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What's going on with mortgage rates in 2024?

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

Inflation is (thankfully) cooling, yet economic volatility is still afoot. With a first BoC rate cut now in the books, we wait and gauge the economic impact. Are more drops on the way? Here's what I see.

Jun 12, 2024

Updated from Jun. 10, 2024

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BoC drops its rate to 4.75%!

June 5, 2024 – Time to let out a big sigh of relief. The Bank of Canada finally relents and lowers its policy rate by 0.25%. Most bank prime rates will fall to 6.95% (not including variable-rate discounts that lenders like us may offer) — learn more here about how this cut might impact your mortgage.

We'll pause here for a moment of pure rejoicing and deep breathing. Now, let's read on.

Stay tuned for its next rate decision on July 24, 2024.


The first drop has shown up, and it's beautiful.

Will there be more to follow?

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's (BoCs) fastest rate-hike cycle since 2001 brought rates to 5.0% from 0.25% (March 2022 to Jun 2024). That cycle is now history, broken with this first cut.

So, we wait and see the economic reaction. The cuts will continue if inflation and other factors show persistent weakening — or at least don't heat up again.

To tame a heated economy and higher inflation brought on by pandemic mayhem, this rate-tightening cycle officially lasted:

  • 826 days
  • Just over 27 months
  • In years: 2 years, 3 months and 3 days

Experts said it would take about 18 to 24 months for rate hikes to work through the economy to cool it down. It seems they were more than right.

Dan Eisner's Rate Prediction

The long wait is over. We turn to rate cuts dominating the economic conversation. But interest rates are still high and won't come down all at once.

Just like the climb up, the climb down may be fraught with more surprises. Upside ones, such as price increases, could push up the headline and core inflation rate again. Or signs of negative or stagnant growth might bring cuts faster, or in bunches. (Remember the monster 1.0% rate hike back in July 2022? It could happen again, this time in reverse.)

Here are some points in favour of continued central bank rate cuts:

  • April's lower headline inflation reading of 2.7% and core inflation of 2.9%
  • Inflation was down to 1.2% (below target) if high shelter costs are stripped out
  • A notch up in Canada's May unemployment rate, even though labour market numbers came in slightly higher than expected
  • Our GDP (Gross Domestic Product) growth came in under expectations last month
  • U.S. May inflation posted a second consecutive inflation decline to 3.3% (from 3.4% last month)
  • Concern about productivity rates in Canada, including per capita GDP that shows dismally low output (for years now)
  • Both mortgage and non-mortgage debt arrears are increasing across Canada
  • With over 2M mortgages renewing in 2024 and 2025, the major stress added to household budgets is a concern for the government and the banks

Yet, other economic factors may push against inflation's decline:

  • Canadian wage growth gained in May, a concerning sign of entrenching inflation
  • Canadian PPI (Producer Price Index) numbers came in 2x higher than expected for April which could result in higher prices paid by consumers
  • A housing market surge could increase home prices enough to delay (or halt) rate drops
  • Federal and provincial governments are spending and debt levels are increasing
  • Continued U.S. economic strength could keep prices elevated
  • A recent survey suggests that some Canadians are adjusting to higher rates for an improved financial outlook (which could fuel consumer spending)
  • Canada's rate agenda could diverge by more than 1.0% from the U.S. Federal Reserve, which could impact our dollar for an inflationary effect
  • Oil prices cracking the $100 ceiling due to global conflict would raise business input costs that are passed on to customers

What will happen at the rate meeting on July 24? With the predicted mid-year drop happily at hand, I expect to see another rate cut this summer. We'll know more with the next inflation reading on June 25. Even if the U.S. continues to hum along and its inflation remains sticky, the BoC has said there's room to drop rates faster here — and we may need to.

I still think Canadian prime rates will fall by about 1.5% into the first quarter of next year and continue to fall another 0.50% (for 2.0% in total) by the end of 2025.

Of course, rate cuts may speed up if the economy slows down too quickly. At the moment, economists project an eventual higher neutral-rate resting point of 3% (up from a projected 2.5%).

