12 Dec Bold Predictions
As we head into 2024, the state of the economy and the housing market are popular topics. Many economists believe that the central banks may have made some mistakes with their monetary policies, particularly in 2023 when interest rates were raised too high and too quickly.
It’s been a stressful 18-month-long journey of rising interest rates by the Bank of Canada, during which Canada’s key rate rose to a 20-year-high of five percent. This has put pressure on just about everything from housing to small businesses.
According to an article in Maclean’s, a whopping $900 billion worth of mortgages are set to renew in the next three years—$186 billion of which is expected to turn over in 2024. For those on a variable rate term, they can expect a sharp increase in their monthly payments.
However, there is some hope for homeowners who follow rates as a reflection of their monthly mortgage payments relative to disposable income. Thankfully, the stress test implemented by the government in previous years should help prevent mortgage defaults.
If you follow the polls, you don’t have to look too far to find bold predictions as to when rates will come down. In September, Reuters predicted a reduction to be implemented in Q2 2024. RBC thinks differently with a rate cut likely to happen in the fall. BMO has made a bold prediction that rates could be cut as much as 50 basis points by the end of the year.
The ripple effect of a higher cost to borrow money extends well past the real estate sector. Look for a decrease in consumer spending on things like travel, cars, luxury and everyday goods as well as dining out. People may choose to save their money in order to afford higher mortgage payments. This change in consumer behaviour could have an impact on the overall economy.
Over the past decade, Canada’s economy has shifted from being driven by natural resources such as pulp and paper to being heavily reliant on real estate. With one million new Canadians arriving in the country in 2023, there is a growing need for housing. Unfortunately, the existing housing supply may not be enough to meet this demand. As a result, real estate prices could rise over the long term due to the basic principle of supply and demand.
However, a crucial factor to watch is the movement of interest rates. If the Bank of Canada decides to lower the interest rates, combined with the increasing population, the real estate market could thrive in 2024 and beyond.
The decisions made by central banks regarding monetary policies in recent years may have unintended consequences for the economy and the housing market. However, the implementation of stress tests should provide some protection for homeowners. The influx of new Canadians also presents both challenges and opportunities for the real estate market, with the potential for rising prices. Ultimately, the movement of interest rates and the removal of bureaucratic obstacles will play a significant role in shaping the housing market’s future.