2024 Mortgage Rate Forecast (2024)

Dan Eisner, True North Founder and CEO, speculates on current market conditions and where rates may be headed.

Inflation has continued a downward trend, yet economic volatility is still afoot. The BoC rate cuts have started, but how fast and how far will they go? Here's what I see.

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End-of-summer BoC rate cut!

September 4, 2024 – The Bank of Canada mows down its policy rate by another 0.25% to 4.25%. Most bank prime rates will fall to 6.45% (not including lender variable-rate discounts off prime).

This BoC rate cut rolls out a spongy rug of fresh budget relief under the feet of variable-rate mortgage and HELOC holders in time for fall — and keeps the pressure off fixed rates.

Stay tuned for the next rate decision on October 23, 2024. Want timely updates? Sign up for our newsletter!

I see a future filled with rate-cut potential.

All the time, I'm asked about interest rates. That makes perfect sense. We've built True North Mortgage as the brokerage that offers access to the lowest mortgage rates around, with a simple, fast, client-focused service — and many of our competitors have tried to copy us ever since.

The Bank of Canada finally entered a monetary easing cycle in June 2024 after its rate hit 5.0% (a 23-year ceiling).

Inflation held its downward trend in July, and the job numbers for August are weaker. Will rates need to come down faster?

Dan Eisner's Rate Prediction

As the fall season approaches, rate cuts dominate the market outlook. Will the central bank continue to mow down its rate?

Like the shorter nights and cooling summer temps, economic factors are slowing all around us — the unemployment rate is up to 6.6%, July's inflation came down another couple of notches to 2.5% (inching closer to the BoC's 2.0% target), and the U.S. is seeing increasing warning signs (especially from its labour market) that a recession may be on the way.

Canada's August labour market saw an uptick in the unemployment rate to 6.6% (from July's 6.4%), the highest in over 7 years (excluding the pandemic years of 2020 and 2021). Jobs gained by +22K (mostly part-time work), though not enough to outmatch labour pool growth; youth unemployment continued to rise (to 16.7%). Strong growth in public sector jobs is helping to buoy the unemployment rate — but doesn't churn economic heat in the same capacity as private sector jobs.

At this point, the central bank will likely be concerned that signs of a recession are lurking in the economic fine print. The only good news that would come with a looming recession is that the prime rate would need to fall faster.

At this point, patience is required with each upside or downside surprise to see how markets settle. The tone can change quickly, with economists suddenly calling for faster rate cuts one minute and then declaring 'everything is proceeding nicely' the next.

Here are some points in favour of a continued course of policy rate easing:

• Inflation is still trending down, both here and in the U.S.
• A warning from some economists that our unemployment rate could reach 7.0% by year-end (a stable economy usually hovers around 6.0%)
• Canadian job wage growth is being closely watched, which cooled to 5.0% in August (from July's 5.2%)
• Canadian GDP (Gross Domestic Product) growth continues to underwhelm, with Q3 forecasting possible zero growth
• Slower retail spending suggests Canadians are holding back over budget concerns
• The U.S. July jobs report showed a concerning dip in the unemployment rate that in the past meant a recession was on the way (Sahm rule)
• Higher mortgage interest, rent costs, and property taxes weigh on household budgets and consumer spending
• With over 2M mortgages renewing in 2024 and 2025 into higher rates and costs, this major financial stressor is a concern for the government and the banks
• So far, the housing market has had a tepid response to the first couple of rate cuts, keeping home prices relatively stable for now

Yet, we keep a watchful eye for these inflationary factors that could push prices up and halt cuts:

• A strong housing market surge this year or next could increase home prices enough to delay (or halt) rate drops
• Federal and provincial government (mostly record) spending and debt levels could impede inflation's decline
• If Canada's rate agenda diverges by more than 1.0% from the U.S. Federal Reserve, it could impact our dollar for an inflationary effect
• Oil prices cracking the $100 ceiling due to global conflict would raise business input costs that could be passed on to consumers
• Global weather events, labour strikes, and trade wars could impact supply chains, resulting in higher input costs (and then consumer prices)

What will happen at the next rate meeting on October 23?

There's increasing talk that a bigger cut of 0.50% may be in order sometime this year. At the very least, expect a 0.25% rate cut at the remaining two BoC rate meetings for 2024.

A 'monster' 0.50% cut (we've seen a monster 1.0% rate hike in the past two years, though that sizable jump down is much less likely to happen) will depend on continued declines in inflation and job market numbers — and the U.S.'s rate agenda response if they make an outsized cut there. Note that inflation is the most important factor and the one to watch in predicting central bank rate moves.

Will rates continue to drop into 2025?

Assuming inflation continues to toe the line down to the BoC's 2.0% target, rate drops of 0.25% will likely resume through Q1 of 2025.

I'm holding onto a forecast of Canadian prime rates falling from peak by about 1.5% into the first quarter of next year and continuing to fall another 0.50% (for 2.0% in total) by the end of 2025.

