Five-year fixed mortgage rates fall below 5 Percent

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Some five-year fixed mortgage rates are the lowest they have been since May of 2023. Fixed mortgage rates are tied directly to government bond yields which have taken a dive in recent weeks. Lower bond yields are a result of the U.S. Federal Reserve announcing recently that it expects there will be three rate cuts in the U.S. in 2024.

What does this mean for Canadians who have mortgages renewing in 2024? Or for first-time homebuyers who have been sidelined due to high mortgage rates?

Read on to learn more about what the recent changes in five-year fixed mortgage rates might mean for you.

What kinds of mortgages have rates lower than 5% right now?

The last time we saw a five-year fixed rate in the 4.89-4.99% range was mid-May of 2023. As of December 2023, the specific type of mortgage that is seeing rates below 5% currently is for fixed, five-year, insured mortgage terms. Typically these are mortgages with a down payment of less than 20%.

Unfortunately we have not seen much of a change in variable mortgage rates, at least not yet. Whereas bond yields are responsive to forecasted future changes, variable mortgage rates and interest rates on home equity lines of credit won’t drop until the Bank of Canada rate drops.

Will the Bank of Canada rate drop?

It’s too soon to say for sure if the Bank of Canada will cut rates and if so, by how much and when. However, experts are predicting that the BoC will begin cutting rates starting in the second quarter of 2024.

In a recent article for the Financial Post, chief economist for Deloitte Canada suggests that the Bank of Canada will cut the rate three times next year, bringing the rate to 4.25% by the end of 2024.

For this to happen, the BoC will want to achieve its target of reducing the inflation rate to 2%. At the time this article was posted, Canada’s inflation rate was steady at 3.1%. The expectation is that inflation will continue to come down and then the BoC will be in a position to lower policy rates.

Canada’s overall economy is expected to have a somewhat slow start in 2024 and then pick up and move into positive growth before the end of 2024.

How far will mortgage rates drop in 2024?

Approximately 60% of Canadian mortgages will be up for renewal over the next three years. That means that millions of homeowners are in for a rude awakening when it comes to borrowing costs when they go to renew their mortgage.

Most mortgage brokers anticipate that rates will continue to fall in 2024, but not to the low levels (1.39%) seen during the pandemic. So for homeowners renewing their mortgage in 2024, they’ll still want to brace for higher rates that might, in some cases, still be nearly double their current interest rate.

Having said that, homeowners looking to renew in 2024 should breathe a sigh of relief that interest rates are not expected to increase further, and welcome any additional reductions in mortgage rates.

Lower rates could result in higher demand from buyers

Many Canadians, including first-time buyers and those looking to move-up, have been sitting on the sidelines, waiting for rates to come down before jumping into the market.

2024 could be the year that some decide to take the plunge, which may add some heat to the housing market particularly in more affordable price-points such as the under-$500,000 single-family home market.

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In some markets, a spike in demand may result in higher prices for homes. As rates drop and more buyers enter the market, competition for listings increases. Timing your purchase will be important so that you benefit from lower rates but don’t run the risk of paying more due to higher house prices.

Are you planning on buying or selling a house in 2024?

Overall the Edmonton real estate forecast for 2024 is favourable for both buyers and sellers. Rate drops will provide some relief for both those who need to renew and those looking to make a move in 2024.

A strong provincial economy and continued population growth will help promote stability in property values. First-time home buyers will likely drive a seller’s market particularly for affordable single-family homes.

Need advice on buying or selling a home? With nearly 20 years of real estate experience, Wally is a trusted professional who has helped hundreds of homeowners navigate the market.
Call or text Wally to get started at 780.238.7384.
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