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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?

September 2016 Overall Summary

Recent reports show the Canadian economy is still facing some struggles – a poor jobs report for July and the continued fallout from the wildfires in Alberta this past spring. This led to Statistics Canada announcing that our economy shrank 1.6% in the second quarter – the poorest quarterly performance since the recession in 2009. Meantime, we're seeing the first signs of a cool-down in one of the country's hottest real estate markets, following the implementation of the new 15% foreign buyer tax in B.C. Taking these factors into consideration, our experts do not foresee any increase or decrease to the overnight rate for at least the next few months. That means potential homebuyers can expect much of the same when it comes to securing a fixed or variable rate mortgage – low rates all around.

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For the most part, 3 to 5-year bond yields have remained stable since the spring. According to our mortgage experts, there's no sign of any great change. Any further cooling in Vancouver's housing market will likely keep bond yields in and around the current range of 0.6. Other factors at play include a forecast for sustained economic improvement in the U.S. and possibly upward movement in bond yields on that side of the border, in addition to the race for the White House in November. But unless there are other shakeups on a national or international scale, we can expect much of the same. That means fixed rate mortgages are likely to stay in and around the 3.0% for the next little while.

All eyes will be back on the Bank of Canada on September 7th for the next rate announcement. Our experts believe that any change in the overnight lending rate in either direction is unlikely to take place, meaning the prime rate will hold at 2.7%. While some economists say we'll be seeing a rate increase in the U.S. in the coming months, Canada isn't likely to follow – at least not for the foreseeable future. There's also not enough economic evidence to warrant a further reduction in the rate at the current time. The Bank of Canada is likely going to wait and see what happens in both Toronto's and Vancouver's housing markets over the next few months. A significant cool down might bring about a change in 2017. For now, prospective homebuyers can expect competitive, low rates when seeking a variable rate mortgage.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Government bond yields have traded in a tight range since April and the majority of experts don't see that pattern changing anytime soon.

Recent comments by the US Federal Reserve Chair signalled a greater willingness to raise interest rates and, in my opinion, will result in a prime rate increase by the end of the year in the U.S. We likely won't see the Bank of Canada follow along any time soon.

Dr. Ian Lee - Program Director, Carleton University

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From June until now, the 3 to 5-year bond yield has fluctuated narrowly around 0.6. A review of the 3 to 5- year Government of Canada bond yield also reveals narrow fluctuations. There is no evidence of any dramatic spike in yields and rates. Indeed, the apparent cooling in housing markets will moderate any upward pressures.

While the Canadian economy continues in sluggish to anaemic to somnambulant mode, nonetheless the patient has not fallen into a deep sleep. The economy is too "strong" to warrant a central bank rate reduction while it is too weak to support a central bank rate increase. Moreover, the political fallout from a rate reduction in terms of its impact on the Canadian housing market would be sufficiently nasty to ensure that the Bank will not. It is for this reason that the Bank will treat the patient simultaneously with very close attention and "benign neglect" (to use the very clever words of the late Senator Daniel Patrick Moynihan).

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields have been relatively stable since the spring, and in consequence there has been little movement in interest rates for fixed rate mortgages. The spread between mortgage rates and bond yields is at a normal level, and so there is currently no pressure for any substantial adjustments of mortgage rates. Looking further 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 don't need to follow – in that case, we would see another weakening of the Canadian dollar which would provide some support for job creation on this side of the border.

All things considered, there is no change to my "most likely scenario" that typical rates for fixed rate mortgages will stay under 3.0% for some time to come. An issue to watch is any change 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), which would raise lenders' costs of doing business, and result in higher mortgage rates.

Recent economic reports for Canada have been weak, in part reflecting the wildfire in northern Alberta and the loss of 31,000 jobs in July. Therefore, there is an expectation of better numbers to come. However, I believe that this is one of the occasional errors that result from a sample survey, and that the "reality" might have been closer to no growth – not stellar, but a decidedly less negative picture.

The consensus among economists seems to be that before long the Bank of Canada will announce an increase to its key overnight rate. I personally believe there will probably be more disappointments in the coming months and eventually the Bank of Canada will drop the rate by another quarter point likely by the December 7 meeting. I expect, therefore, that before the end of the year we will see some reduction in rates for variable rate mortgages.