As we settle into the new year, the housing market across Ontario continues to stabilize after a minor correction in 2018. Driven by higher mortgage rates and stricter mortgage lending rules, namely the stress test rate, the GTA experienced a steeper decline in prices of up to 20% than surrounding areas such as Kitchener Waterloo which generally experienced a 5% to 10% decline from the 2017/2018 peak.
When we look ahead into 2019, we can see based on recent economic data, fixed mortgage rates declining by approximately 0.25%, once again approaching the high 2% or low 3% range for the lowest 5 year fixed mortgage rates. For variable, the Central Bank of Canada is looking for any positive economic news to justify another increase in 2019. However, the attitude of the Central bank on raising rates has become considerably more cautious than this time last year.
Realistically we could expect to see one or two variable rate increases in 2019, but this factors in some positive economic data, such as a month or two of increased GDP growth, higher inflation or increased corporate spending. If the positive economic data does not come through, we may see only one or perhaps zero increases in the variable rate in 2019. We could very well be at a plateau for variable rates already. However, for homeowners, we encourage that the expectation is for a slightly higher variable rate, and if it does not happen – then bonus.
Depending on how 2019 plays out as we move through the spring and autumn home buying markets, there is some talk among senior Canadian economists at Major Banks that we may even see a decrease in variable rates, and a continuing decline in fixed rates into 2020.
There has not been a recession in Canada in over 10 years, so it’s safe to say, that as an inevitable recession looms, the government of Canada and Central Bank will be very careful not to raise rates at a time when the economy is vulnerable to a potentially harsher, steeper decline. The Government will try to keep the recession as moderate and short-lived as possible through careful treatment of interest rate decisions.
The result of plateaued or declining rates will provide stimulus and stability for the housing market, and creates an excellent opportunity for homeowners or potential homeowners in Kitchener Waterloo, GTA and in Ontario as a whole to benefit from lower costs of home ownership and appreciation in property values over the long term.