Interest rate dip spells spring activity in Windsor-Essex real estate market

After a sluggish year for home sales, a sign of possible change in the market as some lenders are starting to offer five-year fixed mortgages with interest rates below five per cent.

This is the result of lower bond yields, a reaction to the announcement from the U.S. Federal Reserve last week indicating three rate cuts in 2024, which could also mean rate cuts for other central banks around the world, like the Bank of Canada.

“Fixed rates are going to be driven by bond prices whereas variable is going to be driven a little bit more by the Canadian prime rate, which is decided by the Bank of Canada,” said Bekim Merdita, the executive vice-president of Rocket Mortgage Canada.

The U.S. Federal Reserve has signalled three rates cuts in 2024 and the Bank of Canada is expected to do something similar, noting decision-makers are still looking at inflation data to remain consistent over time.

But local real estate agents believe that makes the winter and spring a prime-time.

“This time of year, usually we don't see these rates drops, but this is going to heat up the spring market even hotter than we expected,” said Goran Todorovic of RE/MAX Care Realty.

Todorovic said when rates start dropping, real estate prices typically climb.

That will make these next few months —which are typically slow— suddenly hot, he said.

“This gets the buyers back in the market, the people that have been sitting around, you know on the fence waiting for the rates to drop,” said Todorovic. “This is their opportunity. This is the best opportunity they're going to have.”

The average sales price for a home in November 2023 was $529,143.

That’s up from $511,275 in November 2022, representing a 3.5 per cent increase.

Mortgage brokers believe this news parlays nicely into a spring market where buyers are looking for certainty in a demand rich environment.

“I think as things settle down here, people will feel a lot more comfortable in 2024 just knowing that things are a bit more settled, a bit more certain,” said Merdita.

Most mortgage brokers anticipate rates will fall, but not to the lows of 1.39 per cent seen during the pandemic.

Around 60 per cent of Canadian mortgages are up for renewal over the next three years, according to RBC, putting millions of homeowners at risk of shocking increases when their fixed-rate mortgages renew.

"Is four per cent a lot of relief for somebody that's holding at 2.5 per cent fixed rate? You know, it's better than six, but it's not going to provide a ton of relief for those borrowers," Vancouver-based mortgage broker Andy Hill said in an interview with CTV News. "There's certainly going to be a renewal shock, regardless to how far rates go."

And even though the bond markets are anticipating interest rates will go down, that doesn't guarantee a rate cut.

The Bank of Canada said it still needs months of data to ensure inflation is trending down. Meanwhile, a Tuesday report from Scotiabank economist Derek Holt said Canada's inflation data "leans more towards a hike than a cut."

"Everyone's kind of starting to take that victory lap. But if inflation returns, that could mean rates are quite a bit higher for longer and I think that's the big risk today," Hill said.

—With files from Kevin Gallagher, CTV National News, and Tom Yun, CTVNews.ca writer