How to Choose the Right Mortgage

Forecasting Mortgages for 2023

Thursday Jan 19th, 2023


We wanted to start of the new year with some predictions/forecasting on where mortgage rates will go in 2023. But, forecasting is hard at the best of times, and these are not them. If you were to go back and read the top economist predictions back in January of 2022, nobody even came close to what we saw this past year. So, with several grains of salt, here's why I think rates will remain high for much of 2023. 

The Labour market is still over heated 

Last weeks Canada added 104,000 new jobs to the mix, and this will practically guarantees another .25% rate increase at the end of the month. The Bank of Canada is doing everything in it's power to crush inflation, and job data like the one that came out last week will only fuel inflation. 

Inflation will be stickier than expected 

Our headline Consumer Price Index (CPI) has fallen from its peak of 8.1% in June to 6.8% in November, but we’re still a long way from the BoC’s 2% target. We expect that we will finish 2023 above the Bank’s current Q4 forecast of 2.8%.

Our average, year-over-year wage growth has clocked in at 5%+ for the past seven months. We can’t see our overall CPI dropping much below our average wage-growth rate for a sustainable period because labour costs are so pervasive.

We also don’t see any signs that our wage growth will slow any time soon. While 5%+ sounds impressive, prices are still rising faster than wages, so the average worker’s purchasing power is still shrinking.

If we don't see wage growth coming down, then inflation will remain elevated. If that happens, then the BoC will continue on it's rate tightening path. 


The BoC won’t pivot in 2023

In the modern era, the BoC has historically averaged fourteen months between its last rate hike and its first rate cut. There is much debate about how long the lag will be this time.

Anyone hoping for a shorter-than-normal gap might point to the fact that our household and government debt levels are at record highs. That will magnify the impact of each rate hike and could help shorten the curing period required to bring inflation to heel.

While we concede that point, we still don’t expect the BoC to pivot in 2023.

For starters, the Bank may not yet be done hiking rates. Our strong employment data increase the odds that we’ll see at least one mortgage-rate hike when the BoC next meets on January 25, and it is not out of the question that we could see another hike at its meeting on March 8. Our curing period may not have even started.

They also don't want to repeat the same mistakes of the past, and that's lowering rates before inflation was under control. This happened back in the late 1970's where rates were cut, causing inflation to re accelerate, peaking at even higher rates. The BoC will err on the side of over tightening, as they fear persistent inflation to be worse than higher mortgage rates. 

To sum things up, mortgages rates will most likely remain elevated for much of 2023, and may possibly even go higher depending on what happens with inflation.  If inflation is brought to heel, we can expect rates to come down later into 2023 or early 2024. 

***Content created with Steve Kornbluth from TMG Safebridge Mortgage Solutions - Connect with Steve by email:

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