Are the “unprecedented times” coming to an end? According to a recent survey from Royal LePage, Canadians may see some stability return to the real estate market in 2024. Canada’s mortgage and housing market has been a rollercoaster ride over recent years—with climbing interest rates and sliding home sales—and while a dramatic turnaround isn’t likely this year, economists are optimistic that some normalcy could return.
Unlocking value for clients in 2024 will require both creativity and agility. You’re likely to see both hopeful homebuyers waiting on the right opportunity to strike as well as anxious homeowners trying to figure a way out of a challenging position. This article examines what to expect from the mortgage market this year, industry trends that could impact the way you serve clients, and how you can prepare them to navigate the market with confidence.
How did we get here?
It wasn’t long ago that the onset of the global health pandemic in 2020 sent the Canadian housing market into a tailspin. After a brief halt in activity, sales soared as demand spiked, ushering in an era of record-high home prices.
In the aftermath of the pandemic, the Bank of Canada set their eyes on taming stubborn inflation through a series of 10 interest rate hikes beginning in March 2022. Over that time, the central bank’s policy rate gradually rose from 0.25% to 5% in July 2023, where it has remained since. This rapidly rising interest rate environment has been a driving factor to declining sales activity in most of Canada’s major real estate markets over the past year, with a corresponding gradual increase to housing inventory. While home prices cooled in some regions, they’re generally still above 2022 levels. As a result, many variable rate mortgage holders saw their monthly payments increase and more borrowers struggled to pass the stress test and qualify for traditional mortgages.
What’s to come this year?
While there’s no predicting what will happen over 2024, there are some economic indicators we can consider to help us understand what we might expect to see this year.
Home owners—especially those with their mortgages up for renewal this year—and home buyers are keeping a close eye on interest rates in 2024. Some economists are speculating that the Bank of Canada could cut rates at some point this year, as inflation is showing signs of slowing. At the end of 2023, Bank of Canada Governor Tiff Macklem noted that inflationary pressures are easing and the bank could begin to ease its monetary policy once inflation is on a “sustained downward track”. We expect these conditions to materialize by Q2 2024, enabling the Bank to proceed with rate reductions.
While interest rates are expected to gradually decline, the full impact of the current elevated rate environment is still yet to fully materialize. According to the Bank of Canada, 47% of homeowners renewed their mortgage at a higher rate by the end of 2023. By the end of 2024, that figure will rise to 65%. Borrowers that are renewing their mortgages could see their mortgage payments increase substantially, considering prime lending rates at the end of last year clocked in around 7.2% compared to 2.45% in early 2022. In some dire cases, if there’s been a corresponding decline in home value, certain lenders may not offer a mortgage renewal option at all, and could leave a borrower with negative equity—i.e. owing more than the current market value of their home.
On the other hand, a gradually decline in interest rates will likely contribute to further recovery within the real estate market. In 2024, it’s possible that housing supply will increase and homebuyers that have been sitting on the sidelines will be more ready to take the plunge. If you have clients that are in this position, start having conversations early on what financing could look like and how different lenders, including private lenders, can provide different benefits depending on their needs.
The mortgage industry will also see the regulatory landscape change in 2024. As a result, it’s more important than ever to remain up to date on education and accreditation requirements..
As of this year, mortgage professionals in British Columbia will face stricter standards under the province’s new mortgage services act. These new rules include enhanced regulations for mortgage brokers, lenders and administrators, new licensing requirements and increased financial penalties for infractions. These changes come after new two-tiered broker accreditation was introduced in Ontario in 2023. Ontario mortgage brokers and agents that want to work with private mortgage lenders now need to meet enhanced learning mandates to ensure they are well equipped to provide appropriate mortgage advice, especially in the private lending space.
It’s likely that increased regulation across the mortgage industry is a trend that will continue and become more far-reaching. Take the time to understand what’s required and suggested in the regions you operate in, and work with lending partners, especially in private lending, to learn how they can help keep you informed.
At CMI, we’re committed to ongoing broker education. Reach out to us to learn more about resources and learning opportunities, or to arrange a presentation on private lending. In addition, your dedicated brokerage relationship manager (BRM) is here for one-on-one support to discuss specific client situations and help you find a solution that works.
Proficiency across the mortgage spectrum not only ensures you’re equipped to match your borrower clients with the most suitable solution for their unique needs and circumstances, but also leads to more informed borrowers. Both will be vital to success in the 2024 mortgage market.
The continued rise of private lending
As interest rates are expected to decline, it’s likely that higher home prices are also on the horizon—meaning that significant improvement to affordability isn’t expected. As conditions will continue to be strained over this year, private mortgages and other alternative financing options will continue to play a pivotal role over 2024. As a significant tranche of mortgages come up for renewal throughout the year, these borrowers will be turning to you to help them examine their options and determine next steps.
It’s also a good time to remind borrowers of the value of working with experienced and transparent private lenders. This year, smaller, less-established lending companies could struggle. Do your research and choose carefully when selecting a private lending partner. Pay particular attention to fee transparency, track record and industry reputation.
How can you prepare your clients?
Being proactive will be particularly important in 2024. Reach out to clients that have renewals coming up during the year and review their current state of affairs. Find out what’s changed, the potential rates they’ll be renewing into, and what new monthly payments will look like. Help them understand how their budgeting may have to change going forward, and if they’re not able to meet their obligations, discuss alternative options. Private lenders like CMI are able to be more flexible with debt servicing ratios, which could help borrowers struggling with the prospect of higher payments. Overall, the more time renewing mortgage holders have to plan, the more prepared they’ll be, and the more options they’ll have available at renewal time.
In addition, there’s also an opportunity to reach out to first-time home buyer clients. According to the Remax 2024 Canadian Housing Market Outlook, 73% of Canadians still perceive home ownership as the best investment they could make, but more than half are concerned that interest rate increases will be a barrier. But, it doesn’t have to be. With the housing market expected to cool in the first half of this year, private lenders can offer flexible and fast financing that can help these clients achieve their home ownership goals. For example, CMI can offer short-term solutions so that your client can get into the market and then move to a conventional loan once rates decline.
Private lending will be pivotal to servicing a broad range of clients this year, so if you have any questions, reach out to trusted lenders like CMI to help you understand the benefits and considerations for your borrower clients.
For more ways that CMI can help your clients in 2024, reach out to us. Partner with a lender that can offer your clients the flexible financing they need, when they need it.