2024 housing market and interest rate forecasts

  12/27/2023 |   SHARE
Posted in Mortgages and Real Estate by Vanguard Realty | Back to Main Blog Page

As we look back at the year that was, we can say 2023 was a year that tested the resilience of Canadian mortgage holders. And as we look forward, there’s optimism that 2024 will be the year of rate relief.

Building on the 400 basis points worth of rate hikes by the Bank of Canada in 2022, borrowers faced an additional three quarter-point hikes in 2023, raising payments for some variable-rate borrowers and those renewing their mortgage.

While mortgage delinquency rates have risen slightly from their record lows, borrowers have largely proven resilient thus far. By the Bank of Canada’s own estimation, roughly 40% of mortgage-holders have already seen their mortgage renew at a higher rate.

The bulk of renewal pain, however, is coming up in the next several years. Analysts estimate about $251 billion in mortgages will come up for renewal in 2024, with another $352 billion worth in 2025.

While the Bank of Canada expects that at least 8 in 10 mortgage holders will face a “relatively large” mortgage payment increase by the end of 2025, expected interest rate cuts in the years ahead should help ease that payment shock.

Falling interest rates in 2024 are also expected to support a rebound in home sales and prices. But forecasters differ on what those growth rates could look like.

For a look at what 2024 could hold in store for interest rates and the country’s housing market, we’ve compiled a selection of forecasts below…

Real Estate Market

The Canadian Real Estate Association (CREA)

• 2024 home sales forecast: 490,257 (+9% year-over-year)
  • “National home sales are forecast to rebound…as interest rates get closer to, and eventually start, trending down and housing markets make a turn back towards their long-term trends. This forecast would place activity close to the pre-pandemic 10-year average, below levels recorded in 2007, 2015, 2016, 2017, 2019, 2020, 2021, and 2022.”
• 2024 home price forecast: $690,916 (+1.5%)
  • Commentary: “Despite a lot of monthly volatility, this forecast would actually mark the fourth year in a row that the annual national average price has remained in the $680,000-$700,000 range…Prices in Alberta are expected to outperform the rest of Canada in 2024, with a forecast gain of 4.8% compared to 2023. In contrast, Ontario is forecast to see virtually no growth in prices next year (+0.2%).”
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Royal LePage

• 2024 aggregate house price forecast by Q4: $843,684 (+5% year-over-year)
  • Commentary: “We see 2024 as an important tipping point for the national economy as the majority of Canadians acknowledge that the ultra-low interest rate era is dead and gone,” said Phil Soper, President and CEO, Royal LePage. “We believe that the ‘great adjustment’ to tolerable, mid-single-digit borrowing costs will have a firm grip on our collective consciousness after only modest rate cuts by the Bank of Canada.”
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Re/Max

• 2024 national average price increase: +0.5% year-over-year
  • Commentary: “The slower market we’ve been experiencing across the country [earlier] this fall could be an early indicator of an active 2024, as reflected in the modest price increase and sales outlook for next year, and the balancing of conditions in several regions across the country,” said Christopher Alexander, President of Re/Max Canada.
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RBC Economics

• 2024 home resales forecast: 496,000 (+9.4% year-over-year)
  • Commentary: “We expect home resale activity to stay especially quiet in Ontario and British Columbia until interest rates fall materially. And then, the recovery that will follow is likely to be gradual at first. Buyers in other markets may respond more quickly to easing rates. Those in the Prairies (including Calgary) still display strong confidence levels at this juncture.”
• 2024 home price forecast by Q4: $799,900 (+1.9%)
  • Commentary: “The good news is the latest bout of housing affordability deterioration has likely run its course and the third quarter will prove to be the cyclical-worst point for RBC’s affordability measure. We see the situation improving from now on as home prices drift lower or stabilize in the majority of markets, and household income continue to grow at a solid pace.”
• “Nonetheless, there’s a very long way to go before affordability is meaningfully restored. Buyers in many of Canada’s large markets will contend with extremely difficult conditions for some time.”
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TD Economics

• 2024 home sales growth forecast: +5.2%
• 2024 home price growth forecast: +0.5%
  • Commentary: “A weaker-than-expected economy poses an important downside risk to the outlook for housing, as it would negatively impact demand and could also precipitate forced selling. Another key risk is that rates will remain higher than forecast, should inflation linger at levels that are higher than we expect. On the opposite end, Canada’s population continues to grow strongly, meaning that housing shortages are likely to persist. This could push prices higher than we anticipate.”
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2024 interest rate forecasts

As noted above, 2024 could be the year of interest rate relief. Bond markets are pricing roughly 15% odds of a rate cut as early as January. While that’s unlikely, most economists do expect the first Bank of Canada rate cut to happen by mid-year.

Forecasts from most of the Big 6 banks see the overnight target rate falling back to at least 4.00% by the end of 2024 from its current rate of 5.00%.

Bond yields, which lead fixed mortgage rates, are also expected to have reached their peak. Since early October, the 5-year Government of Canada bond yield has now fallen more than a full percentage point, resulting in numerous fixed mortgage rate cuts by the big banks and other mortgage lenders across the country.

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

Source: Canadian Mortgage Trends

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