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Rates are based on an average mortgage of $500,000
| Insured | 80% LTV | 65% LTV | Uninsured | Bank Rate | |
|---|---|---|---|---|---|
| 1-year fixed rate | 5.74% | 5.74% | 5.74% | 6.63% |
6.29%
|
| 2-year fixed rate | 5.34% | 5.44% | 5.44% | 5.92% |
5.59%
|
| 3-year fixed rate | 4.14% | 4.64% | 4.64% | 4.79% |
4.74%
|
| 4-year fixed rate | 4.39% | 4.64% | 4.49% | 4.49% |
4.64%
|
| 5-year fixed rate | 4.19% | 4.34% | 4.19% | 4.19% |
4.34%
|
| 7-year fixed rate | 5.35% | 5.06% | 5.06% | 5.90% |
5.06%
|
| 10-year fixed rate | 5.75% | 5.80% | 5.80% | 5.80% |
7.14%
|
| 3-year variable rate | 5.10% | 5.20% | 5.10% | 5.10% |
7.35%
|
| 5-year variable rate | 4.80% | 5.05% | 4.80% | 4.80% |
5.05%
|
| HELOC rate | N/A | N/A | N/A | N/A | N/A |
| Stress test | 5.25% | 5.25% | 5.25% | 5.25% | N/A |
Updated
Given the current economic conditions in Canada, with unemployment at 6.4% (a 30-month high), and inflation slowing down but still above the 2% target, the Bank of Canada continues its strategy of reducing interest rates.
Despite the inflation rate steady at 2.5%, the need to bring it down to the target 2% level remains critical. The Bank of Canada has implemented three rate cuts totaling 75 basis points in 2024 so far. After cutting the policy interest rate from a high of 5% in June 2023 to 4.75% in June 2024, the central bank slashed rate again in July (to 4.5%) and a 25-basis points cut again on September 4th. The central bank's policy interest rate now stands at 4.25%.
This approach aims to stimulate economic activity, particularly in the housing market, where lower mortgage rates could lead to decreased rent prices and overall reduce shelter price inflation. However, there is a risk that house prices may rise as a result of the rate cut. The Bank of Canada aims to balance these measures carefully to avoid weakening the economy too much while ensuring inflation continues its downward trajectory.
High shelter price inflation, driven by rising rent and mortgage interest costs, shows that people are spending a significant part of their budget on housing. According to the Bank’s July 2024 monetary policy report, shelter services price inflation holds at 7%, near its level in December 2023 and well above its historical average.
Bank of Canada expects inflation to ease further in the months ahead to hover around the 2% target by year end 2024. The Bank is cautious and watching inflation numbers closely to increasingly guard against the risk that the economy is too weak, and inflation falls below target.
The past year was a difficult one for Canadians who were seeking to obtain or renew a mortgage. By July 2023, the Bank of Canada had reached its peak interest rate of 5% after a series of 10 rate hikes that started in March 2022. This trend began because of inflationary pressures that started in early 2022 and grew to a high of 8.1% that year.
Looking at the downward trend in inflation, the Bank of Canada lowered its policy interest rate a third time this year by a 25 bps on Sept. 4, to now stand at 4.25%. After a long gap of keeping the policy interest rate steady at 5%, the first cut in two years happened on June 5, 2024, with a 25-bps cut, followed by another 25-bps cut on July 24. Policy rate cuts make borrowing cheaper and encourages spending and investment.
The end of Q1 2024 showed some of the difficulty with continued high interest rates for mortgage consumers. Canadian consumers continued to feel the effects of payment shocks as nearly 9% of mortgage renewals saw monthly payments increase by over $500 in Q1 and an estimated 37.1% of consumers extended their amortization terms. As consumers shopped around to secure the best possible rates, lender switching became more prevalent with almost 25.8% choosing another provider in Q4 2023, up from 21.7% in 2022, and nearly 7% switching from one of the Big 5 Banks to other lenders, according to the Equifax Canada’s Market Pulse Consumer Credit Trends and Insights report.
