How long will Canada have high interest rates?
It is widely expected that the Bank will start to cut its overnight rates mid-2024 by 25 to 50 basis points. Mortgage rates, in turn, are expected to start gradually going down.
By the end of 2025, the percolation of the effect of higher interest rates in the economy should become complete, and inflation is expected to return to the target of 2%. This would allow the Bank of Canada to bring its policy rate to neutral to support the job market.
However, forecasts indicate potential changes ahead. The Bank, aiming to balance economic growth and inflation, is expected to adjust this rate as economic conditions evolve. Predictions suggest a potential decrease in the key interest rate starting in the second half of 2024, with gradual reductions thereafter.
After a period of high inflation, we expect headline and core consumer price inflation to decelerate back to the 2% target over the medium term. With inflationary pressures easing over the medium term, the Bank of Canada will be able to cut its policy rate back to the neutral rate of 2.25% by 2025.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
If you want to hold out for lower mortgage rates and you're looking in a market that is less sensitive to price fluctuations, waiting until mid-2024 to buy a house may pay off.
What You Should Know. Mortgage rates reached a 15-year high during October - November 2023. As of January 2024, mortgage rates have started to decline, which is expected to continue to the end of 2025.
1) Interest-rate forecast.
We project the federal-funds rate target range to fall from 5.25% to 5.50% currently to 4.00% to 4.25% by the end of 2024, to 2.25% to 2.50% by the end of 2025, and to 1.75% to 2.00% by first-half 2026, after which the Fed will be done cutting.
BoC holds again at 5.0% March 6, 2024 – For the 5th straight decision, the Bank of Canada keeps its policy rate in idle, leaving bank prime rates at 7.20% (not including variable-rate discounts that lenders like us may offer). We're looking for signs that the central bank will soon green-light a rate drop.
Mortgage rates are likely to trend down in 2024. Depending on which forecast you look at for housing market predictions in 2024, 30-year mortgage rates could end up somewhere between 5.9% and 6.1% by the end of the year.
What is the Bank of Canada prediction for 2025?
Overall, the Bank forecasts GDP growth of 0.8% in 2024 and 2.4% in 2025, roughly unchanged from its October projection. CPI inflation ended the year at 3.4%. Shelter costs remain the biggest contributor to above-target inflation.
Despite the recent surge, most housing market experts expect mortgage rates to recede over 2024, especially once the Federal Reserve begins its expected interest rate cuts. But whether lower rates will create a meaningful shift in home affordability remains to be seen.
Current Situation. The Fed is currently raising interest rates to counteract inflation. The policymakers expect rates to stay above 5% in 2024 and around 4% by the end of 2025.
Therefore, homebuyers who are waiting for a better deal may be disappointed and miss out on other opportunities in the housing market. In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
While rates have risen 13 times since May 2022, the drop won't be so far nor so fast. Even by the end of 2026 rates will probably only be around 1% lower than now. And this may be as low as interest rates go. The interest rates we saw during the COVID recession were arguably the lowest in human history.
Canada continues to struggle with a chronic housing supply shortage. According to the Canada Mortgage and Housing Corporation, the country needs about 3.5 million additional housing units by 2030 to restore affordability, with the greatest need concentrated in the provinces of Ontario and British Columbia.
The main drivers behind why is housing so expensive in Canada is too much demand (population growth) and not enough supply (new buildings), with rising and falling mortgage rates acting as a type of lever, either reducing or increasing the supply of new homes as they rise and fall.
| Date | BoC Rate | Prime Rate (+2.2%) |
|---|---|---|
| March 2024 | 5.00% | 7.20% |
| June 2024 | 4.75% | 6.95% |
| September 2024 | 4.50% | 6.70% |
| December 2024 | 4.00% | 6.20% |
Mortgage Rate Outlook
Our forecast is for the average five-year fixed mortgage rate to fall to 5.05 per cent by the end of 2024, while variable rates will start falling as the Bank of Canada lowers its overnight rate starting in the first or second quarter.
Will mortgage rates drop in 2025?
Our Chart of the Day is from Goldman Sachs, which plots the firm's expectation that the 30-year mortgage rate will stay above 6% through 2025. Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates.
After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%. Prices have started to come down, but the group has signaled it wants to see more positive data before pulling the trigger.
Mortgage rates could continue to trend downward this year, especially once the Fed starts cutting the federal funds rate. "Mortgage rates will go down in 2024.
Interest Rates Could Stay Well Above 3% Through 2030, Larry Summers Warns - Bloomberg.
