2023 Canadian Interest Rates And The Housing Market

2022 saw turmoil as the Bank of Canada raised interest rates considerably in the last half of the year to combat inflation and cool down an overheated Canadian economy.

What’s in store?

By Max Singh

2022 saw turmoil as the Bank of Canada raised interest rates considerably in the last half of the year to combat inflation and cool down an overheated Canadian economy. In 2022, the Bank of Canada (BoC) increased the rate from 0.25% to 4.25%. Shocking and worrying Canadians with mortgages or prospective homebuyers looking to get into a property. Another concern was seeing existing homeowner’s property prices fall. So, what is in store for Canadians, or what could happen regarding interest rates and property prices?


For 2023 the Bank of Canada is forecast to slightly increase or maintain the current increases in interest rates in response to a significant slowdown in the Canadian economy and an impending recession. Although there could still be further increases, at some point, the bank is expected to be near the end of its current tightening cycle in a bid to curb rampant inflation and escalating home prices.

“That perspective aligns with current financial market expectations showing a similar timing for the Bank of Canada to reverse course. Crucially, any loosening of monetary policy will only occur if we see a sustained decline in inflation,” says a recent Bank of Canada bulletin: “Given weakening economic growth, falling gasoline and other commodity prices, and the effects from the pandemic is driven supply chain problems, we could see a significant downward trajectory for inflation in 2023, which would provide the Bank with the necessary support to begin lowering its policy rate.”

The average Canadian variable mortgage rate is expected to rise to 6.35% in the first half of 2023, according to the BC Real Estate Association (BCREA). This is up from the expected average of 6.1% within the fourth quarter of 2022. The variable rate predicted will remain high throughout 2023 next year, only decreasing slightly to averages of 6.1% in the third quarter and 5.85% in the fourth quarter of 2023.

However, possible increases in 2023 may be tempered, looking ahead to the end of 2023 and 2024. Financial analysts and economists say the first Bank of Canada rate cuts in 2023 could reduce the overnight rate to 3.00% by the end of 2024. But caution is advised as rates are not expected to drop to record lows as experienced in the last ten years. The days of super-low interest rates are over for the foreseeable future.

According to Bank of Canada deputy governor Sharon Kozicki, the central bank’s decision to raise its key interest rate will depend on the latest ongoing economic data. “We are moving from how much to raise interest rates to whether to raise interest rates,” Kozicki said during a speech in Montreal in December 2022. “The bank also remains ready to act forcefully with rates if necessary.”


Rising interest rates in 2022 drove Canadian home sales and prices lower. However, price declines have so far been modest compared to the run-up in recent years. But what does 2023 hold in store for Canadian homeowners, buyers, and the housing market? Not good news for house owners – at the moment, anyway. After a series of interest rate hikes throughout 2022, the average price of a home in Canada has dropped by more than $180,000 since its peak in February 2022.

According to ReMax Real Estate reports, Canadian home prices are expected to fall 3.3 percent in 2023. Other real estate agencies, such as Royal Le Page, forecast some predictions for relatively flat-lined growth. Others see further declines on the horizon. Tight supply in the housing market has been a recurring theme as prospective sellers hold off the listing property. The CREA (Canadian Real Estate Association.) notes that the housing inventory measure remains historically low. Both residential sales and listings are down in all the major Canadian markets, such as Greater Toronto, Vancouver, Calgary, Edmonton, and Ottawa.

“Canadians are understandably hesitant to engage in the market early in 2023,” said ReMax Canada President Christopher Alexander. “Despite this, more Canadians see real estate as a solid long-term investment compared to last year. While home price growth is expected to moderate in 2023, recent data show Canadians continue to see real estate positively.”

In 2023 home sellers should expect their homes to take longer to sell and sell for less. Expect fewer offers; those received will have tighter financing and home inspection conditions. One local Vancouver realtor says, “it’s a buyer’s market not only in British Columbia but across the country.” He adds, “Sellers are stubborn and insisting on top dollar for their property even though the market is down. Many home sellers prefer to sit tight and ride out the interest rate hikes, hoping their home prices will rise after taking a hit in 2022 and probably in 2023.”

Although it may look suitable for qualified buyers, the downside is that housing inventory could be higher, especially properties once considered affordable. Homebuyers and sellers should be patient and understand the real estate market in 2023 will be very different compared to the last few years. Factors such as the economy, ongoing recession, and what happens with further interest rate hikes or decreases All come into play.


Mortgage professionals say prospective homebuyers should have a pre-approved mortgage at least 4 months before making a purchase. When they find a place they like, rates may rise. Competing bidders who didn’t get a pre-approved committed rate might be saddled with smaller homebuying budgets.

Should I Lock in a 5-Year Fixed Rate?
Locking in a 5-year fixed mortgage rate will only benefit you financially if variable rates continue to climb. Variable rates are at a historic high. However, variable rates are presently higher than fixed rates. They are usually lower than fixed rates because the borrower takes on the risk of rates changing over time. Most variable-rate mortgages allow you to lock in anytime.

If you want the security of a fixed locked-in rate, locking in now seems prudent. However, note that fixed rates are also rising and are expected to climb further. Fixed rates offer a modicum of peace of mind, but it comes with some risks that many people aren’t aware of, such as high cancellation penalties.