Predictions Are a Crap Business

As is the case with the start of a new year, I have seen lots of predictions for 2024, from soft landings to no landings, rate hikes to rate cuts, and everything in between. As I always say, predictions are a crap business which is why I never make them. I do however think there are some areas worth keeping an eye on as the year progresses.

Interest Rates

The market is currently pricing in four rate cuts from the BoC by the end of 2024. Is that the right number? I have no idea and I don't think the BoC does either but I do think that their actions will dictate the level activity we see in the real estate world heading into spring.

Meanwhile, fixed mortgage rates have tumbled nearly 100bps over the past few months and currently hover in the low 5's. That said, bond yields have bounced higher to start the year, with the 5 year bond yield up 20bps so far. Again, what's to come is just a best guess at this point.

The Mortgage Renewal Wall

If you're one of the million Canadians renewing a mortgage this year you're going to need economic data to deteriorate further to keep bond yields and mortgage payments from ballooning further. Even with a drop in rates, upcoming renewals are likely to cause some stress and possible pain for many households.

Three of the Scariest Letters

IRD! This is a term/concept you will want to understand (at least in general terms) especially if you have a renewal coming up this year. Simply put, what the lender charges you to break your mortgage (referred to as a prepayment penalty policy) is their return policy. You didn't think they'd just let you break your mortgage for free did you?So as interest rates decrease, Interest Rate Differential Prepayment Penalties increase.
So while a 5 Year 4.86% Fixed Rate may be enticing, especially with $4,000 Cash Back from the Lender but this is very much a buyer beware situation. It's understandable to want to take the lowest rate possible especially with all the other increases costs we are dealing with, but make sure you understand exactly what you're signing up for.

As always, if you need some help navigating your renewal or just want to understand your options, please reach out. I'm always happy to help.