James Laird, co-CEO of Ratehub.ca, has joined a chorus of other mortgage industry executives and economists who believe the Bank of Canada will hold its benchmark overnight rate at 4.25% for the duration of 2023..One impact of a year-long freeze is a modest decline in fixed mortgage rates, says Laird..“Bond yields will decrease throughout the year, allowing fixed rates to follow suit,” he says. “The mortgage stress test has reached its peak and will only go down from here. The stress test is currently the higher of 5.25% or the contract rate plus 2% and since rates will not move higher, the stress test will not either.”.On Thursday, The Office of the Superintendent of Financial Institutions (OSFI) announced it will keep the stress test level for uninsured mortgages at its current rate..OSFI had been under pressure to lower level, which would make it easier to qualify for a loan. The purpose of the stress test is to ensure anyone taking out a mortgage would be able to keep up with the payments even if their rate should increase rapidly, which is what happened this year.."Sound mortgage underwriting includes a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of negative financial shocks," OSFI said. "In an environment characterized by rising mortgage interest rates, it is prudent that lenders continue to test borrowers for adverse conditions."."In times of economic uncertainty with increasing vulnerabilities, the mortgage qualifying rate has and continues to be a key tool supporting sound mortgage underwriting," said OSFI assistant superintendent Tolga Yalkin..Laird says short-term fixed rates will become more popular in 2023..“Many Canadians will choose one-, two-, or three-year fixed rates, which will allow their mortgages to come up for renewal sooner in anticipation of lower rates in the years ahead,” says Laird..Laird’s expectations for home prices mirror those in a Royal LePage report released this week, which predicts year-over-year price gaps be flat by the end of next year..“Prices have already declined by 10% to 20% from their peak, and no further declines are likely at this point,” says Laird..Eventually demand in 2023 will be increased by two specific demographics..“New Canadians and first-time homebuyers will drive demand for more housing,” says Laird. “The federal government is targeting 465,000 newcomers in 2023. 51% of Canadian millennials say they plan to purchase a home within the next five years.”.The federal government has announced significantly higher boosting targets for inbound immigration, setting a revised goal of 500,000 new arrivals each year by 2025, according to immigration minister Sean Fraser..The immigration plan is anticipating 465,000 people to arrive from outside Canada in 2023, and gradually rising to 500,000 in 2025. Immigrants will be evaluated based on work skills and experience, Fraser said..New regulations will also contribute to this reinvigorated demand, says Laird..“At some point in 2023, the Tax-Free First Home Savings Account will be launched,” he says. “This is a very strong no-tax vehicle that will help first-time homebuyers who are trying to save for a down payment.”.A likely reduction of 25% in CMHC mortgage insurance rates could also boost affordability in 2023..“Increasing the insured mortgage cut-off from $1 million to $1.25 million would help first-time homebuyers enter the housing market because it significantly reduces their minimum down payment required,” says Laird
