A market uptick could be steady — but slow
An upturn for Canada’s mortgage and housing markets could be in the cards for 2024 – but that recovery is unlikely to be a straightforward one, with progress set to be steady rather than spectacular.
That’s the view of Donaldson Capital founder and CEO Drew Donaldson (pictured), who told Canadian Mortgage Professional that while the outlook for this year’s market was positive, he expected activity to remain subdued – and rates to stay relatively high – in its opening months.
“I just don’t think it’s going to be a straight line,” he said. “As much as I’m optimistic for 2024, I still think in Q1 we’re going to struggle a little bit. I also think there could be some waves: maybe inflation is coming back, and some uncertainty.
“So I think we’re going to zigzag downwards with interest rates, but it’s not going to be a straight line. And I think the markets might be getting ahead of themselves as far as factoring in six or seven rate cuts. If there are six or seven, you might take three, four, or five of them in the second half of the year and only one or two in the first half.”
Even if the Bank of Canada begins lowering interest rates in the first half of the year, Donaldson added, those cuts are likely to be so careful that there’ll be little significant impact on prime rates.
“This isn’t really a fast-acting thing, unless there’s something that happens on a global stage that we haven’t heard about yet,” he said. “Other than that, I think you’re going to see a more second-half story of interest rates coming down as opposed to a first-half story where we’re just going to start the process.
“What happens is you get, say, one rate cut in March. And now the bond market overreacts, yields come crashing down, and it’s really good for fixed rates. But that 0.25% decrease in prime, with prime at 7.2%, is only going to bring it down to 6.95%. That’s really not that big of an amount. So people need to realize that this is probably going to be more of a second half of the year story as opposed to the first half.”
Greater Toronto sees an 11.5% year-on-year surge in home sales for December 2023, signaling a potential rebound in 2024.
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 5, 2024
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When will market activity begin to accelerate?
The good news: if those rates do eventually begin to drop more significantly in the second half of 2024, consumer confidence could surge – meaning borrowers are likely to return to plans they may have shelved at the onset of rate hikes nearly two years ago.
“People are going to refinance. With the assurance of rates not going substantially higher, people are going to be willing to act and upgrade homes and do various things that they’re looking to do,” Donaldson said.
“So we’re not going back to the boom years of COVID, 2021 – by no means am I saying that, but I do think you’re going to get into a more normalized market where there are refinancing opportunities, there are enough sales to go around. And I think that’s where the best brokers are really going to win a lot of business because they can add value. The opportunity is going to be there.”
Renewal, refinancing opportunities aplenty for borrowers and brokers
That’s not to mention the renewal market, which will see billions of dollars’ worth of mortgages renew this year – bringing plenty of potential for borrowers and brokers to restructure and plan for the future.
“When people are up for renewal, number one, we want to get them a low interest rate, but number two – that’s an opportunity,” Donaldson said. “There are no penalties, so if we need to consolidate debt, pull equity out for renovations or various different things, that’s when people have the conversation and do something with their mortgages, when they’re up for renewal.”
A refinancing resurgence, meanwhile, would be a boon for the mortgage market and industry, Donaldson said, after a couple of difficult years marked by higher rates and steep borrowing costs.
“When rates are going higher, nobody’s having fun. It’s a lot [better] when rates are headed in a somewhat downward trajectory,” he said, “because now we’re saving people money. We’re surprising them with lower interest rates. It’s just better for the overall economy.”
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