What are the implications if mortgage rates remain high throughout the remainder of 2023?
If mortgage rates stay elevated, specifically in the range of 5% with a majority in the high 5% range as opposed to the mid to high 4% range experienced from January to May 2023, two scenarios could unfold:
Borrowers and home buyers adjust to the situation, and the real estate market continues with normal activity.
Borrowers face significant challenges, and home buyers hesitate, resulting in a market slowdown reminiscent of the latter half of 2022, leading to a slump in house sales, possibly reaching 20-year lows.
While predicting market outcomes is uncertain, the prevailing sentiment suggests a possible slump. This is due to the likelihood of the Bank of Canada raising rates in July, which currently stands at a 50/50 chance. As a consequence, fixed rates would also increase. Furthermore, considering US Federal Reserve Chairman Powell's recent statement suggesting no rate cuts for a year, it is expected that the Bank of Canada would follow suit, leading to no rate cuts or reductions in fixed mortgage rates until 2024.
If this rate scenario becomes reality, the real estate market could face several outcomes. Investors may experience more financial strain, potentially causing some to give up. Landlords who were already dealing with negative cash flow, despite high rents, may have initially held hope when rates fell in March, but are now concerned and may decide to sell their properties. Homeowners who were anticipating relief in April might also lose hope.
In truth, the exact consequences are uncertain. However, recent observations indicate a decline in consumer optimism, a shift towards negative sentiment among borrowers, and a quiet withdrawal of potential home buyers in Ontario. These indicators suggest a possible return to the subdued real estate market conditions of late 2022

