The Future of Canadian Interest Rates: The Next Steps for 2023
Picture of Brianna Frith

Brianna Frith

Author, Founder at Endhome

By now, you have probably heard that interest rates dictated by the Bank of Canada are rising quickly, with the current overnight rate at 3.25% BoC. Why exactly is the BoC increasing rates? Let’s take a quick dive. 

Throughout the pandemic, The Bank of Canada fuelled the pandemic housing boom with sustained low-interest rates, further propping up Canada’s housing market with large purchases of mortgage bonds; quantitative easing at its finest. However, the shift from Easing to tightening is now in full effect, having started in April 2022.

The goal is to hit their inflation target of 2%, currently sitting around 5–5.5% based on CPI numbers and projections from economists; it seems we still have a ways to go. Interest rates go up, big purchases go down, and the economy stabilizes enough to cause currents, not waves.

What does this mean for the future? 

Housing prices are predicted to drop but interest rates rise and increase the mortgage payments of many homeowners, which may deter potential buyers. Since high mortgage rates make it harder for buyers to qualify for a mortgage, potential homeowners are nervous. Nervous buyers mean fewer sales, or so says TD Bank.

They project the volume of home sales to decline by up to 35%, just shy of drops experienced during the recession of 2008. Even with BoC stating that interest rate hikes are nearing an end, the cost of borrowing has a way to go before levelling out.

Outlooks and projections can often look bleak in the face of statistics, downturns, and inflations. The bright side can be hard to see, but there are a few shining lights around the bend, going into 2023.

Despite the rising interest rates, the need for houses does not decline, only the affordability of a mortgage. With a projected increase of 465,000 new permanent residents in Canada, as stated by Immigration, Refugees and Citizenship Canada, demand for housing is a sure fact. 

One can’t forget that though interest rates have risen, prices have come down, which means that there are deals for buyers and sellers. In fact, Reports from major outlets such as TD banks indicate that home prices could fall by as much as 20–25% by the end of 2022, and with that benchmark right around the corner, it’s likely to continue on into 2023. Now more than ever, creative thinking and trusting relationships with clients are key. 

A prime example of such thinking comes straight from the actions of two major Canadian banks. TD and CIBC have adjusted their practices in some cases to help clients pay off their mortgages in a more reasonable fashion with the interest rates as they are. Though not stating the frequency at which this is happening, TD and CIBC have stated that they are allowing borrowers to shift a portion of their interest costs onto the principal owed on their mortgages, helping customers handle the high-interest rates and meet their goals; the benefits of variable-rate mortgages.

Overall, The future may seem like a dark impending doom but options, creativity and trust with the right client can bring a great boom in the real estate market. Consumer confidence has been shaken, the headlines breed fear. Now is the time to seek opportunities, and they are readily available for those willing to look.