As we look ahead to the evolving landscape of the Canadian economy, a recent forecast from TD brings a potential shift that could significantly impact the real estate market. According to this forecast, the Bank of Canada (BoC) is expected to reduce its policy interest rate to 2.25% by 2025, a substantial decrease from the current rate of 5%. This change, driven by easing inflationary pressures, could usher in a new era for borrowers and the real estate sector at large.
In recent times, the real estate market has faced headwinds, with home sales declining across major Canadian markets. This trend is partly attributed to the high mortgage rates, which have deterred many potential homebuyers, either due to qualification challenges or strategic waiting for more favorable conditions. For those currently holding mortgages, the situation has been particularly strenuous. Reports, including a recent survey by Zolo, reveal that nearly half of Canadian mortgage holders are concerned about renewing their mortgages at higher rates. Additionally, a TD report highlighted that by the end of 2023, nearly 50% of mortgage holders would see a rise in their monthly payments, a figure expected to climb to 65% by the end of 2024.
The Canada Mortgage and Housing Corporation (CMHC) also anticipates significant payment increases for homeowners renewing their mortgages in the next two years, projecting an average increase of 30% to 40% in monthly payments. For instance, a mortgage shift from a rate of 1.94% to 5.45% on a $500,000 loan could lead to a $950 increase in monthly payments.
However, there’s a glimmer of hope. Some lenders, like Equitable Bank and MCAP, have already started offering more attractive mortgage terms, with five-year insured fixed-rate mortgages falling below the 5% mark. This development is attributed to the cooling bond yield market, which influences fixed rates.
The impact of high mortgage rates extends beyond individual borrowers. TD’s analysis suggests that mortgage holders have reduced their spending by about 1%, leading to a $6 billion reduction in overall economic spending. This restraint has dampened consumer spending growth, which otherwise could have been stronger.
Looking forward, TD’s forecast predicts a steady decline in inflation, with expectations of reaching the BoC’s target of 2.0% by 2026. This projection is a positive sign for Canadian spenders, indicating potential relief and more robust economic participation in the near future.
At Heaps Estrin, we understand the importance of these developments for our clients and the broader community. We remain dedicated to providing expert insights and strategic advice to help navigate these changing market conditions. Whether you’re planning to buy, sell, or simply assess your current real estate investments, our team is here to offer guidance and support every step of the way.