2023 Mortgage Rate Trends: What to Expect?

home purchase mortgage rates

It’s already September, and 2023 is coming to an end. We have to revise some crucial 2023 mortgage market trends before the year-end. 
There has been a lot of rise and fall in the Canadian housing market in 2023. However, there is a consistency in the overall trends that dominate the mortgage market. This article is about the changes in the mortgage market trends and what it means for you as a home buyer. We’ll discuss the effects of a volatile market on home purchase mortgage rates. The readers will know what to expect from the overall home mortgage scene and can brace themselves.

How is the mortgage market changing?

The home mortgage is witnessing a peak chaos. There are contradictory trends, which we shall discuss later. Home prices are decreasing, more in Quebec City than in the rest of the province. On the contrary, home purchase mortgage rates are increasing. It is due to the monetary policy of the Bank of Canada to curb inflation. It’s a very confusing time for home buyers.

What’s the status of the housing market in Quebec?

The housing market is showing different trends across provinces. Quebec is an exception from the rest of Canadian provinces in being least affected by the housing trends. Housing prices are surging in Canadian cities like Toronto and Vancouver. The average housing price is lower in Quebec City CMA than in the other cities within Quebec province. Quebec’s composite home price saw a decrease of 1.0%, one of the lowest in Canada. These low prices are attracting potential buyers from surrounding towns and regions. This surge of home buyers is highest by percentage in Quebec City CMA.

On the other hand, the home purchase mortgage rates are increasing, balancing the difference. We’ll see how it projects to homeowners.

Does a reduction in home prices mean a decrease in house rent?

No. The house rent of a one-bedroom apartment in Quebec is increasing by 13% per year. That means renting a home is becoming costlier by the year. On the other hand, the house prices are declining. Does it ring a bell?

If you connect the dots, you’ll see that buying a home is better than renting one. Even though the price drop is a mere 0.1-2.4% per year, depending upon the different housing units, it’s a lot if you crunch the numbers. If you’re paying an increased rent every year, you might consider purchasing your first home mortgage.

What does a decrease in home prices mean for first-time buyers?

For first-time buyers, the situation seems favorable regarding the decrease in home prices. However, the increase in home purchase mortgage rates offsets this reduction. Bank of Canada raised its overnight rates by 25 basis points from June to July. Today, the overnight rate is 5.0%, and the bank prime rate is 7.20%. There are estimates of further hikes in bank rates. This increase in rates will ease inflation and the open-market economy. 

This rate hike underlines the importance of finding a seasoned mortgage broker with access to lenders that offer variable-rate discounts. 

Understanding Quebec’s Home Purchasing Demographics

New home buyers are on a steady decline, whereas multi-property investors make up a large chunk of the housing market in Quebec. It is one of the few Canadian provinces to see a surge of immigrants. However, with the passing of Bill C-32 Omnibus Legislation, a lot of changes will occur in the future.

mortgage rates

Key highlights of Bill C-32 Omnibus Legislation

  • It contains a foreign buyers ban, which restricts non-Canadian residents from purchasing a home in Canada for two years. 
  • The restriction extends to non-PR residents in Canada, commercial entities, and citizens of other countries.
  • This ban exempts people with work/ study permits, living in Canada for over one year, and status refugee claimants.
  • The anti-flipping tax discourages home buying for profit. The profit from flipped homes will be considered capital gains, and business tax will apply. 
  • It is only applicable if the owner sells the property within 365 days from the date of purchase. In other words, they don’t get the primary residence exemption. 
  • This bill is to make housing more accessible and affordable for Canadian residents. 

Possible effects of this legislation

  • The cost of renting a property will go up.
  • It can cause a slowdown in the housing market owing to the anti-flipping tax.
  • House purchase mortgage rates may increase to offset the decrease in property prices. 
  • Housing affordability and supply will continue to decrease till the housing market crashes. 

Which is best for you- A fixed-rate mortgage or a Variable-rate mortgage?

Depending upon the current circumstances and given that the interest rates will likely go higher, you can opt for a fixed mortgage rate. However, fixed rates are already higher than variable mortgage rates. Talk to your mortgage broker regarding home purchase mortgage rates and the variable-rate discount by lenders. Consider locking in your mortgage rates with the lender before closing the mortgage while exploring the mortgage market. Mortgage brokers also advise you to lock in your favorable mortgage rates. 

As the bank rate hike is inflation-dependent, the possibility of a decrease in this hike is not far from the truth. Discuss with your mortgage broker the future trends of home purchase mortgage rates. 

Why fixed-rate mortgage rates are more popular among home buyers?

More than half of the home mortgages purchased by Canadian residents are fixed-rate. These are the following reasons for the same:

  • The fixing of a mortgage rate for the duration of the loan gives a sense of security and protection from market forces.
  • The high fixed rate seems less when seen against the incremental increase in the overnight rates and bank prime rates.

Wrapping Up:

The housing market in Quebec has a mind of its own. The rise in home purchase mortgage rates matches the fall in home prices. The hike in home rents further complicates the situation. Things have taken a turn with Bill C-32 Omnibus legislation. The only way out is to talk to a reputed mortgage broker in Quebec who can find you the best lenders in Quebec. If you can access the lowest mortgage rates in Canada, you’ve won half of the battle. 

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