If 2020 has taught us anything, it’s that things don’t always turn out the way we may expect. Making predictions for 2021 mortgage rates in the middle of a pandemic may be unwise due to the surprising twists and turns we have faced as a collective thus far, but I’ll take a stab at it. Here are a few considerations to keep in mind before we delve into explaining our fixed and variable rate predictions for this year.

The Bank of Canada Could Keep 2021 Mortgage Rates the Same

In early 2020, we saw the Bank of Canada slash overnight lending rates to 0.25%, and they have remained there ever since. Likely, the bank will not increase the overnight lending rate until inflation hits the 2% target. Of course, after the pandemic ends, it will take time for total economic recovery. The Bank of Canada will likely remain hesitant to raise rates until the economic indicators are similar to what they were pre-pandemic.

Housing prices VS Condo Prices

Based on how many Canadians are now working from home, the suburbs should remain the most popular home-buying location well into 2021. We can expect to see housing prices appreciate by approximately 4-7%. Large homes just outside of cities will likely be in the highest demand. In contrast, condominium prices, impacted by border closures and the lack of interest in living downtown in major cities, may continue to fall until at least the second half of 2021.

Fixed Mortgage Rates

If we experience dramatically declining numbers of covid cases, we could see a surge in consumer spending that may result in the abrupt rise of inflation. As a result, fixed-mortgage rates could temporarily increase, but our current inflation rate is quite tame. The consumer price index stands at 1%, and until our output gap closes, we shouldn’t see a rise in inflation (the gap is not expected to close until 2023). Another thing to consider is the Bank of Canada seems keen to push fixed-mortgage rates lower. The bank is reducing the borrowing rates that directly impact businesses and households the most. Fixed-mortgage rates could end up falling further in 2021 if they don’t remain similar to how they are today.

Variable Mortgage Rates

Variable-mortgage rates are based on the lender prime rates. The lender prime rates are impacted by the Bank of Canada’s policy rate. The Bank of Canada has made it quite clear they won’t raise the policy rate until 2023 and have even hinted at additional cuts if our economic climate worsens. Of course, many factors will impact things this year, but we can predict that variable-mortgage rates will either remain the same or fall slightly. Competition between lenders can also serve to benefit new borrowers who could receive larger variable-mortgage rate discounts.

My Tip:

If you currently have a variable-rate mortgage, you may be in for an interesting year. If fixed-mortgage rates do experience a rate increase for a short period of time, I recommend those with variable-rate mortgages remain brave and ride it out. 2021 should be a more stable year than 2020, but we will likely experience a slow return to normalcy. It’s also important to consider the pandemic has changed our way of life permanently, in ways that are not yet clear. These changes could also play a role in impacting the accuracy of our 2021 predictions. If you would like to talk to an experienced professional about your specific situation, contact our HW Advantage team. Whether you’d like advice on purchasing a new home or your mortgage rates, we can help! Give us a call at 905-541-6961 or fill out the form here to begin.

Sources:

https://www.integratedmortgageplanners.com/blog/monday-morning-rate-update/canadian-mortgage-rate-forecast-for-2021/
https://www.ratehub.ca/blog/2021-mortgage-and-housing-predictions/