Economists still project an eventual higher neutral-rate resting point of 3.0% (up from a projected 2.5%). A neutral rate is one where the economy is neither stimulated nor repressed. (And that's not to say the central bank's policy rate couldn't dip below the neutral rate if the economy needs it.)

The 'neutral rate' range could be a moving target over the coming months. We'll keep an eye on the numbers and update the total drop estimation as we go.

Is there a danger that the prime rate will increase again in 2024?

There's always that danger, though the economic softening already underfoot makes it unlikely.

A year from now, we hope to have much lower rates, assess the impact of all these hikes, and wonder where the economy will go from there.

What can affect BoC's rate decisions?

Our central bank wants to see good news in the form of cooling numbers all around to continue its rate drop cycle:

• Good news (Inflation) – July's headline annual inflation rate was down to 2.5% (from 2.7% last month), with core inflation also receding (next reading Sep 17)
• Good news (Jobs) – August Canadian labour market gained +22K jobs (July lost 1.3K), but the unemployment rate increased to 6.6% (from June's 6.4%), the highest in 7 years (not including 2020 and 2021); economists see 'concerning' underlying softening, including the youth sector's increasing jobless rate (next reading Oct 11)
• Good news (Wages) – August's average wage growth cooled again, to 5.0% (from July's 5.2%), a declining trend headed in the right direction for the BoC's rate-drop agenda (next reading Oct 11)
• Good news (Economic growth) – June's GDP growth reading came out at roughly 0%, following May's +0.1% increase. Q2 GDP surprise higher, growing by about 2.1%; however, July and Q3 results are looking less rosy (Jul reading on Sep 27)
• Good news (Bond yield market) – Canadian 5-year bond yields are down around 2.7% following the BoC's latest rate cut and weaker job market numbers both here and in the U.S.

Note: Most of the above points were in a 'good news' position ahead of the latest BoC's rate drop decision. Too much 'good' news for too long in this light could bring about a recession, though that would likely hurry along rate cuts.

The Path of Inflation

Here's a look at the inflation rate over the past year — still cooling from a high of 8.1% reached in June 2022.

Total CPI (Consumer Price Index) is represented as an annual inflation rate (headline inflation), which appears in the media the most. It reflects the percentage of the year-over-year price change for a weighted basket of goods (including volatile ones, like gas and food).

Core inflation is closely monitored by the Bank of Canada. We show the average of trim and median, which strip out extreme price volatility to get to the 'core' of price movements.

CPIX excludes the most volatile price components and strips any effect of indirect tax changes on what's left (hence the X). The central bank stopped using this measure in 2016, though many feel it should still be used to show the 'bare' impact of price changes.

Are fixed rates coming down?

Fixed mortgage rates are steered by the Canadian bond market and (eventually) follow the movements in bond yields up or down. 5-year bond yields are the standard for setting 5-year fixed rates,and are the reference in this section and blog.

The Canada 5-year bond yield has dipped to around 2.7% following a cooling Canadian labour report for August, concerning July and Q3 GDP projections of around zero growth, and in response to the Bank of Canada's latest rate cut down to 4.25%. July's lower headline inflation of 2.5% (from June's 2.7%), with the core readings parroting the decline, helped the central bank stay on its rate-cutting course for the 3rd cut this year.

With July U.S. inflation still cooling (to 2.9%, the lowest reading in 3 years), the first U.S. rate drop is pegged for September after another concerning August jobs report, after the July one triggered the Sahm Rule and fears of an approaching recession there. That means more pressure for deeper Fed cuts by year-end (to the tune of 1.25%, potentially).

Whether the Bank of Canada also follows that rate agenda will depend heavily on inflation numbers here, though U.S. Fed easing helps open our door to faster cuts.

The Bank of Canada (as always) remains concerned about inflation's path, including the potential impact that a surge in housing market activity could have on home prices.

Will there still be bumps in the road? Bond yield volatility is considered 'normal ' during a prime-rate drop cycle. The bond market is particularly reactive to immediate factors or sentiment, triggering bond sell-offs in a snap and a fixed-rate rollercoaster (in a tight range) in response.

If yields jump up, look for a (delayed) fixed rate increase. Lenders are closely watching their costs and retaining capital to deal with the potential for increasing debt arrears.

How far will fixed rates fall when the prime rate drops?

Variable rates (that float with changes to bank prime rates) have more room for decline than fixed rates, which have already fallen in anticipation of lowering prime rates.

Also, variable rates are currently higher than the stalwart 5-year rate, which isn't normal (usually, variable rates are lower than fixed (at a spread of about 0.25% to 1.0%) due to the increased risk of change). We may see fixed rates decline a further 0.25% to 0.75% as interest rates trend down — but don't count your rate chickens until we see how the economy reacts to rate drops.

Get a rate hold now!

