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Mortgage activity down in 2023

Mortgage activity down 25% from 2022 and fixed rates remain top choice, stats show

High interest rates have applied the brakes to Canada’s mortgage market, which saw growth slow to a 22-year low in September.

New mortgage activity grew at an annual pace of just 3.2% compared to the same time last year, marking the weakest growth since 2001, Statistics Canada data show.

At the height of the pandemic-spurred housing market boom in early 2022, mortgage credit grew at an annual pace of 10.9%.

Year-to-date, mortgage activity is so far down 25% compared to 2022, and down nearly 30% compared to 2021, according to a report from National Bank.

“Volumes are comparable to pre-COVID levels only because home prices are much higher and thus, mortgage amounts are too,” noted National Bank economist Taylor Schleich.

He added that the figures don’t include the ongoing rise in borrowing costs seen earlier in the fall.

Analyst Ben Rabidoux of Edge Realty Analytics noted that static-payment variable-rate mortgages, which have earned scorn from banking regulator OSFI, have helped to buffer the market.

“[Mortgage growth] would have been even lower were it not for the impact of negatively amortizing static payment variable rate mortgages at several big banks like BMO and CIBC,” he wrote in a note to clients.

We recently reported on how static-payment variable rate mortgages have served to buffer the economy from the full impacts of the Bank of Canada’s rate hikes.

Fixed rates back on top

The latest mortgage origination stats show that fixed rates are by far the mortgage product of choice for new borrowers. Roughly 95% of new mortgagors are choosing a fixed-rate term over a variable, a drastic turnaround from early 2022 when variable-rate mortgage share peaked at nearly 57% of new loans.

“This isn’t likely to change anytime soon given the large gap between fixed and variable rates,” noted Schleich. “At the very least it will take a clearer signal that rate cuts are
imminent (or even underway) for that to swing back.”

Is it worth considering a variable-rate mortgage?

In a recent blog post, mortgage broker Dave Larock said variable rates are now a potential strategy for those wanting to take advantage of future Bank of Canada rate cuts, which are now widely expected by the middle of next year.

“If I were in the market for a mortgage today, I would be choosing between a 3-year fixed rate and a 5-year variable rate,” he wrote.

“If you can tolerate the inherent uncertainty in variable-rate risk, and if you are prepared to be patient, today’s variable rates aren’t likely to increase much from their current levels, if at all,” he added. “They will also put you in a position to benefit immediately when the BoC finally starts cutting.”

Ron Butler of Butler Mortgage also said going variable is a strategy worth considering, particularly given the latest forecasts that suggest rate cuts could be on tap as early as April and potentially fall by 150 basis points (1.50%) by the end of 2024.

“If it’s true, that’s not a bad strategy,” he tweeted, noting that today’s average variable rate of 6.2% could fall to 4.7% in nine months.

However, he cautioned that such rate cut forecasts aren’t guaranteed.

“It’s a bet because no one knows exactly what the BoC will do and when,” he wrote. “[And] although highly unlikely, there is a tiny chance that rates could even go up.”