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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?

October 2016 Overall Summary

There are three major events to watch over the next 45 days that will have an impact on the Canadian economy and ultimately, our fixed and variable rate mortgages. First, the U.S. election is now less than six weeks away and depending on who takes over the White House, there could be a major financial shake-up on a global scale. The second is another Bank of Canada announcement and Monetary Policy Report on October 19th. While our experts don't foresee any movement in the overnight lending rate in either direction, Canadians will have a better idea of how well our economy has been faring in the second half of the year, after a disappointing first half. But even if the Bank forecasts a more positive outlook, we're unlikely to see any change before the end of the year. Finally, we're still watching for signs of a cool down in the country's hottest housing markets and while there's clear evidence of a slowdown in Vancouver, Toronto is still red hot.

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This month, our experts are forecasting different scenarios for fixed rate mortgages. Dan Eisner sees these rates starting to decrease, due to stability in the Canadian dollar and therefore, no upward pressure on inflation. This causes bond yield to fall, which ultimately leads to lower rates. However, Will Dunning and Ian Lee disagree, saying that there is no downward pressure on inflation, either. What Dunning is concerned about is possible variations to lending and mortgage insurance rules, after capital changes were recently proposed by the Office of the Superintendent of Financial Institutions. These would come into effect in the new year and would push business costs higher for lenders, ultimately leading to higher rates. For the time being, though, no major changes are anticipated.

There are a mix of factors that bring our three experts to an agreement on variable rate mortgages. They don't expect to see any changes due to a combination of our underperforming economy, a lack of upward pressure on inflation and two recent speeches from the Bank of Canada warning Canadians that lower and slower growth is here to stay. Even if economic improvement continues in the U.S., Canadian rates are unlikely to follow until growth picks up on our side of the border. When it comes to our real estate, there remains an imbalance between Canada's major cities. Toronto has overtaken Vancouver when it comes to house price appreciation. However, when balanced with other factors, these two markets are still not enough for the Bank of Canada to say it's time to raise rates to.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Believe it or not we may see five-year mortgage rates start to move lower. The last couple of years in Canada, we have seen some inflation mostly due to the devaluing of the Canadian currency and the resulting higher costs of imports. However, now that the Canadian dollar has stabilized for an extended period, we are no longer seeing upward pressure on inflation. As a result, inflation has abated and bond yields have fallen. Lower bond yields lead to lower mortgage rates.

We will have to see higher inflation before we start seeing the banks change their variable rates. As a result, we don't foresee any changes in the next while.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Financial markets aren't yet paying enough attention to the U.S. election. Yet, if Trump wins, there could be major turmoil. As election day gets closer, if the polls continue to show a horse race, there would be escalating volatility in the financial world and the risk of spiking interest rates. Apart from this, there are currently no pressures for any substantial adjustments of mortgage rates. Looking farther ahead, the U.S. is showing sustained economic improvement and we might expect some small upward moves in U.S. bond yields late this year or early next year. Canadian rates do not need to follow, in which case we would see another weakening of the loonie – providing some support for job creation in Canada.

For almost a year now, my "most likely scenario" has been that typical rates for fixed rate mortgages will stay under 3.0% for some time to come. But, we need to keep an eye on any changes in lending and mortgage insurance rules (such as requiring lenders to hold more reserve funds, or applying a "deductible" when borrowers default on insured mortgages). Any changes like these would raise lenders' costs of doing business, and result in higher mortgage rates.

The consensus among economists seems to be that before long the Bank of Canada will announce an increase to its key overnight rate. I remain less optimistic than the consensus: there will probably be more disappointments in the coming months. These will discourage the BoC from raising the rate.

Dr. Ian Lee - Program Director, Carleton University

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From March 2016 until now, the 5-year Bank of Canada bond yield has fluctuated within a 0.2% range from 0.55 to 0.75%. There is no empirical evidence of upward or downward pressure on bond yields that would cause fixed rates to move significantly.

The most recent speech by Bank of Canada Governor Stephen Poloz on Sept. 20 entitled "Living with Lower for Longer" really tells us what is happening with the central bank rate. Indeed this speech was reinforced by Bank of Canada Deputy Governor Wilkins' speech only 1 week before: "(S)low for Long and Financial Stability". In her words, "we have to adapt to the new reality of lower potential growth". Indeed, although the Canadian economy still is underperforming and below capacity and thus is growing very slowly. There is simply no evidence or credible rumours or expectations that the Bank of Canada will increase or decrease its rate between now and the end of 2016.