A look into my crystal ball and what to expect

I get asked to predict the future on the regular. Where things are going. Whether now is a good time to buy. What rate and term are the best to take. And so on. And though like anyone else, I really don't know what's going to happen going forward, I still have some pretty strong opinions that use data and trends to support them. So if you find yourself wondering - wonder no more. Here is my opinion:

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We have FINALLY hit the point where we can confidently say that rates have peaked. Bank of Canada (BoC) Governor Tiff Macklem stated last week:

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​"...interest rates may now be restrictive enough to get us back to price stability"

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That statement alone is massive given how it lies in stark contrast with the much more aggressive tone we've been seeing since the spring. But with inflation dropping more significantly than expected, growth in the economy flatlining and dipping into negative territory, and an unemployment rate that is increasing at a rate consistent with recession, there really is no reason for rates to rise further. Add to all of this bounty of mortgages yet to renew into higher rates (estimated $251B in 2024 and $352B in 2025) that have the potential to add further stress and strain to an already struggling economy and we now have the basis for markets to look forward to rates being cut.

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And that's exactly what markets are doing. If you want to know where fixed rates are heading, watch Canadian Government bond yields. As I'm typing this, the 5 year bond yield has dropped by 0.73% in the last two months. Meanwhile the 2 year bond yield has dropped by 0.57% over a similar time frame. What this means is we'll see some downward pressure on fixed rates. We're already starting to see mortgage rates cut but not by nearly the same magnitude that bond yields have dropped. Rates are very quick to rise but slower to come down. As this pressure continues, lenders will be forced to adjust as they vie for market share and loan originations. 

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Something I have mentioned before but bears repeating: fixed rates anticipate. These markets are trying to predict the next move by the BoC. And though they aren't so good at predicting the timing and magnitude of those changes - they are rarely wrong about the direction. And what they're predicting next is a downward move of the Overnight Rate between April and July of next year. What we're likely to see between now and then is a continued easing of fixed rates in anticipation of that cut. Fixed rates move first. 

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And when rates move, it impacts the housing market. Both the number of transactions and prices are heavily impacted by interest rates. To illustrate just how much, we did up a graph (kudos to Helen!) below that charts the number of Real Estate Transactions monthly and how that's been affected by the changes in the BoC policy rate. For some added context and comparison, the average monthly transactions for the last 10 years are charted as a baseline measure.