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Mortgage Rate Outlook Panel

Our panel of mortgage experts share their views on Canadian mortgage rate trends each month by answering this question: What is your outlook for Canadian mortgage rates over the next 30-45 days?

July 2016 Overall Summary

A new influencing factor on the global economic scene this month is Brexit. The June 23rd vote which saw the majority of voters in the U.K. side with leaving the EU has resulted in somewhat of a roller coaster ride on international financial markets and has raised fears among investors. However, there are still a lot of questions as to what exactly will happen in the U.K. going forward. Here at home, the Canadian economy is still growing at a very modest pace, while our American neighbours to the south are seeing greater prosperity. Because of that, our panel of economists believe that fixed rate mortgages will not change, and that the Bank of Canada will err on the side of caution and not raise or lower rates at its upcoming meeting on July 13th.

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Our economists agree that despite the uncertainty that comes with Brexit, the actual impact this will have on Canadian mortgage rates will be minor. There are many questions about exactly what will happen next in England – from who will be the new leader of the U.K. to what this individual will do in response to market turmoil. Back on Canadian soil, there's still economic uncertainty with growth not meeting the expectations set at the beginning of the year. Taking this all into consideration, it's likely that the average fixed rate mortgages will remain under the 3.0% benchmark for at least the next few months.

Our economists believe that the central banks of the G7 countries aren't likely to introduce even more uncertainty because of fears arising from the Brexit vote. Here in Canada, the Bank of Canada has lowered expectations going forward from what they predicted at the start of the year. Some of those factors slowing our economic growth include the devastating wildfires in Alberta back in May and the U.S. outperforming our economy. The greenback has strengthened against the Loonie which remains in the 76 to 79-cent range. Then there's the Canadian housing market where prices continue to skyrocket both in Toronto and Vancouver. In June, the Bank of Canada expressed concerns that incomes aren't rising fast enough to cover the surge in prices, something that is being attributed to lower interest rates and strong labour markets. Therefore, our economists believe the Bank of Canada is unlikely to make any decisions and keep the overnight rate at 0.5%.

This Month's Panelists

Will Dunning - Chief Economist, Mortgage Professionals Canada

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The Brexit vote has resulted in some very rapid swings in financial markets, but the impact on economic expectations should be minor. There is an increase in uncertainty, and that in itself will make consumers and businesses more cautious about spending and investing. In other words, we are still looking at modest growth in Canada for a while yet. Canada will be outperformed by the U.S., where bond yields and other interest rates might begin a very gradual upward trend during the next few months. Canada won't need to follow those U.S. increases and this would cause the Canadian dollar to weaken – something that's positive for our export industries. All of this considered, I still expect that rates for fixed rate mortgages in Canada will remain at or close to current levels for the next six months (I have been saying this since the start of the year). My most likely scenario is that typical rates for fixed rate mortgages will stay under 3.0% for some time to come.

Economic growth remains disappointing in Canada, and economic expectations are now shifting downwards. There had been widespread beliefs in an imminent lift-off but now the consensus is that growth will remain modest. However, we don't yet have signals that would justify a further reduction of the Bank of Canada's key rate. Core inflation is close enough to the Bank's 2.0% target. It is probably hoping that the dollar will soften and that will lead to some economic improvement. The Bank is also clearly concerned about the great strength of housing markets and that will make it hesitate to reduce interest rates. In this context, the Bank of Canada is most likely to leave its benchmark interest rate unchanged at its next meeting on July 13th, and will likely hold that rate for the September 7th meeting as well.

Dan Eisner - President, True North Mortgage

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Bond yields must be at Canada's Wonderland because they are moving like they are on a roller coaster ride. The ramification of the Brexit and the turmoil in the oil markets have left bond traders at a loss for what to expect next. As a result, I don't think we will see rates go up or down until bond yields clearly move in one direction.

The Brexit has clearly raised fears here at home and abroad about the world wide growth expectations of global markets. This has greatly reduced the chance of a prime rate increase for the next few quarters.

Dr. Ian Lee - Program Director, Carleton University

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While the shock of Brexit can only be characterized as a "game changer", paradoxically mortgage markets will not react to the uncertainty and chaos that has taken place in the markets since the June 23rd vote because no one knows what will happen next. Who will become the next leader of the U.K.? What will the new Conservative leader do and promise to do in response to the incredible turmoil in currency and capital markets? Will the new leader call a snap election to seek a fresh mandate that will, amongst other things, potentially nullify the results of the referendum – on the assumption that a national general election is the ultimate expression of sovereignty that trumps all other forms of democratic expression? It should be noted that Boris Johnson – the presumed next leader of the U.K. Conservative Party and thus Prime Minister – is already walking back from some of the statements he made during the campaign. In short, what will the new rules of the game be? No one really knows and for these reasons, lenders will "keep their powder dry" and wait for some clarity before any decisions are made.

Central banks in the G7 are standing by to inject gargantuan amounts of liquidity – if necessary – into markets. However, the central banks will NOT be trying to introduce even more uncertainty and variability by announcing a rate cut. For reasons similar to those of mortgage lenders, the central bankers will analyze the markets intensively and relentlessly but will not act until some clarity emerges in both the markets and with key political actors in U.K. and the EU – especially Chancellor Merkel who is notoriously cautious, conservative and an incrementalist. Analysts should probably focus more closely on any comments made by four people in near future: Boris Johnson, Bank of England Governor Mark Carney, Chancellor Angela Merkel and European Central Bank President Mario Draghi.