The Canadian mortgage market has been experiencing a lot of changes in recent years. With the pandemic, the Bank of Canada (BoC) has been keeping interest rates low to stimulate the economy. However, as the economy recovers, the BoC is expected to raise interest rates.
According to WOWA.ca, a Canadian mortgage rate comparison website, mortgage interest rates are expected to decline moderately over the next three years. This is because current interest rates are higher than neutral interest rates. The long-term trend of declining yields has ended and we are unlikely ever to see low rates like those of 2020-2021 or the 2009-2010 again . WOWA.ca’s forecast of the lowest mortgage interest rates as of November 4, 2023, is shown in the table below:
| Date | BoC Rate | Prime Rate | 5-Year Variable | 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 5-Year Fixed |
|---|---|---|---|---|---|---|---|
| 2023-11-04 | 5 % | 7.2 % | 5.83 % | 6.59 % | 6.34 % | 5.69 % | 5.38 % |
| 2024-06-30 | 5% | 7.2% | 5.85% | 6.13% | 5.98% | 5.42% | 5.36% |
| 2024-12-31 | 4.5% | 6.7% | 5.35% | 5.59% | 5.63% | 5.15% | 5.24% |
As per WOWA.ca’s forecast, the BoC rate is expected to reach 5% in 2023 and then decline to 3.5% by 2025 . The prime rate is expected to follow the same trend and bring down variable mortgage rates with itself .
Impact on the Canadian Housing Market
The Canadian housing market is expected to experience a slowdown in the coming years due to rising mortgage rates. According to the CMHC, the Canadian housing market is expected to return to positive but moderate growth in 2024, supported by rising household income and higher immigration . However, elevated price levels are expected to persist over the forecast horizon, placing pressure on homeownership affordability .
Experts predict that the Canadian housing market will continue to be strong in 2024, but the pace of growth will slow down. The Canadian Real Estate Association (CREA) predicts that the national average home price will increase by 2.1% in 2024 . However, with the rise in mortgage rates, the demand for housing is expected to decrease, leading to a slowdown in the housing market .
In conclusion, the Canadian housing market is expected to experience a slowdown in the coming years due to rising mortgage rates. However, the market is still expected to grow moderately in 2024, supported by rising household income and higher immigration. Homeownership affordability is expected to remain a challenge due to elevated price levels.