According to the quarterly Housing and Mortgage Market review for Q2 2024 by Mortgage Professionals Canada, the average 5-year conventional mortgage rate peaked at 6.4% in Q4 2023 and they anticipate rates will gradually decline in Q2 2024, reaching 5.4% by Q1 2027. Over 2 million mortgages are expected to renew in 2024-2025, many at much higher rates than those secured in 2020-2021 according to the CMHC.
In its latest update on September 4, 2024, the Bank of Canada also noted how global economy expanded at 2.50% in Q2 2024 and Canadian economy grew by 2.1% as well, led by government spending and business investment. However, as the population is growing at about 3%, faster than the economy, which means there’s more supply than demand. There are more people looking for jobs than there are jobs available, and it’s taking longer for people to find work. Wages are increasing, but not as fast as expected.
All of this to say that volatility remains in many markets, not just housing, and continues to influence the Bank of Canada’s decisions. Consumers can expect more clarity, and rate cuts, when inflation remains at a consistent 2% target rate, and other economic indicators stabilize.
Variable rate mortgage holders know too well that when rates increased their mortgage rates fluctuated to the upside. Another 25 bps cut by the Bank of Canada will give them much-needed relief.
After a year-long hold on policy interest at 5%, the Bank of Canada finally cut 75 bps in three rate cuts far this year, to now stand at 4.25%. Interest rates in Canada had seen a steady rise since March 2022 when domestic and global inflation, and a tight job market, created the perfect storm for the Bank of Canada. This year marks the two-year anniversary of rate hikes.
In its statement about the future, the Bank of Canada noted that it if inflation continued to ease and reach the expected 2% mark in the coming months, it is only reasonable to expect further rate cuts. Economists anticipate that the policy rate will go down further by the end of 2024, but we will have to wait and watch!
The bond market has priced in rising odds of rate cuts in 2024, with the bellwether 5-year — a major driver of fixed mortgage rate pricing — having fallen roughly 80 basis points, or 0.8%, from the October 2023 highs. That paved the way for a decline in fixed mortgage rates, which have fallen roughly 70 bps over that same time.
Bond yields have fallen to approximately 2.91% following the Bank of Canada's third rate cut on Sept. 4, 2024. This decline is driven by August’s inflation rate decreasing to 2.5% from 2.7% in June, along with slowing growth and rising unemployment.
The 5-year fixed rate has historically been the most popular term of choice for borrowers. However, people do not want to lock their mortgage at today’s high rates for too long and eventually miss lower rates two/three/four years from now. Many borrowers believe the mortgage rates will not remain high for too long and hope the rates will be lower in the coming years. The trend we see now is with a hope to sign for a shorter-term fixed rate for now, ride it out, and then renew into a lower rate when the term ends or matures. Fixed mortgage rate is by far the more popular choice among home purchasers, especially first-time homebuyers currently, mainly because of stability and fixed payments that do not fluctuate (unlike variable rate).
Variable rates made up about one-third of mortgages in Canada in 2021-2022. Because it is adjustable, the rate you pay on your mortgage can move up or down throughout the term. Banks will issue variable rates at prime plus or minus a discount (or premium). As prime rates increase, so does your mortgage.
Because rates have increased steadily over two years, people with variable rate mortgages have seen their incredibly low rates increase to painfully high numbers. As this happens you start paying more interest and less towards the principal amount. The opposite can be true as rates start falling.
According to our internal customer data, requests for fixed rate quotes have been higher compared to variable rate quotes throughout 2023, until now. About 83% of customers requested fixed rate quotes as against about 16% requested variable rate quotes with RATESDOTCA. This could be due to the fixed rate being still on a decline due to falling bond yield prices. As of September 2024, variable rates are still appearing higher in comparison to fixed rate quotes. Overall, our internal data supports an increase in requests for mortgage quotes since the BoC rate cut in June 2024.
