows of 1.39 percent seen during the pandemic.
“I recommend to all Canadians to continue saving. Even if interest rates drop another quarter of a per cent or half a per cent, or a full per cent, they are still out of reach for many Canadians,” Victor Tran, a mortgage and real estate expert at Ratesdotca, said. to CTV News on Wednesday. About 60 per cent of Canadian mortgages are up for renewal over the next three years, according to RBC, putting millions of homeowners at risk of shock increases when their fixed-rate mortgages come up for renewal.
“Is 4 per cent a lot of relief for someone holding a fixed interest rate of 2.5 per cent? You know, it’s better than 6 per cent, but it’s not going to provide as much relief to those borrowers,” says Vancouver mortgage broker Andy cardamom. He said in an interview with CTV News. “There will definitely be a renewed shock, no matter how far interest rates go.”
Although bond markets expect interest rates to fall, that does not guarantee lower interest rates. The Bank of Canada says it still needs months of data to ensure inflation is trending lower. Meanwhile, A Tuesday’s report from Scotiabank economist Derek Holt Canada’s inflation data is “more skewed toward raising interest rates than lowering them,” he says.
“Everyone is starting to win. But if inflation comes back, it could mean interest rates are a little bit higher for a longer period of time and I think that’s the big risk today,” Hill said.