Mortgage interest rates are high on everyone’s list of items to forecast. Since March of 2022, the Bank of Canada has steadily increased its prime rate by 4.75%, which is the greatest rise since the 1990s. Everyone is waiting to see what will happen next.
Experts are offering predictions. The fear is that global concerns along with domestic spending will continue this projection, which will severely impact those homeowners with variable mortgage interest rates along with mortgages that are due to renew or refinance. We are already experiencing a high percentage of those unable to keep up with the monthly payments.
Unraveling the Impact of Various Factors on Recession
Economists are looking at several factors. Historically, the recession of 2008 was saved by bailouts and stimulus money. The 2020-2022 Covid pandemic was a double whammy with supply chain shutdowns combined with a severe health crisis. When rates increased in the 1980s, it was a double (or two times) increase. Sadly, in the last couple of years, the increase is twenty times higher for a significantly higher shock value.
At this point, it is anticipated that the Bank of Canada will maintain the prime rate at 5% in order to hold inflation to 2%. As the supply lines improve and the cost of goods drops, the general economy should improve. Realizing that it takes several months for this improvement to filter down to the consumer, it will still be a while before we see some relief. There is a real concern about how long Canada and its residents can continue with the high rates before the impact is fully realized.
Navigating Economic Speculations
With no real definitive information, the experts are speculating that in mid-2024, we should see movement. Which type of change is still in the air? It is possible that a recession will hit that will drop the rates in bond yields and fixed mortgage rates. It could also mean a resurgence in inflation until the job market is fully corrected. Part of this will depend on whether Canada will align itself with its southern neighbour, the United States, and their own efforts to control Federal Reserve rates and the economy. In any event, we do not expect that we will return to the pre-Covid rates.
No one can fully predict what will happen. That is why if you are presented with a good financial opportunity, you should not wait forever until the economy is stabilized. There are deals to be had right now.
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