While the variable rate has traditionally been a money saver, the switch to fixed is definitely on. Since March 2022, fixed rates have risen only 1.7%, while the Bank of Canada has hiked the variable rate option by 4.25%
Fixed rates generally follow the Government of Canada’s 5-year bond yields, which have been very low as of late. With the failure of the U.S. Silicon Valley Bank (the 2nd largest bank failure in U.S. history), fixed-rate mortgages should start coming down.
This trend could change when the economy starts firing on all cylinders, and employment rates decrease.
Canada has survived a few major recessions in the past decades, and it is apparent we are heading to another. Economists believe it will be a small one that should hit us late in 2023.
“We can see that the interest rate hikes we’ve undertaken to date are already working. Higher rates are slowing household spending, and inflation is coming down”. This quote is from Tiff Macklem, Governor Bank of Canada. He also stated that this is a conditional pause. However, high employment and surging food prices could impact these declines.
It’s worth noting that inflation has slowed slightly so far in 2023, dipping to 5.9% in January. This is reason to be hopeful. “The fact that inflation has come from above 8% to now below 6% is a promising sign. It means that those interest rate increases in 2022 are having the desired effect,” says Moshe Lander, Senior Economics Lecturer at Concordia University..” And hopefully, it’s indicative that the full impact of those interest rate increases–when they’re ultimately felt–will bring inflation back to where it should be, where it has been for the last 30 years.”
From CBC News: Ontario has 1.25 million new homes in the pipeline, but builders are hesitant to put their shovels in the ground, waiting for buyers to show the capacity to buy them.
Phil Soper, the CEO of brokerage Royal LePage, tells Global News that while the actual volume of sales and prices might be lower than in recent years, Canada’s housing market could be seeing the return of seasonal patterns after a slower December and January gave way to an uptick in activity last month. He argues that the Bank Of Canada’s rate hold affirms this return to seasonality, with the path now clear to the traditionally busy spring market. Buyers and sellers should have more confidence that prices will be steadier without additional rate hikes to depress home values, he says.“In other words, we’ve reached the bottom of the cycle, and it’s uphill from here,” Soper says.
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