Today was the Bank of Canada’s final rate announcement of 2023. As expected, they left it unchanged. The pause has now stretched across five consecutive months.  

With inflation continuing to ease, we get closer to that magical day we have all been waiting for. The day when the rate cuts begin!   

Many believe that a flat Bank of Canada rates will mean that fixed rates are also flat. But fixed rates have their own agenda… no waiting required. While the BoC rate is flatlining… fixed mortgage rates continue to tumble.  

Things are looking promising for mortgage rates in 2024, but it’s still too early to crack open the bubbly. The Bank of Canada still has its concerns, and have stated once again that they are prepared to hike their rate further if needed.  

 

Fixed Mortgage Rates Falling Fast!  

While the Bank of Canada is doing one thing, fixed mortgage rates might be doing another. One of the largest influencers is bond yields, which can have a mind of their own. News can drive the yields in one direction or another.  

For example, if the BoC were to all of a sudden hint that a potential rate cut coming sooner than expected, the bond market would react positively, which would send the yields plummeting. And with them, fixed mortgage rates.  

Conversely, if they were to announce that another rate hike will be required, then we’d see a negative reaction from the market, which would cause them to spike, driving up the pressure on fixed rates. Fixed rates can move on news alone… and do not need to wait for any actual movement from the BoC.  

The bond market’s confidence is building as inflation continues to tick downward. The yields have fallen quickly, and are now at their lowest point since late May, 2023. At that time, the dust had settled from the collapse of Silicon Valley Bank in the US, and bond yields were well into their upward tear which did not let up until mid-late October. At the time, the lowest 5 year fixed for an insured mortgage had climbed to 4.64% or 4.89% for 3 year fixed.  

As of today, the lowest 5 year fixed rate in the same category has dropped to 4.89% or 5.59% for a 3 year fixed. This gives you an idea of how much more room they have to fall…without any more downward movement from bond yields. However, they continue to trend downward, meaning we will likely see some lower fixed mortgage rates soon… possibly much lower.  

 

The Problem with Rates Falling Too Fast  

The issue the Bank of Canada has with rapidly falling rates is that they can create a premature demand in the housing market, which would drive up home values… and fast. This is not what they want to see, considering it would drive inflation. If the market takes off too quickly, then the BoC may have to throw some cold water on it by pulling the trigger on another rate hike.  

While this is not an unrealistic expectation, I would be surprised if it happened. It is, however, possible that the cuts could be pushed out further in to 2024. As of now, they are expected to start in the 2nd or 3rd quarter, which would put us right at next summer. Really not that far away when you think about it.  

The Bank of Canada KNOWS that the housing market is going to take off when rates fall. This will happen, and it’s starting to look like it could be reality by spring of 2024.  

The housing demand right now is extensive… just not active. Prospective homebuyers are playing the waiting game, expecting rates to fall before they re-enter the market. As long as the decline in inflation continues, the bond market will continue to drop, which will bring fixed mortgage rates along for the ride. The combination of the expected lower rates and rising temperatures could result in a colossal influx in active market demand.  

And what do you think will happen to real estate prices when this happens?  

Both values and active demand have fallen well off their February 2022 peak. Anyone looking to buy a new home should be looking at getting into the market before it takes off. And it will. It’s just a matter of exactly when. I covered this in detail in my recent blog on The Trap of Waiting for Lower Rates to Buy a Home, so I won’t get into it again here. But you get the idea. It’s better to buy when rates are high and home prices are low. But if you buy in the next few months, then it’s possible that you could get to enjoy the best of both worlds.  

 

Is Now the Time for a Variable Rate Mortgage?  

More people are starting to inquire about variable rate mortgages, given that we’re getting closer to the start of the rate cuts. Now that fixed rates are lower, the premium you’ll pay for a variable rate mortgage has increased, therefore decreasing the average person’s appetite for them. It’s still possible that you’ll come out ahead by choosing a variable rate. However, they are not without risk and there is no guarantee that things will unfold as they are expected to.   

Eventually, variable rate mortgages will regain their popularity, but they are still a tad too much of a risk pill for most people to swallow. For that reason, the vast majority are still choosing a 3 year fixed. It has the right combination of lower rate and shorter term that is making it the best choice for many.  Anyone struggling to choose can read my recent blog on Choosing the Right Term Length in Uncertain Times.  Or better yet, reach out to us directly and we can discuss your options with you in detail and come up with the best possible solution for your specific situation.  

 

Conclusion  

There is still no guarantee that the Bank of Canada will not increase their rate further. They have said this time and time again.  

Or are they just trying to spook the bond market in attempt to prevent mortgage rates from dropping too quickly?  

The prevailing sentiment remains firm… many anticipate the Bank will begin reducing their rate in mid 2024. I share this belief, and would expect cuts to continue throughout the latter half of next year, and continue through 2025.   

If you have a purchase closing or mortgage coming up for renewal, there will likely be some lower rates to come. But this doesn’t mean that you should wait. A downward rate trend is not always an uninterrupted, downward slope. There can be some bumps along the way. I would suggest reaching out to us and one of my highly trained staff can advise you on your best options. Even if you have a rate locked in and have already signed, we can still get your rate lowered for you… and always do.  

2024 should be a great year for mortgage rates. But it’s still way too early to start celebrating, or even too early to put the champagne on ice. But it may be time to start thinking about at least dusting it off.  It will go down smoothly when the time comes.  

But as always, nothing is certain, time will tell, and anything can happen.  

You can read the full announcement from the Bank of Canada.