The year 2023 ended with the following indicators: First, the Canadian economy entered a recession, second, thanks to the Bank of Canada raising the interest rate to 5%, inflation was first stopped and then lowered to below three percent, and third, the growth of real estate prices stopped. Prices fell by 15% on average and rolled back to the level of October 2021.

There is another very big problem ahead - about 2 million households are approaching the time of renewing their mortgages. Which, given high lending rates, is fraught with a large number of defaults. That is, on the one hand, it is necessary to urgently lower lending rates, saving the economy and mortgage holders, and on the other hand, the Bank of Canada has not yet achieved the planned result and has not returned inflation to the planned two percent.

Rate cut coming soon
Most financial analysts predicted a rate cut coming soon at the beginning of the year, as they believed that the risks of completely drowning the economy and getting a large number of defaults outweighed the fact that inflation was still higher than planned.

The economic indicators that were just released change the picture a little. On the positive side, inflation has dropped even further, and today it is already at 2.9%, and this is an excellent indicator. On the negative side for mortgage holders, the overall indicators for the Canadian economy came out slightly better than previously expected, and although in general they are very bad, for example, unemployment in Ontario has grown by 30% compared to last year, which is simply a terrible indicator that cannot be ignored. Still, there is no sharp collapse that could force the Bank of Canada to urgently lower the interest rate, and apparently, our authorities are waiting for this moment.

The American economy factor

There is another important detail that certainly influences the decision of the central bank of Canada. This is the American economy. And in the States, unlike Canada, today everything is much better than here. Unfortunately, in the decision to lower the rate in Canada, we are very dependent on whether the rate will be lowered in the USA. If, for example, we begin to lower the rate, and the Americans do not, then this will lead to a significant outflow of investors' money from the country, and this, accordingly, is very bad for the Canadian economy. Today, the US Federal Reserve Bank rate is only a quarter of a percent higher than the Canadian one, and this is a fairly comfortable level for the Canadian economy. At the same time, the Canadian dollar is in the range of 1.32 to 1.39 against the American dollar, which, according to analysts, is ideal for us today. It seems that the Americans are not going to lower the rate yet, since they have a margin of safety. We must not forget that they have absolutely no problems with millions of renewable mortgages, since the rate on mortgage loans in the USA is fixed for the entire term of the loan. And the US Federal Reserve rate only affects those who buy today, and has zero impact on those who bought earlier. Plus, if they lower the rate right before the fall elections, that's another trump card in favor of the Democrats.

If our economic indicators were really bad, then most likely the Bank of Canada would be the first to start lowering the rate, despite the problems that this would lead to. In the current situation, it is very likely that the Bank of Canada will continue the pause, especially since, according to statistics, most homeowners will renew their contracts with the bank at the end of 2024 and in 2025. This means there is still time. And we have elections next year, and if we start lowering the rate not today, but in the second half of the year, then this will play into the hands of the Trudeau government.

Ontario Real Estate Market

Regarding the Ontario real estate market, the number of sales has increased by 37%, it is already possible to get a mortgage at 5%, although a couple of months ago 6.5% would have been a joy. Today, banks issue long-term loans at a loss, realizing that when the rate starts to fall, they will be able to make money on this. The fight for clients is serious for banks, and this trend will continue.

For now, real estate prices are stagnant. Of course, demand has increased, but the number of offers has also increased significantly.

Price growth

I think that the culmination will be the first rate cut by the Bank of Canada, after which prices will begin to rise, and by the beginning of 2025 we will reach the level of peak prices of March 2022. Then, the huge deferred demand that has accumulated today will do its job, and the rise in real estate prices will be global.

So I want to advise those who are still in doubt today whether today is a good time to buy, if you are planning to buy, do not waste time, do it now. If you have the opportunity, it is better to buy at today's prices, even with an expensive mortgage, which can be refinanced in a year at a lower rate, than to wait for cheap loans, but buy much more expensively.

Prepared by Olga Balaur