Happy New Year.
In 2022 we had the Bank of Canada raise their overnight rate by 4% to 4.25% to reduce inflation. As a result, the economy is in much different position than when we entered 2022.
Starting with the forecast of the major Canadian banks, we can see consensus split between if we see another rate hike at the Bank of Canada’s January 26th meeting. There is currently only one bank forecasting rate cuts before the end of 2023. All are predicting we end 2024 with overnight night rate and variable rate mortgage rates will be 0.50% to 1.25% lower than today.
Interest rate forecasts Mar-23 Jun-23 Sep-23 Dec-23 Jun-24 Dec-24
Looking at the market forecast, the one thing we clearly see if the forecast is that the yield curve is downward sloping with rates higher in 2023 than they are expected to be in 2024 and further out the curve.
If you are “locking in” your existing mortgage for the remaining term, here are the discount you should receive from what you are currently paying to switch to a fixed rate. If you are locking in for the next 2-5 years that fixed rate you receive should be lower than the variable rate you are currently paying.
My personal view is that record high consumer debt levels in Canada and the Bank of Canada raising rates by a record amount in a short period of time will lead to some significant challenges in the economy in the year ahead. When I add the impact of higher rates on government debt, and the wealth erosion from falling real estate prices, falling equity and bond prices, 2023 is shaping up to be a very challenging year.
My expectation is that sentiment continues to change, and fundamentals continue to deteriorate as the economy deals with the full impact of the rate hikes, we will see the expectations for rate cuts in Canada pulled forward into 2023.
In the short term, I will defer to market forecasts for the January 26th Bank of Canada meeting and would point out that 1-year yields are more than 0.25% higher than today’s overnight rate. Don’t be shocked if we see another 50 basis points from the Bank of Canada in Q1.
Give me a shout if you want to understand your options 416-769-1440 or email Kevin@directionmortgage.ca with any questions.