Navigating Rates in 2024: Insights for Realtors
Welcome back and Happy New Year! Today I want to address a crucial topic that's on everyone's mind: the trajectory of interest rates in 2024.
Understanding Inflation and Interest Rates
Inflation is a key factor influencing interest rates, and there's good news on that front. Despite a slight uptick in December, which can be attributed to seasonal spending, the overall trend is a decline. This is a positive indicator, as it suggests that the recent higher rates have been effective. Interestingly, if we exclude mortgage interest costs from the inflation calculation, we're already hovering around the 2% mark.
The Current State of BOC Prime Rate
It's important to note that the Bank of Canada's Prime Rate is at its highest in three decades. There's a lot of speculation and concern, especially among those who experienced the 18.5% rates in the past. However, I want to reassure you that such extreme rates are unlikely to recur without severely impacting the financial stability of a vast majority of Canadians. We're probably at or near the peak of this rate cycle.
Future Rate Cuts: Predictions and Implications
Analysts initially anticipated the first rate cut around March, but this has been pushed back due to the robust US economy and persistent inflationary pressures. Nonetheless, there's an expectation of a reduction of more than 1%, potentially 1.5%, within this year. While predictions can be inaccurate, as evidenced in the last 2.5 years, a downward trend is likely, starting late spring or early summer.
Trends in Fixed Rates and Current Recommendations
We've observed a decline in fixed rates over the past month, averaging a drop of about 0.80% (80 basis points). However, recent bond yield increases might temporarily stall this decrease. In this context, I've been advising clients to consider short-term fixed products or variable rates, given the potential for rate cuts. Currently, a 3-year fixed rate stands at approximately 5.30%, while variable rates range from 6.20% to 7%.
The Importance of Pre-Approval in a Volatile Market
With rates fluctuating, securing a 120-day rate hold for your clients is more crucial than ever. This approach ensures they're pre-approved until the end of May, providing a buffer against market volatility. Interestingly, after a quiet period in late November and December, there's been a surge in inquiries since early January, indicating a potential uptick in market activity.
Conclusion: Preparing for a Busy Year Ahead
As a realtor, it's essential to be prepared for what might be a bustling year in real estate. With rates expected to decline, we anticipate increased activity in the market. Stay tuned, and let's navigate these dynamic times together!
If you have any questions please feel free to reach out.