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How the Bank of Canada Interest Will Affect Home Buyers in 2024

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Has there been a wilder time to be in the housing market? Soaring housing prices, increased interest rates and a fluctuating worldwide economy have all impacted where and how we live. Here in Canada, the Bank of Canada’s interest rates have much to do with that. Read on to learn more about the current rates and how they will impact home buyers in 2024.


What is the Current Bank of Canada Interest Rate?

There’s been a lot of movement at the bank these past two years. After holding steady during the COVID-19 pandemic, the Bank of Canada began raising interest rates again in March 2022 to help control inflation. Since then, the bank has continued to slowly but steadily increase the interest rate basis until October, when it held rates at 5 per cent. 

In December, the bank revealed it would once again hold that rate. That means it will hold at 5 per cent until at least January 24, 2024, when the bank makes its next interest rate announcement. 

For those who are curious, the last time the interest rate was this high was in April 2001.

Related: The Hottest Real Estate Markets in Canada Right Now

How Do These Interest Rates Affect Canadians?

When the interest rate goes up, Canadians feel it via credit cards, personal and auto loans and consumer debt. Of course, the most significant thing interest rates affect is mortgages and the loans Canadians can secure to afford their homes. 

Following these latest interest rate hikes, the prime rate in Canada as of December 2023 is 7.2 per cent. That’s the rate that major banks and financial institutions use to set mortgage interest rates. It’s a significant increase from the 5.95 per cent prime rate in December 2022 and an even bigger increase from the 2.45 per cent prime rate in December 2021.

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How Has the Bank of Canada Interest Rate Affected the Housing Market?

The number of home sales and prices have dropped a lot over the past 12 months, even though the Canadian Real Estate Association (CREA) reported that the national average sale price increased two per cent year-over-year as of November. Over the past few months, sales volumes in Canada have dropped, and the number of buyers has decreased.

As a result, those multiple-offer situations that so many real estate watchers got used to have mostly disappeared, and homes are sitting on the market longer than they used to. Prices continue to dip as a result.

Still, the bank was hoping for a more considerable drop in housing prices. It was also hoping for inflation to drop faster: Canadian inflation was 3.1 per cent in December, compared to 4.0 per cent in August. However, the goal is to get it to 2 per cent. Some economists say the bank could consider raising the rate again early next year to help bridge the gap. 

Related: This is What $1 Million Gets You in Major Cities Across Canada

Will the Bank of Canada Decrease the Interest Rate in 2024?

During his final speech of the year, Bank of Canada governor Tiff Macklem said that he thinks 2024 will be a transition year for the economy. He believes that previous interest rate increases will continue to slow down the economy and lower inflation. Because he wants to see trends continue in that direction, he doesn’t want to make any promises of lowering the rate. 

Still, some experts are already saying that the numbers indicate a reduction could be coming. Most feel the rates will hold or increase slightly at the beginning of 2024, but then they will drop toward the back half of the year. 

If and when that happens, housing prices should rise as a result.


What Does This Mean for Home Buyers in 2024?

Wherever rates land, they won’t be as low as they were in 2021. If you’re looking for a home at the beginning of the year, you probably won’t face the kind of competition there was in the past, but be prepared to deal with higher interest rates. Speak with a mortgage broker to figure out your best options. 

You could potentially capitalize on a lower rate if you want to wait until the year’s back half. However, at that point, you also run the risk of a hotter housing market, with more buyers and higher prices. 

Most importantly, real estate has a saying: don’t wait. If you find your dream home or are ready to become a homeowner, many say to take the plunge no matter the market. Markets aren’t always predictable, and there’s nothing wrong with starting to build your equity today.

Related: What Is Mortgage Payment Shock and Why Are Canadians Worried?


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