A Look Back At 2023 And What's Ahead For 2024!

Jan 13, 2024

As we bid farewell to 2023 and usher in the new year, let's reflect on the economic landscape of Canada and cast our gaze forward to what economists project for 2024.

The previous year showcased Canada's economic resilience through robust job growth and increased investments in its early months. However, as the year concluded, the impact of elevated interest rates became evident, contributing to a slowdown in both business and consumer activities. This deceleration has led to forecasts of subdued growth in the initial half of 2024. Nevertheless, economists anticipate a gradual economic rebound in the latter part of the year.

In 2023, the inflation rate commenced at 5.9% and steadily decreased to 3.1% by November (awaiting December's data). Despite the Bank of Canada's expectation that inflation won't reach its 2% target until late 2025, it aims for comfort within the 3% - 2.5% range. The noticeable impact of the Bank of Canada's rate hikes has caused potential buyers to feel excluded from the market, affecting consumer confidence and fostering a 'wait-and-see' approach throughout 2023. Simultaneously, strategic rate adjustments by the Bank of Canada have effectively tempered the housing market's pace, contributing to a gradual slowdown without significantly affecting property values in most regions.

Canadians in 2023 also grappled with the reality that historically low interest rates are a thing of the past, with these new normal rates becoming a permanent fixture. While there may be some modest decreases in rates in the upcoming year, many Canadians can no longer postpone their entry into the housing market in hopes of further rate drops.

Looking ahead to 2024:

Signs are emerging that the tangible effects of the Bank of Canada's rate hikes are taking root. Coupled with the anticipation of inflation dropping below 3%, movements in rates are finally being observed. Anticipated rate cuts from both the Bank of Canada and the US Federal Reserve have prompted a positive response in bond markets, resulting in lowered fixed rates, particularly the 5-year rates. Some insured rates have dropped as much as 1%, fostering competition among lenders. This competition is advantageous for borrowers, particularly first-time home buyers with less than a 20% down payment, as they prepare for the spring market.

There's a glimmer of hope for Floating Rate holders (Variable or Adjustable). Most economists and markets predict a potential 100 - 150 bps rate cut to the current policy rate in 2024. However, this transition will likely be gradual, with the Bank of Canada proceeding cautiously, implementing gradual decreases while monitoring inflation and the economy. This will benefit Adjustable Rate holders with reduced mortgage payments and Variable Rate holders seeing a shift towards principal repayment.

With housing affordability and supply shortages pressing all levels of government, there will be a continued push for new construction developments aimed at bolstering the housing supply. Although this issue won't be swiftly resolved, it remains a top priority for all levels of government, emphasizing the ongoing need to address the housing shortage.

What this means for consumers:

Approximately $251 billion in mortgages will come up for renewal in 2024, with another $352 billion worth in 2025. As a result, many Canadians will soon face a significant increase in their monthly mortgage payment, requiring adjustments to their spending. However, with numerous lenders vying for business, working with professionals who have access to multiple lenders is crucial for securing better rates and products. Planning ahead of your renewal allows for adjustments to the family budget to accommodate a certain increase in the monthly mortgage payment.

For those dealing with high-interest debt, now is an opportune time to consider refinancing for debt consolidation, especially with declining rates. This provides a chance to manage debt effectively, acting as a "reset button" to get finances back on track and increase monthly cash flow.

Lastly, with a growing anticipation that the period of interest rate hikes might be concluding, this prospect is likely to reignite buyer interest in the market. The expected decrease in fixed and variable rates could enhance purchasing power, leading to increased demand in the housing market and a potential uptick in property values. Opting for a variable rate or a short-term fixed rate now allows you to enter the market before the surge in demand, positioning yourself to secure a potentially lower rate in the near future, rather than waiting for rates to drop significantly.

While uncertainties persist, it's crucial for those planning mortgage transactions in 2024 to review their needs sooner rather than later. Together, we can determine the best course of action that aligns with your family’s budget and needs. I'm here to assist whenever you're ready.