Fixed rates remain unchanged. So, if you locked in a fixed-rate mortgage prior to the rate increases, they have stayed the same throughout the past two years. It’s a bit of a cushion until the term ends. Homebuyers looking at new mortgages within the past two years will have noticed significant increases in mortgage rates, as will people intending to renew. This has cooled the housing market both for buyers and sellers.
According to RBC, even as new home listings came to the market in April, many buyers remained on the sidelines across major Canadian markets. This led to slower sales amid the influx of supply bringing the inventory back to pre-2020 levels in the national housing market. Seasonally adjusted home sales activity declined 1.7% month-over-month between March and April at the national level, bringing housing activity down to the lowest point so far this year. A surge of buyers re-entered the market in April 2024 with new listings at 20-year lows.
Canada’s most populous province saw home sales activity go up by 10.1% from the same period a year ago.
There were 39,164 new residential listings in June 2024, higher than the 38,445 residential listings in April. Active residential listings were up 52.1% from the end of June 2023, a higher than any other June listings in more than five years. The average resale price for residential homes in Ontario was in June 2024 was $884,761, 2.3% below the June 2023 average.
As the population continues to grow and the economy seems headed for a soft landing (and not a recession), demand for housing will grow even if rates remain relatively high. Even though a 25 basis point doesn’t generate material change for homebuyers, it does bring in a positive trend that will give homebuyers greater confidence to enter the market. Lower rates mean affordability will improve and would eventually save up a significant amount for the borrowers.
Home sales activity in British Columbia was also much softer in June this year compared to the same time last year. In June 2024, B.C. reported a 19% decrease in residential unit sales at 7,082 units sold, compared to June 2023. While residential price this year was up 1% compared to last year, the total sales dollar volume was $7.1 billion, an 18% decline from the same period last year.
Alberta has recorded steady home sales across all property types, which has contributed to the year-over-year gain of 6.3% in May 2024. New listings also increased, but market conditions further tightened as inventory levels declined slightly and the sales-to-new listings ratio decreased. Total residential sales were up 6.3% year-over-year to 9,283 units while total residential average price went up 8% year-over-year to $507,706 and new listings were up 8.3% to 12,921.
Positive international immigration added to gains from interprovincial migration, resulting in a net increase of 45,375 people to Alberta’s population in the first quarter of 2024. This was an increase of 4.5% from the first quarter of 2023. International immigration added 32,893 people to Alberta’s population in the first quarter of 2024. This was an increase of 12.5% from the same period in 2023.
Two of the biggest cities of Alberta - Edmonton and Calgary - have reported positive home sales. While total residential unit sales in Greater Edmonton Area (GEA) were at 3,220 unit sales during May 2024, showing increases of 3.3% over April 2024, and 18.9% over May 2023. New residential listings amounted to 4,325, a number 13.4% higher than in April 2024, and 12.6% higher than May 2023. Overall inventory in the GEA increased 6.9% from April 2024 but is still 17.1% lower than May 2023.
In Calgary, home sales remained robust despite supply shortages in lower price ranges. In a market that continues to show resilience, May saw a total of 3,092 resale home sales. While this figure is nearly one per cent below last year’s record high, it is 34 per cent higher than long-term trends for the month. The pullback in sales was primarily driven by declines in lower-priced detached and semi-detached homes, where there was limited supply choice compared to last year.
These values are as of Sept. 4, 2024:
Bank of Canada Overnight Target: 4.25%
Minimum Qualifying Rate: 5.25%
5-year bond yield: 2.91%
Prime Rate: 6.45%
5-year Fixed (Insured)*: 4.34%
5-year Fixed (Uninsured)*: 4.34%
5-year Variable (Insured)*: 5.40%
5-year Variable (Uninsured)*: 5.45%
* Lowest nationally available mortgage rates.
