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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?

April 2016 Overall Summary

April historically marks an uptick in mortgage price competition as brokers and banks march out their most attractive interest rates - but with today's fixed and variable rates already at record lows, lenders are engaging in fewer price skirmishes. However, spring mortgage borrowers are sure to be laughing all the way to the bank as low bond yields have pushed fixed rates far below last year's discounts, and no move is expected from the Bank of Canada on the national cost of borrowing.

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Remember when the 2.99-five-year-fixed whipped the market into a frenzy? It was just a few seasons ago, but the days of frantic basis-point buybacks seem long past. With today's most competitive five-year fixed offerings hovering around the 2.30% mark for months – a mere 20 basis-point difference from today's lowest variable options – lenders are taking a more relaxed approach to their spring pricing.

Bond yields, which have stayed stagnant and below the 1% threshold, are to blame for the lack of mortgage price movement and will stay at status quo; The U.S. Federal Reserve's intention to take a cautious approach to monetary policy will support Canadian bond demand.

The Bank of Canada will reveal to what extent the federal Liberals' budgetary cash infusion will impact economic growth in the quarterly Monetary Policy Report on April 13. While it's anticipated the stimulus measures will boost GDP, it's unlikely the BoC will move on the cost of borrowing. Earlier this month, Deputy Governor Lynn Patterson stated Canada will need at least two years to adjust to oil's downtown as lower commodity prices drag on economic output. And, while strong GDP gains in January surprised economists, a dip in February exports show recovery is far from assured, derailing the possibility of rising rates.

Meanwhile, the BoC is hesitant to further stoke household debt levels by chopping rates further; the parliamentary budget watchdog predicts debt will reach levels not seen since 1990 this year.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields and mortgage rates remain stable. I believe further upward pressure on mortgage rates have abated as bond yields remain very flat.

The price of oil has appeared to stabilize so it is very unlikely we will see another Prime rate decrease by the Bank of Canada.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Since the start of this year, yields for 5-year Government of Canada bonds have been below 0.75% most of the time, which is an exceptionally low level (during the past five years, the average has been 1.40%). Correspondingly, mortgage interest rates remain very low. The consequence is that even though the Canadian economy has been relatively weak during the past 2.5 years, housing demand has remained strong, due to very attractive affordability across the country. Economic confidence remains weak, in Canada and around the world. Bond yields are unlikely to change materially and typical rates for fixed rate mortgages are likely to stay under 3.0% for some time to come.

During the past decade, Canada has been "a tale of two economies". But, with the plunge in oil prices, there has been a role reversal: the energy producing provinces have weakened considerably while the other provinces are showing healthy rates of job creation. The outcome has been that for Canada as a whole, job creation is slightly slower than the population is growing (0.9% per year). In this context, the Bank of Canada is most likely to leave its benchmark interest rate unchanged at its next meeting (April 13): its view is likely to be that lower interest rates won't benefit the energy-producing regions, but might over-stimulate other regions. Looking farther ahead, it is most likely that low oil prices will continue to produce a mix of positive and negative effects across the country, and that job creation will remain subdued. Therefore, it is possible that later this year the Bank of Canada will reduce its policy rate once again. For now, prime rates and variable mortgage rates are unlikely to change.

Dr. Ian Lee - Program Director, Carleton University

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The 3 to 5 year Bank of Canada bond yields continue to hover around .6%, and thus no change is forecast this month.

In the very precise words of Statistics Cananda, "Real gross domestic product rose 0.6% in January, a fourth consecutive monthly increase. Manufacturing, retail trade, and mining, quarrying, and oil and gas extraction were major contributors to growth in January". This is the economy that the Finance Minister and some pundits claim is declining and contracting – except that it is not.

Then we examine the words of U.S. Federal Reserve Chairperson Janet Yellen in a speech last week when she said, "caution is especially warranted". This means she has become more pessimistic concerning short and medium term growth which supports her judgment that "the Committee anticipates that only gradual increases in the federal funds rate are likely to be warranted in coming years".
For these reasons, a Fed hike is not imminent nor is a BoC rate change due to the conditions outlined by Yellin and the steady albeit weak Canadian GDP growth rate.