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CMHC predicts higher home prices and are Fixed rates going up?


After reaching historically high levels in recent years, housing starts in Canada are expected to decline in 2024, before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction. This is according to the latest Housing Market Outlook (HMO) just released by Canada Mortgage and Housing Corporation (CMHC). Strong population growth is another factor putting pressure on supply and demand of homes. Both home prices and sales are forecast to rise in 2024. By 2025, prices could reach the peak levels recorded in early 2022 and surpass them in 2026, driven by high demand. Home sales will rebound in 2024, but will remain below the record 2020 – 21 levels.

There are many forecasts regarding whether fixed rates will go up. The first main reason is these days, the Canadian Bond market has gone up. After hitting a low around 3.26% in January, the Government of Canada 5-year bond yield which typically leads fixed mortgage rates, finished Tuesday’s session at 3.63% after reaching a high of around 3.66%.

The second reason fixed rates may go up is inflation. Bank of Canada Governor Tiff Macklem himself has said on numerous occasions that they will hold rates until they see inflation sustained at 2.00%, or at least close to that but we are not near that yet. The Bank of Canada uses interest rates to speed up and slow down the economy to control inflation. The central bank raised interest rates 10 times between March, 2022 and July, 2023, making it one of the most aggressive campaigns to control inflation on record. The interest rate on both variable rate and fixed rate mortgages has risen dramatically over the past two years therefore increasing monthly costs for those when they renew their mortgages. However,  there has been forecasts from various sects of the economy for rate drops in the next Bank of Canada rate announcement either April or June but the BOC states it’s still too early to begin talking about lowering interest rates. Other sects of the economy are forecasting rate drops later of this year. So we could see a 5-year fixed rate settle at around the 5.50% range before the bond market thinks we are back in balance.

Another reason we are seeing fixed rates creep up is spending. The Federal Government will unveil their budget on April 16, but they are already pre announcing billions in spending. The problem is that the government doesn’t have the money, so they will need to borrow by issuing government bonds. The more they borrow, the riskier this may become, and so interest rates need to go up to cover off the increased risk. Quite simply, the more the government borrows, the higher interest rates should go to compensate for the risk and the bond market is noticing.

So it may be a good time to reach out to your mortgage agent and get your pre-approvals in, get your rates locked in, or if you hold a variable rate mortgage to convert to a fixed rate now.

Sources: Bank of Canada, CMT, Canada Mortgage and Housing Corporation (CMHC)

Karen Parrot