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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?

November 2017 Overall Summary

The positive? Both fixed and variable mortgage rates are at a standstill and will likely remain so for awhile. The biggest change to note for the foreseeable future will be OSFI's new stress test for uninsured borrowers. This new "stress test" aims to ensure borrowers can withstand higher interest rates before taking on a loan. The general consensus is the Canadian housing market will see a surge as home buyers, especially first time homebuyers, look to purchase a new home before the new rule takes effect in January 2018.

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The panel agrees fixed mortgage rates are at a standstill and will likely remain so for a while. Bond yields have been flat, likely due to no major changes to the economy over the past couple of weeks. However, this could change as NAFTA negotiations continue. Depending if the negotiations go well or not, this could have a positive or negative impact on yields, and subsequently, fixed rates.

Due to Bank of Canada Governor Stephen Poloz's comments regarding the economy, the panelists all believe that variable rates will remain unchanged until March 2018. Following the recent rate announcement, Poloz confirmed the Bank is hesitant to make any changes until it better understands the impact of the last two rate hikes on the economy. We are currently facing low inflation, slow wage growth and increasing household debt, which has prompted the Bank to proceed with caution.

This Month's Panelists

Dr. Ian Lee - Program Director, Carleton University

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Bond yields have moderated in the last month.  Moreover, it appears that demand is slowing across Canada likely due to regulators like OSFI announcing additional mortgage qualifications. These new measures are definitely placing further pressure on potential buyers who require mortgage financing.

The BoC increased the central bank rate twice since July, but remained unmoved this week. In its October rate announcement, the Bank expressed caution in the "abnormal economy" of continuing low inflation, below normal wage growth and high consumer debt.  Additionally, there are storm clouds on the horizon as the NAFTA negotiations are up in the air. Governor Poloz's comments following the latest MPR suggest the bank will hold off until early 2018 before contemplating another rate increase.

Dan Eisner - President, True North Mortgage

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Bond yields have remained flat for the last few weeks, so I expect five-year fixed rates to continue unchanged.  However, we may see the housing market end the year on a high note as home buyers look to purchase before the new OSFI stress tests take effect.

Recently, the Canadian central bank has hinted prime rates may move slower than otherwise expected.  The only thing that could turn the BoC away from eventual prime rate increases would be the collapsing of NAFTA trade talks.  But let's all hope that doesn't happen.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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In the summer of 2016, Canada saw a period of strengthening economic indicators, which contributed to a rise in interest rates as of recent. The yield for five-year Government of Canada bonds peaked late this past September at about 1.8 per cent, a full percentage point above the average in 2015 and 2016. However, it now appears that the surge in economic indicators has ended – i.e. job creation in Canada was weak for three consecutive months.

Looking ahead, it seems that the higher interest rates will gradually weigh on the Canadian economy. In addition, the dollar is now a bit stronger, which will weaken our export industries and thereby constrain growth. Furthermore, the mortgage "stress test" that is now required by the federal government's Office of the Superintendent of Financial Institutions (OSFI) will reduce housing activity, which will further weaken the broader economy.

All things considered, it is likely that by next spring, Canadian interest rates will be lower than they are today. But, it is unlikely that the Bank will reverse these rate hikes completely. By next spring, I believe typical rates for five-year fixed-rate mortgages may be a quarter point lower than they are presently.

Signs of a stronger economy led the Bank of Canada to raise its overnight rate by a quarter point this past July and September. This achieved the Bank's goal of reversing the reductions that were made after the price of oil collapsed in 2014. At this point, the BoC is indicating that it will wait for several months to see how events unfold following the rate hikes. Considering the economic factors discussed in the fixed mortgage rates outlook, it is unlikely there will be any further increases (or decreases) for some time.