As spring is around the corner, anticipation of mortgage rates creeping downwards is as welcome as the cherry blossoms Vancouver is famous for. What is the probability that this will in fact come to fruition? The Bank of Canada meets again for the 3rd time this year on April 10. As they have suggested throughout the previous year, if inflation continues to recede, it will prompt the organization to lower interest and in turn mortgage rates.  This wait and see approach is fiscally responsible, yet betting these forecasts will be a certain reality could leave consumers disappointed.

There are a few factors that could still go sideways leading the Bank of Canada to continue to hold lending rates where they currently are, or even increase.

Inflation could, in theory, be stubborn in refusing to subside as forecasted.  If it persists in clinging to the high 2s or 3s in this calendar year, count on rates holding. There are several factors that contribute to higher inflation than predicted, including but not limited to:

  • Heavy demand from sharp increase in population growth
  • Increasing home prices across the nation, but especially in metropolitan areas
  • An ever-increasing national debt from out-of-control fiscal spending
  • Cost of oil/gas
  • Climbing wages
  • Weak Canadian dollar
  • Possible inflation triggers (ie. War, pandemic #2 etc)

The most pressing factor on this list is arguably the increased demand on the housing market from the impact of over 1 million immigrants in the past couple of years, with promises from the Federal Government to bring in 485,000 more this year (2024) and another half million both next year and the year after.  With such a surge in demand, will construction be able to keep up in order to keep some sort of equilibrium between supply and demand and keep costs relatively level?

There are some mitigating factors, however, there are some indicators that inflation WON’T get out of hand. Energy prices MIGHT/MAY/COULD sink as the global economy softens, which would give consumers some breathing room.  As well, credit card usage is slowing as default rates tick upwards and business and consumer bankruptcies are becoming a far too familiar reality, shooting up 41% last year alone. Major retailers/big box stores that went out of business in 2023 alone: Bed, Bath & Beyond, David’s Bridal, Boxed, Serta Simmons Bedding, among many others.  To see the sunshine through the clouds, “None of these numbers suggest that a second wave of inflation is upon us,” said Desjardins macro expert Royce Mendes.

No one knows the answers for sure just like when rates increased quickly. Borrowers need to make the best judgement based on their personal situation and risk tolerance.

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