Mortgage rates expected to ease, further heating Calgary market

Many first-time buyers are choosing five-year fixed mortgages, which currently offer the lowest rates with some now below five per cent.

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Calgary’s already hot real estate resale market could heat up even more as interest rates are forecast to fall by year’s end.

“It’s great news,” says Chase Belair, co-founder and principal broker at Nesto. The online mortgage brokerage recently published its 2024 mortgage forecast, pointing to the Bank of Canada possibly cutting its overnight rate in the second half of the year.

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The central bank’s policy rate generally determines the direction of mortgages in Canada, particularly variable rate mortgages, and the nation’s six largest banks are all predicting that the Bank of Canada will cut rates starting as early as late spring.

“There is a general consensus among experts that we could see a one to two per cent reduction,” Belair says.

All told, Canada’s six largest banks predict the Bank of Canada rate could be between 100 and 175 basis points lower, falling to as low as 3.25 per cent by year’s end from the current rate of five per cent.

For Calgary, lower borrowing costs could add more pressure to the resale market where the benchmark price of a home was $570,100 at the end of 2023, up about 10 per cent from 2022, Calgary Real Estate Board statistics show.

Many existing homeowners are now “a lot more educated on rates” than in past years, says Matt Leggett, Calgary mortgage broker and senior vice-president at Ratehub.ca.

“Most are shying away from five-year fixed rates and looking at shorter terms like the three-year fixed to see where both fixed and variable rates” will go.

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Yet first-time buyers are “a different story,” he adds.

They are electing to go with five-year fixed mortgages, which currently offer the lowest rates with some now below five per cent.

“Fixed rates are going down so this has been a good option,” Leggett adds.

Should the Bank of Canada actually cut rates, expect the resale market to heat up even more — for better and for worse, Belair says.

“More people enter the market, and then there is more upward pressure on home prices,” he says.

“There is a chance the borrower may not be able to buy more house because prices might increase as a result.”

In turn, first-time buyers already facing limitations on what they can afford in Calgary may face even more challenges.

“You can afford more mortgage, but so can everyone else,” he notes.

Still, Belair predicts that slowly decreasing interest rates will only have a modest impact on home prices and sales.

Easing rates are likely to be more impactful for existing mortgage holders facing renewal in 2024 and beyond.

“The majority of those people who are renewing are going to experience payment shock” even if rates ease slightly.

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Belair further adds about $900 billion worth of mortgages are set to renew this year, in 2025 and 2026.

Renewing homeowners previously had fixed-rate mortgages with terms that began in 2019 to early 2022 when interest rates were near or at record lows.

“A lot of these households have depleted savings because of the higher cost of living over the last few years,” Belair says, noting that these homeowners are less likely to be in the move-up market.

Those ready to buy, however, will likely be more cautious about borrowing beyond their comfort zone, a sentiment now largely held by the mortgage industry itself, Belair adds.

“Buying to maximum purchasing power is something the banks and mortgage brokers, Nesto included, are now much more cautious about advising with clients.”

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