Mortgage Market Update and Outlook: Navigating 2023 and Anticipating 2024
As we look back on the past year, filled with economic twists and turns and the rollercoaster of interest rate ups and downs, let’s break down some of the major stories that shaped the mortgage scene in 2023 and plan for a much-anticipated shift in 2024.
Interest Rates and Market Dynamics in 2023
Early in 2023, the Bank of Canada initially hinted at a pause in rate hikes (the January overnight rate was at 4.5%), generating optimism and a brief surge in home prices during the spring. However, the Bank of Canada surprised us with two additional quarter-point rate hikes over the summer (June and July each received an increase of .25%, bringing the overnight rate to 5%). As the year ends, economists have commented that 2023 might be remembered as the Year of the Rate Peak. Projections for 2024 anticipate a period of relief for borrowers, with predictions of rate cuts by mid-year.
From its peak of 8.1% in June 2022 to the start of 2023, with the Consumer Price Index growing at 5.90%, we have seen a notable downward trajectory in inflation, with the pace slowing to 3.10% by November. This easing of inflationary pressures has been pivotal in influencing market conditions.
Housing Market Movements
The housing market in Canada exhibited fluctuations throughout the year. The average non-seasonally adjusted house price reached a high of $729,044 in May, only to dip to $646,134 in November. Although still reflecting a 5.5% increase from January, this marks a significant drop from the all-time high observed in February 2022.
Additional Insights into 2023’s Mortgage Landscape
- In 2023, mortgage credit growth plummeted by over 25% compared to 2022. This means the rate at which new mortgages were issued, or overall expansion of mortgage credit, was significantly lower in 2023 compared to the previous year in 2022
- Mortgage interest payments surged, now nearly 90% higher than before the Bank of Canada’s rate hikes began in 2022.
- Concerns loomed over the impact of higher interest rates on the estimated $600 billion worth of mortgages coming up for renewal in the next two years. It will be crucial to plan for the next few years.
- Many variable-rate mortgage borrowers experienced increased amortizations due to rising interest rates.
- Despite being near record lows for much of the year, early-stage delinquencies have started to rise and are expected to continue upward. Please reach out to us if you are in this situation, and we will help you find a way to get past it. You need to know that once you miss a mortgage payment, moving you to another lender becomes challenging. Let us help you with your current situation – and no judgment – ever!
- The Bank of Canada’s overnight and prime rates concluded the year 75 basis points higher than the start.
- The 5-year bond yield, a benchmark for fixed-rate pricing, ended the year down by 25 basis points to 3.17%. 2023 Bond Yields started at 3.32% and reached 4.41% in October. The last time bond yields were even close to this high was in 2007 when they reached 4.64%.
Outlook for 2024: What to Anticipate
The mortgage landscape in 2023 was undoubtedly a journey filled with highs, lows, and unexpected turns. As we move into 2024, the Canadian mortgage landscape is ready for change. The careful monitoring of interest rates, inflation trends, and housing market dynamics make this a critical year for homebuyers and homeowners to stay well-informed and work with financial partners to plan the next two to five years. Economists and market analysts foresee 2024 as a period of rate relief for borrowers and homeowners, with anticipated rate cuts by mid-year. This strategic shift aims to stabilize and support the real estate market. The housing market is expected to recalibrate, influenced by interest rate adjustments and broader economic conditions. What you do today will impact your tomorrow, so please reach out early, and let’s plan your tomorrow.
Wishing you a very happy, prosperous, and healthy new year filled with love and joy.
I invite you to connect early in 2024 to check-in and plan your renewal or next few years. Click here to book a time to check-in.
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