October 28, 2022 SEP Dev

Canada Mortgage Rates Forecast – What Could Mortgage Rates Look Like in 2023 in Canada?

First and foremost, it’s important to remember that predictions are not factual. Mortgage rate predictions, however, are made based on facts and data that are available to us. It’s possible to be completely right, but also completely off the mark.

 

Why is the Bank of Canada Increasing Mortgage Rates?

Here is what we know so far. We hit a 31-year high in inflation earlier this year. High inflation, if not tamed, can have worse consequences for families and households than high-interest rates themselves. High inflation decreases our purchasing power, and our ability to save money and in some cases, pushes households closer to the poverty line. Not to mention, very high inflation can cause companies to go belly up, therefore increasing the unemployment rate and worsening the economic outlook for a nation.

 

Mortgage Interest Rates Forecast 2022 Canada (remainder of the year)

So far, 2022 has seen a total of 3.00% in rate increases by the Bank of Canada. We started the year at 0.25% (tail end of the pandemic), and now we sit at 3.25% with another (very likely) rate hike coming on October 26th, 2022. After October 26th, there will be one remaining interest rate decision to be made on December 7th to wrap up the year.

The Bank of Canada had initially vocalized a target interest rate of 4.00% by the end of 2022. After October 26th, we’ll likely be sitting at 3.75% if predictions hold, with an additional 25bps remaining to hit their target rate. When inflation numbers report for October and November, we will have a better idea and outlook to make a mortgage rate forecast for their final meeting.

 

Mortgage Interest Rates Forecast 2023 Canada

Homeowners and potential buyers are worried, and they’re already asking questions about mortgage interest rates forecast for 2023. Some are trying to plan for change. For others, there is closure in just knowing – even if there’s nothing that can be done.

We know that the central banks have a target inflation rate of 2.00%. This means that we have some ways to go solely based on September’s reported inflation number of 6.86%. However, this is down month over month, and down almost 1.00% – 1.50% from May/June 2022 (when inflation started to peak). In other words, these mortgage rate increases are already having a deflationary impact!

While we’re trending positively in slowing inflation, but it can take at least another year or two to get back within reach of healthy inflation figures (2.00%). Now is not the time to take our foot off the brake.

Rate increases so far have been sizable, to say the least. The central banks will need to look in all directions to assess the impact of these rate increases heading into 2023. Inflation control, if carried away, could turn into damage control if we get pushed further into recession/depression territory.

Will the Bank of Canada start to decrease interest rates in 2023? This was once a consideration but is likely wishful thinking now. It takes time for these policies to do their job, so quantitative easing is unlikely to take place in the year 2023 as it would just encourage borrowing (leveraging) and likely retrace some of the progress already made in curbing inflation.

Our mortgage interest rates prediction for Canada in 2023: Pause but not decrease. We will likely hit a plateau, and mortgage rates will hover for a large part of the year until inflation is well under control. This plateau will need to be a happy medium between controlling inflation at a fast enough pace while avoiding a major recession/depression.

 

Mortgage Interest Rates Prediction Canada – Impact on Housing Prices

It’s no secret that the BOC’s rate increases already had a downward pressure on house pricing. Depending on whom you ask, this can be a positive or negative thing… it’s circumstantial. Some cities have already seen a 7-8% drop in home prices, while other areas have dropped as much as 20-25%. With each further increase, we should see home prices drop as a response. Historically, house prices have gone up as household income increased. This was not the case for 2020 and 2021. Prices were increasing in direct correlation to decreased cost of borrowing money. Despite higher costs of borrowing, this is a healthier, more balanced market… would you agree?

 

Want to get more granular about the mortgage rates forecast Canada? We love bringing knowledge to our potential clients and network. Let’s hop on a call (905) 455-5005.

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