If you're considering buying a home or renewing sometime in the next few months, talk to one of our expert brokers about getting a rate hold. It could protect you from rate volatility, and you'll still get a lower rate if it goes down during your hold.

Can the U.S. economy affect rate hikes here?

The U.S. economic landscape is finally relenting to the pressures of higher rates, with declining inflation and a more downtrodden jobs market than they've seen in months.

Regional banks there are still at risk thanks to commercial real estate woes (high renewal rates and depressed values due to lower occupancy).

Why do we care? Economic conditions south of the border can pile on factors weighed by our central bank (and drive higher prices here) to affect its rate decisions.

Will Canada see a recession?

Despite the constant, distant calls of the 'recession' loon, it hasn't flown into our backyard quite yet. That doesn't mean the trajectory for a soft landing — meaning no recession or a very mild one — is an absolute. Nothing is ever certain in love or economics.

Back in October 2023, the Bank of Canada referred to projected economic faring as 'low positive growth' that will walk the line and possibly dip into negative territory (but not as a full-blown 'recession'). So far, that's coming true, with a 2024 GDP that's skimming above the line.

There's optimism that market resilience might keep our economy out of recessionary territory. Experts had projected a mild recession through the first half of 2024, which did not materialize. However, sustaining these higher rates for too long may jeopardize the soft landing. Our labour market is showing wider signs of system stress, as fewer companies plan to hire, and more may commence layoffs to shore up expenses.

A recession would bring mortgage rates down faster.

If economic weakening accelerates beyond expectations, the BoC would drop prime rates faster, providing more budget relief when we'll likely need it most.

Stagflation isn't expected to stick a landing.

Stagflation, a period of high inflation coupled with a weak economy and high unemployment, is on everyone's radar. According to the BoC, "it's not where we are now" as our inflation isn't high enough, having come down to around 3% from over 8%, and with a (still) relatively low unemployment rate.

OSFI has added a new LTI limit for banks that may affect you

For 2024, OSFI (Office of the Superintendent of Financial Institutions) has pledged to keep its eye on lender (and homeowner) protections, not ruling out a stress test change — but it likely won't budge. With any proposals it does make, implementation likely won't happen for weeks or months, after it consults the industry and lenders prepare for changes.

• In March, OSFI declared an LTI cap will go into effect for Q1 of 2025. It's aimed at preventing banks from accumulating too many 'highly leveraged' uninsured mortgage loans with an LTI over 4.5 times a borrower's income as rates decline. New mortgages won't be measured directly (like the federal mortgage stress test), but home buyers may find themselves on the receiving end of higher uninsured rates if they exceed the LTI OR a rejected mortgage approval.
  

Does True North anticipate an increase in mortgage activity?

The higher rate environment has dampened affordability. Even though many Canadian home buyers and owners are holding off on plans to buy or move, some are finding deals to get ahead of a potential housing market rush as prime rates ease off and variable rate discounts grow.

As always, we offer great rates and specials, and we're attracting many mortgagees who look to lower their monthly costs while taking advantage of housing deals in their area.

Predictions are mixed about the effect lowering rates will have on housing prices. More sellers are listing to get out of restrictive rates, yet markets still face more demand due to the highest immigration numbers Canada has seen in years.

Rates and home prices are elevated enough for some to consider delaying their buying intentions until next year when the mortgage stress test will be even lower (as the prime rate lowers over the coming months).

Depending on your details and needs, our low short-term fixed Rate Relief™ product can help you bridge the gap with budget relief now, enabling your dream home purchase sooner, with the hope of renewing into lowered market rates.

Read more here about how high mortgage rates may impact the 2024 housing market.

My mortgage advice for 2024? Shop for your best rate — and consider a variable one.

Around 2M Canadians are coming up for renewal in the next couple of years. Even if rates go down in 2024, homeowners will still take a budget hit from renewing at higher rates than they had previously.

The most important thing you can do in this market is shop around for your best rate and product. Many Canadians are still very unaware that they don't have to stick to their bank for a mortgage.

We exist to do the comparing on behalf of our clients, checking with several accredited and alternative lenders for the best solution and budget fit for their needs, while passing along a volume rate discount. We're fast, we speak several languages, and we're very good at what we do — which is why we have so many 5-star reviews.

First-time home buyers especially need expert advice to set them on a path to successful homeownership amid these price pressures.

Which rate should you choose? Variable rates are trending down and can offer instant budget savings at each rate cut versus locking into a 5-year fixed rate and watching rates drop from the sidelines. You can always lock into a shorter fixed rate if you get too nervous.

Owning a home is a tremendous source of pride in Canada. I created True North to provide clients with a better mortgage experience and save them thousands with their best rate and mortgage choice.

Have questions about your mortgage or pre-approval? Give us a shout, anywhere you are in Canada. We have your best rate, expert advice and unbeatable service — with over 5-star reviews from our happy clients.