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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?

May 2017 Overall Summary

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Majority says fixed mortgage rates will decrease this month as average 5-year bond yields have slipped down to 1%, and the Bank of Canada interest rate remains at record lows. Canada's economic predictors have shown weak growth too, signaling no reason for a significant rate increase: aside from the trending red-hot city centres, the real estate market is flat and job growth is minimal.

The panel agrees that variable mortgage rates will remain unchanged again this month as the Bank of Canada announced at its April meeting that it would be holding its key interest rate steady at 0.5%. Despite expectations of the US raising rates throughout the year, uncertainty still remains as to how the economic relationship between the US and Canada will fair in the face of the Trump administration. In addition, the Canadian dollar continues to underperform, thus, putting forward an inhabitable environment for a rate change anytime soon.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields have fallen in line with the Canadian dollar as we see people move to more secure assets. We have already seen several lenders drop their 5-year fixed rates and over the next few days and weeks, we could see a few more rate drops.

I don't expect to see any further rate changes in the variable rate market this month. Similar to fixed rates, if you are allowed to get a mortgage from a monoline lender, you can expect a variable rate under 1.9%. If you don't qualify and you must go to one of the big banks, you will pay around 2.2% for a variable product. 

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Rates for fixed-rate mortgages will likely see small variations. Canadian bond yields have slid during the past month, and the yield for Government of Canada 5-year bonds is now in the area of 1.0%. This is still above the level seen before the US elections in November (about 0.7%), but it is still reasonable to say that our interest rates are exceptionally-low. Economic indicators in Canada are showing only moderate improvement. As an illustration, the percentage of Canadian adults who have jobs is now 61.4%. This is still notably lower than the 63.4% figure that was seen before the US recession of 2008/09. In consequence, there is still room for the Canadian economy to play catch-up before there is a compelling case for higher interest rates. The US economy has good momentum at this point, but it is still much weaker than pre-recession (its employment-to-population ratio is just 60.2% versus 62.8% before the recession). The implication of all this is that in the short term, there will always be small week-to-week movements in interest rates, in response to shifts in consumer and business confidence. But, the balance of probability is that it will be a long time before we see a significant and sustained rise in interest rates.

Rates for variable-rate mortgages are highly influenced by the Bank of Canada's "overnight rate".  With the continued weakened employment situation in Canada, and with elevated risks due to erratic statements from the US president, the Bank of Canada is in no hurry to raise its benchmark interest rate (regardless of what happens to US rates). Moreover, my review of the employment data for Canada suggests that our job creation might have been over-estimated during the past year. If that is true, and if the next few months show a reversal in the data, then we could once again entertain the idea of a reduction in the Bank of Canada rate. The next meeting date (May 24) is too soon. There could be a reduction at the July 12 meeting.  This would be followed by reductions for variable rates.

Dr. Ian Lee - Program Director, Carleton University

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The latest job numbers from Stats Canada show anaemic job growth concentrated in the public sector while wages are stagnant. Other than the GTA, the Golden Horseshoe and the Vancouver region, real estate markets are mostly flat. Increased uncertainty concerning Trump's taxation and trade policies and their subsequent impact on Canada is dampening business confidence. As a consequence, average 5-year bond yields are back down to under 1% in last 60 days.  

While Bank of Canada Governor Poloz was slightly more optimistic in the April Monetary Policy Report, he noted that the current growth in the GTA and the Golden Horseshoe is "likely unsustainable".   He also noted wages and unit labour costs are growing slowly. Finally, he noted the increasing uncertainty surrounding Canada's tax and trade with the United States.  None of this suggests a rate increase any time soon.  If anything, it suggests a central bank reduction.  However, this is tempered by the very poor performance of the Canadian loonie. The recent Bloomberg list of top 20 currency losers in 2017 featured the Canadian loonie somewhere in the middle next to Tanzania.  In the meantime, the currency markets are doing the "dirty work" for Gov. Poloz and the BoC.  A rate reduction is not needed.