The economy continues its recovery. Here are the main indicators worth watching (as of Sept. 4, 2024):
Total Consumer Price Index (Inflation): 2.50%
National Unemployment Rate: 6.4%
Real GDP by expenditure (Q2 2024): 0.5%
Oil (US WTI Crude): US$68.87
Canadian Crude Index: $53.57
Inflation plays a significant role in shaping the Bank of Canada’s monetary policy. As we have seen in the past, high inflation rate has triggered the Bank to increase its policy interest rate to curb consumer spending and control inflationary pressures on the economy.
The current total Consumer Price Index (CPI) inflation rate has come down considerably from its peak of 8.1% in 2022. The inflation rate in Canada is at 2.5% on a year-over-year basis in August 2024, down from 2.7% in June 2024. The Bank of Canada’s target rate of 2% inflation has still not been reached, which throws light on the possibility of a fourth and fifth rate cut in months ahead.
From a shelter price inflation standpoint — which includes factors like mortgage interest cost, rent, home renovation cost, home insurance — as policy interest rate comes down, we can see activity in housing market strengthen with mortgage rates going down, and rent prices lowering too. However, that could be an impetus for house prices going up and increasing buyer activity in the real estate market.
Economists expect the bank to further cut policy interest rate on the next scheduled announcements in October and December. Monetary policy affects and trickles down to the housing market as banks set their lending rates based on the Bank of Canada’s policy rate.
Housing and real estate are interest-sensitive sectors, and as rates remain high, buyers and sellers tend to remain on the sidelines. With the June rate cut, the Canadian Real Estate Association reported the national home sales edged back 0.7% month-over-month in July. Monthly changes in sales activity were generally small amongst the larger city centres in July. In the last few months, we have seen an increase in real estate inventory with sellers desperate to go out in the market but not coming across enough buyers to sell. With a decline in BoC’s policy interest rate, we can expect this to change in the coming months.
Just as the COVID-19 lockdown began in March 2020, the Bank of Canada’s key overnight lending rate stood at 0.25%. And because of those lockdowns and the economic turmoil they caused, rates remained low until about March 2022 when the first of many rate hikes occurred, initially adding 25 bps at the time.
Since 2022, the Bank of Canada has raised rates 10 times and it remained steady for almost a year starting July 2023 at 5.0%. On June 5, 2024, the Bank decided to reduce the rate by 25 bps, the first reduction in two years. A second rate cut this year came on July 24, with the bank cutting another 25 bps. The Bank continued its rate cut mission on September 4th, making it 75 bps reduction so far this year. For many looking to enter the housing market, the rate hikes have meant putting those dreams on hold, while others have seen their mortgage payments spike.
During 2022-2023, as rates increased, Canada's real GDP was trending lower. In Q1 2022, GDP stood at 1%, with a slight decline to 0.9% the following quarter. The higher cost of borrowing and slower demand has brought GDP to a 0.5% growth rate in Q2 2024, which is up from the previous 0.4% position after recording three quarters of decline.
Economists are expecting two more rate cuts of 25 bps each in October and December 2024, if inflation drops even lower. For its part, the Bank of Canada expects inflation to drop to the target rate of 2% by 2025.
At the beginning of the pandemic, the spring of 2020 saw a robust demand in housing due to low rates and pent-up demand following the lockdowns. Since then, as rates increased, that demand has slowed. The slow economic growth and slower housing market are not unrelated. The Bank of Canada’s dampening effect, if you will, is working by reducing inflation.
According to the CMHC Residential Mortgage Industry Report, under higher interest rate conditions, more mortgage holders find themselves in precarious financial situations; the financial buffer they were able to build up during the pandemic has been exhausted. Mortgage delinquency rates increased from historically low levels during the last quarter of 2023, as consumers’ financial stress begins to reach the mortgage market.
As of February 2024, residential mortgage debt stood at 2.16 trillion (+3.4% compared to February 2023), representing the softest growth in nearly 23 years, according to CMHC’s Housing Market Outlook report.
