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2022 has been an interesting year to say the very least.  In the early part of the year, rates were low and optimism high as the trend of prices and activity continued its frenzied pace from 2021.  Midway through the year, the housing market seemed to have a self-realization that a 20% + price annual appreciation may not be entirely sustainable in the long term.  Since then the market has shifted to favouring buyers rather than sellers, and will probably remain a buyers market until interest rates decrease significantly.

In regards to interest rates, here is our forecast for 2023:

  • Fixed rates have started to decrease, especially the 5 year fixed rates which are below 5% with some lenders.  We expect fixed rates to continue to come down in 2023, and eventually settle in the 3.50% – 4.00% level, which was the pre-COVID range.
  • Variable rates will likely remain unchanged through 2023 as the Bank of Canada holds firm in its stance of fighting inflation and likely guiding us into a recession.
  • Variable rate borrowers should consider converting into a fixed rate in the 2nd half of 2023 – this should be the optimal time to do so (the next Bank of Canada rate announcement is set for January 25, 2023).

We favour 1-2 year fixed rates as there will be an opportunity to lock into longer term or variable rates once rates return to their normal long term levels.

Canadians are rightfully worried about housing affordability and the cost of goods and services in general.  Inflation is running at nearly 7% in Canada but there are early signs it is moderating.  According to a recent Habitat for Humanity survey,  Canadians view lack of housing supply as a key barrier to housing affordability.  Four in ten Canadians (43%) believe housing supply is a leading contributor to the decline in housing affordability. The survey also found 40% of respondents are concerned about paying their mortgage or rent over the next 12 months, with higher percentages among Gen Zs (51%) and Millennials (52%).  Nearly three in 10 respondents (28%) said they cannot currently afford a down payment for the purchase of a home. There clearly is a supply issue which, despite the best efforts of all levels of government (and possibly as a result of their efforts).