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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?

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DECEMBER 2019 OVERALL SUMMARY

Our experts expect rates to remain unchanged in December.

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The Canadian economy continues to perform well enough, though arguably "less well" than it did in the first half of the year. The headwinds that exist are the same ones that have been blowing for months—those being ongoing U.S.-China trade tensions and global economic growth lacklustre by historical standards. With bond yields moving sideways in recent weeks, it'll take something unforeseeable (like plunging oil prices, a series of huge employment gains or losses or a blockbuster trade deal) to shift fixed mortgage rates appreciably.

Our entire panel agrees that changes in variable rates are highly unlikely in December. The Bank of Canada is overwhelmingly expected to leave its overnight rate unchanged once again when it announces its rate decision on Wednesday. Moreover, RateSupermarket's experts note that lenders' rate discounts off prime are already larger than average. That's thanks to a highly competitive mortgage market. Hence, any further variable discounts are unlikely this year.

This Month's Panelists

Dr. Ian Lee

Program Director,

Carleton University

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Canada bond yields are sitting around 1.50% with very little movement. While there are mixed signals in the economy, the CN layoffs revealed a decline in 6 of 11 shipment areas—a bellwether metric—as transportation remains the backbone of any large economy. Manufacturing appears to be slowing in Ontario.

As Governor Stephen Poloz noted in his discussion of the most recent Monetary Policy Report, economic forecasts "have been marked down further in most countries." These key metrics point to a slowing economy and thus likely slowing demand for mortgages, which will put a damper on rate increases.

On Oct. 30, Governor Poloz provided a superb strategic summary of the headwinds and pressures bearing down on the Canadian economy. But at the same time, he highlighted the overall resilience of the Canadian economy with strong employment growth, high levels of immigration, a rebounding housing sector and solid consumption spending.

The Governor concluded that a rate cut was not justified at that time. Thirty days later, the economic situation in Canada and his analysis thereto remains unchanged. It is doubtful the Bank of Canada will reduce its rates on Wednesday.

Will Dunning

Chief Economist,

Mortgage Professionals Canada

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Economic indicators have shown only modest rates of improvement this year. For some major indicators (such as Gross Domestic Product, retail spending and hours worked), growth in "real" (inflation-adjusted) activity has been slower than the rate of population growth. In that sense, the Canadian economy is weakening. But that is occurring from a position of considerable strength. At this time we should not be expecting very strong growth figures. This situation is neutral for major interest rates.

I expect that the yield for 5-year Government of Canada bonds should be in the range of 1.50-1.75%, and that is where they are (today, November 27, the yield is 1.51%). But our mortgage interest rates are currently quite low relative to bond yields. The unusually small gap between bond yields and mortgage interest rates could cause lenders to raise their rates for fixed rate mortgages in the coming weeks. There is, of course, uncertainty. The main sources of uncertainty are in the U.S., in quixotic economic policies that create waves of optimism and pessimism about the outlook, and have caused some volatility for interest rates this year.

The rates for variable mortgages are very strongly influenced by the Bank of Canada's benchmark interest rate (the "target for the overnight rate"). The Bank of Canada currently sees economic growth that is "below potential" and therefore it does not see a need to raise its benchmark rate. But it also expects that growth will improve through 2020 and 2021, and therefore it does not see a need to reduce rates. However, it is expressing concern about slowdowns that are developing in other countries, which could have negative effects on Canada. Even if we see some signs of economic weakening in Canada in the coming months, it would take some time for the Bank of Canada to change its opinion that its benchmark rate is at the right level. Similarly, it would not react instantly to any positive surprises.


Any change in variable rates would therefore have to be due to changes in the discounts (versus their prime rates) that lenders offer. These discounts are already larger than average (reflecting that the lending environment has become quite competitive). Therefore, it is unlikely there will be further reductions. Is there a chance that variable rates could rise? Housing activity has improved over the past few months, but is still below average. Therefore, continued competition should prevent rises in these rates.

Dan Eisner

President,

True North Mortgage

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Longer term bond yields have been trading within a tight range over the last few days as traders await news on the China trade front. We will likely not see fixed mortgage rates move in either direction over the next week or two.

We may see a prime rate change, but the actual discounts offered off of prime are very stable.