(February 4, 2024)
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The first month of 2024 is behind us!
Here’s a summary of how things are shaping up for the rest of the year.
Interest Rates and Market Trends:
If January is an indication of things to come, it’s fair to say that we’re headed in the right direction. Fixed rates have already dropped by a full percent, comfortably placing them in the 5% range over the last few months. However, variable rates are yet to follow suit. Currently, Canada’s Prime Rate has held steady at 7.20% for the past 7 months. After deducting the industry-standard discounts (-0.35% for conventional mortgages, -0.90% for high-ratio mortgages), you’re left with an effective rate of 6.30% – 6.85%. The question arises: why even bother with a variable rate mortgage then? Opting for a fixed rate might seem like a no-brainer, but hold on. Economists predict a Prime Rate drop of at least 1%, possibly more, before the end of 2024… and likely further drops into 2025. The pace of pre-approvals post-Christmas suggests a robust spring market is ahead of us. If this plays out like I think it will, the Bank of Canada (BOC) will sit idle throughout the spring market without any interest rate reductions. Even though inflationary pressures appear to be on the mend, the BOC will likely go the extra mile and allow higher interest rates to take one final bite out of the economy until it finally begins its descent. While some anticipate this drop earlier, my personal opinion is that a drop will not occur until the July 24 announcement, which will be the fifth interest rate announcement of eight for 2024. By July 2024, it will be 28 months since the rapid ascent of 2022 began when Prime Rate in Canada skyrocketed from 2.70% to 7.20% in 17 months.
Will we ever fix the affordability crisis? (Vancouver, Toronto…Calgary)
Is there genuinely a supply issue in Canada? The past decade has seen various government measures aimed at curbing demand, but affordability remains a pressing concern. Despite measures like the Foreign Buyer Tax, the Foreign Buyer Ban, the 2% stress test, and various other mortgage qualification and real estate purchase restrictions, Canada continues to grapple with an ongoing affordability crisis. Immigration is also a contributing factor, and until Canadians start reproducing en masse, importing talent globally remains essential. Canadian birth rates in the low 1s are not gonna cut it and won’t address our low productivity rates as a nation. Let’s face it; Canadians need to get busy and make strides to increase our population naturally, but until they do, expect strong flows of immigration for years to come. It’s going to take at least a decade and lots of shovels in the ground until we see at least a hint of a meaningful market correction. Vancouver will carry on being Vancouver, Toronto will continue to attract the most newcomers, and Calgary (and Edmonton) will increasingly become the affordability poster child until one day it isn’t anymore.
David Eby’s Zoning Initiative in BC: A Positive Step
Finally, something meaningful! This is the scale of magnitude required to get the pendulum swinging in the right direction. It’s about time someone body-checked the municipalities out of their comfort zones (well done, Eby!). In my opinion, this is where the affordability crisis was born. Ridiculous permitting processes, over-the-top studies, and distracting/strategic community town hall meetings. Like, come on, I get it, let people have their say, but we’ve been letting the minority (aka NIMBY’ers) have their way for far too long already. Too much time building bike lanes, charge stations, and other virtue-signalling construction ventures. Let’s build homes again, and lots of them! The more 700-square-foot condos we insert into our communities, the lower the birth rate will remain… time to ramp up construction and start building more of the bigger, family-oriented, missing middle homes (townhomes, row houses)! The province’s new housing legislation slated for 2026 will deliver more small-scale, multi-unit housing to the market. Homes currently zoned for single-family or duplex use will essentially be permitted for three to four units (depending on lot size), and up to 6-units for even larger lot sizes close to transit stops.
FIFA World Cup is just around the corner, will it kick Vancouver’s real estate market into a higher gear?
We’re about two and a half years away from co-hosting the largest sporting event in the universe, the FIFA World Cup. Vancouver will once again be featured on the world stage. With the Foreign Buyer ban set to expire in 2025, it will be interesting to see which anti-foreign-real-estate-demand policies remain in effect leading up to the World Cup. Following Expo 86 and the 2010 Winter Olympics, Vancouver’s real estate market experienced immediate and prolonged upswings. Will the same pattern happen post-World Cup? We’ll have to wait and see. Until then, be light on your feet and stay subscribed to this newsletter to keep at the pulse of everything real estate and financing!
Want to discuss your financing possibilities for 2024? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.
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Contact Marko, he’s a Mortgage Broker!
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Email: gelo.m@mortgagecentre.com
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