Economists expect housing demand to return and growth in sales and prices will increase as inflation and interest rates decrease. With the weakness in housing supply, affordability challenges will continue, and these challenges will be most evident in the rental sector.
In H1 2024, we have seen housing starts decline, continuing the slowdown from the record high levels of 2021. We have also witnessed a decline in apartment starts in 2024, following their record-high levels in 2023. Purpose-built rental starts, fueled by unprecedented demand and government support, accounted for over half of these starts.
Some condominium projects in the GTA also face delays in 2024 caused by lower pre-construction sale levels, making securing financing harder.
Economists believe that in 2025–2026, backed by lower interest rates, milder construction cost growth and government support should make more projects viable. Homebuyers can also expect lower interest rates as household incomes and confidence levels improve. Consequently, more homes are expected to be built in the years ahead.
It is hard to get the same mortgage rate your friend might have gotten while shopping around for rates in Canada. Here are some of major factors which impact your mortgage rates:
Canadian 5-year bond yield trends are closely tied to how 5-year fixed mortgage rates will go. Lenders or other financial institutions who offer 5-year mortgage products are taking on risk when they lend out the money. The loans often come from depositors, but they also use government bonds to offset that risk. They will charge a risk premium or spread between the bond yield and the mortgage rate.
So, when 5-year bond yields rise, it’s likely that fixed-rate mortgages will also rise. During the pandemic, the Bank of Canada, through quantitative easing, purchased Government of Canada bonds in the secondary market.
These purchases increased prices on bonds but decreased the yields. Currently, the Bank is in a quantitative tightening mode and has not been purchasing bonds.
Five-year benchmark bond yields have been on a steady climb since the beginning of 2022 when they stood at 1.42% (Jan 5). The 5-year benchmark bond yield began to decline in October 2023 in anticipation of BoC rate cuts in 2024. With no BoC activity in sight in the first few months into the new year, bond yield peaked at 3.89% on April 25, 2024, before falling again. The current 5-year benchmark bond yield is at 2.91% (as of Sept. 4, 2024).
Bond yields have been falling, in one area, because of bond supply. But also, the yields have a close link with inflation and the BoC benchmark rate. Bond markets are pricing in the fact that the Bank of Canada had held rates steady since July 2023 and after a third rate cut on Sept. 4 by another 25 bps will likely cut rates further later this year or into 2025. The drop in bond yields is reflecting that. That is a prediction of the bond market but, of course, there is no guarantee. And as bond yields fall, their correlation to 5-year fixed mortgage rates dictates a drop in those interest rates as well.
Unless you have a crystal ball it’s difficult to predict what mortgage rates will be at the end of 2024. Most economists and observers expect the Bank of Canada to do more rate cut later this year. If that is the case, mortgage rates may come down further.
There is an expectation that the Bank of Canada will further cut rates after a third 25 bps reduction on Sept 4, which will lead to a full 1.0% cut by the end of the year. If this is the case, mortgage rates may start to trend lower and rest in the mid to high 3% range.
No one knows for sure, but it seems unlikely. The Bank of Canada agreed that monetary policy no longer needs to be as restrictive as in 2022-23 and reduced the policy interest rate by another 25 basis points on Sept. 4, 2024. Recent data has increased the Bank's confidence that inflation will continue to move towards the 2% target by the end of the year. If the trend continues, the Bank of Canada will begin lowering rates further and mortgage rates will follow. Of course, it also depends on bond yields, but those have also been trending lower since February and are pricing in the possibility of future rate cuts.
Victor has 17 years of mortgage and real estate experience. He started his mortgage career in 2007 shortly after completing his undergraduate studies. After numerous awards and helping thousands of people with residential mortgage financing, he set his sights on the real estate industry as a second career to provide more value as a mortgage professional. One of his passions is helping people make informed decisions with education and guidance. His approach is personable, honest, and direct and he believes successful transactions result from working together as a team to achieve a common goal.
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