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 to bring this first cut makes it a divergent plot twist.

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.

"Keep in mind that predicting interest rates is a 50/50 game, but if we don't attempt to forecast, we can't help prepare or protect our mortgage clients."

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 newsApril's headline inflation cooled to 2.7% year-over-year (from 2.9% last month), core inflation (no energy or food) cooled to 2.8% from 2.9% (next reading Jun 25)

  • Mixed news – Our May labour market created +27K jobs (more than the 22K expected); but the unemployment rate rose by 0.1% from April to 6.2% and is 1.1% higher than a year ago (next reading Jul 5)

  • Non-good news – Average wage growth increased in May at the fastest pace in 4 months to 5.1% (from April's 4.7%), increasing worries of entrenching inflation (next reading Jul 5)

  • Good news March's GDP was essentially unchanged following February's 0.2% increase; Q1 2024 growth came in lower than expectations at an annualized rate of 1.7%, rising 0.6% compared to the previous quarter (2.8% growth had been forecast by the BoC) (April reading on Jun 28)

  • Great news – Canadian 5-year bond yields have dipped below 3.4% following a second month of U.S. inflation cooling (which will help the U.S. Federal Reserve consider a rate drop sooner than year-end)

Note: The majority of the above points changed to a 'good news' position ahead of the BoC's June 5th rate drop decision.

Did you know? CPI (Consumer Price Index) measures the monthly change in prices (from a fixed basket of goods and services) paid by Canadian consumers. It's the most widely used measure of inflation. See 2023 CPI readings here.

When will fixed rates go 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.

Bond yields have dropped below 3.4%, prompted by a second month of cooling U.S. inflation. That's good news for Canada if it helps prevent the two countries' rate agendas from diverging significantly (the U.S. Federal Reserve has yet to drop its policy rates).

The BoC's first rate drop on June 5 was sparked by:

  • A flat March Canadian real GDP (Gross Domestic Product) reading following February's 0.2% growth, plus less-than-expected growth of 1.7% for Q1 2024 (BoC had forecast 2.8%)
  • Lowered headline and core inflation again in April
  • Other signs that U.S. economic strength may be ebbing (such as a lower Purchasing Manager's Index (PMI))

The first U.S. rate drop is now pegged for any time between September and year-end (which could change quickly if their inflation decline continues). So far, a rate-policy divergence of at least 0.50% is forecast, with speculation that it would take at least a 1.0% difference before the Canadian dollar suffers to set off an inflationary effect.

The Bank of Canada (as always) remains concerned about inflation's path, especially the potential impact of housing market activity to raise 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). So there may be a 0.5% to 1.0% fixed-rate decline waiting — 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.

Fixed Mortgage Rate Watch: You can watch the fluctuations in 5-year bond yields in reaction to the latest economic news. For the most part, yields try to anticipate the inevitable: a soft landing or hard thud that will signal an about-face in the BoC's rate agenda.

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

The U.S. economic landscape seems to be more strongly resisting its higher rate environment, with a more robust jobs market and stronger GDP (though experts say there is weakening afoot).

Regional banks there are still at risk thanks to commercial real estate woes (high renewal rates and depressed values due to lower occupancy). U.S. Inflation finally seems to be bending to higher rates, with the U.S. Federal Reserve eyeing rate cuts before year-end.

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 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. Sustaining these higher rates for too long may jeopardize that soft landing or possibly end up in a crash landing.

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 together 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.

Fact: A recession is technically considered an economic contraction reported for at least two financial quarters in a row, but typically a pronounced and persistent period of economic decline.

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 may list to get out of restrictive rates, yet markets will 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 prime rates lower).

Depending on your details and needs, our low short-term 6-month and 1-year Rate Relief™ products can help you bridge the gap with budget relief now, enabling your dream-home buy 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 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 15,000 5-star reviews from our happy clients.

Dan Eisner
TNM Founder and CEO
More about Dan

As Founder and CEO of True North Mortgage, Dan is a mortgage industry innovator and an entrepreneurial machine, to say the least.

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