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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?

March 2018 Overall Summary

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The panel seems drawn between two major factors that could cause either an increase or decrease in fixed rates.

At the start of the year, bond yields hit levels much higher than we've seen over the past three years. However, they have remained pretty much flat since for a number of reasons. Major housing markets continue to soften across the country likely due to the new stress test required on almost all mortgages as of 2018. And since less people are looking for mortgages, lenders are offering more competitive rates to attract new business. This may result in a decrease in fixed rates across the board.

On the other hand, policy changes brought on by the U.S. government could cause rates to rise in the U.S. soon. And while Canada doesn't necessarily have to follow the trends south of the border, we may see tiny rate increases to further weaken our dollar but also support our economy.

At its most recent rate announcement, the Bank maintained its key interest rate at 1.25%, stating that it will continue to monitor the effects of the past three rate hikes on the economy. The ongoing NAFTA negotiations and slow housing market (even slower than most expected) may also be causing the BoC to halt any rate movements for a while. That being said, analysts are now only predicting one or two more rate increases this year.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Rates are going down, just like Trump's approval rating. Large bond yields have been on the rise over the last few weeks as confidence in our economy has grown. As a result, we have seen a general rise in fixed mortgage rates over the last few weeks. But, the recent tariffs announced by President Trump had a large downward effect on Canadian bond yields as people left the equity markets and moved their money into bonds. We have already seen some lenders react by lowering their five-year fixed mortgage rates. I imagine all lenders will follow.

Recently, the Canadian Central Bank hinted prime rate moves may come slower than otherwise expected. The only thing that could turn the Central Bank away from eventual prime rate increases would be the collapse of NAFTA trade talks or a trade war. Both situations look likely as of recently.

Dr. Ian Lee - Program Director, Carleton University

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In the words of Bank of Canada Deputy Governor Timothy Lane, "Canada's continuing economic expansion ... has brought the Canadian economy close to its full potential."

And the U.S. – helped by tax cuts – still has "upside potential" per the Bank of Canada to drive more growth. Moreover, although mortgage demand may soften in Canada due to increasingly draconian mortgage lending rules, the deficit demands by Canadian federal and provincial governments, in addition to the US government, will continue to place upward pressure on bond rates generally.

As expected, the Bank of Canada punted at its interest rate announcement last week, due to increased uncertainty, especially in light of President Trump's willingness to impose tariffs on friend and foe alike. Deputy Governor Lane summarized the head winds blowing at the Canadian economy very succinctly in the Bank of Canada Economic Progress Report as "persistent competitiveness challenges facing Canadian exports," in addition to "the chilling effect of heightened uncertainty about future US trade policies," and "the burden of high household debt levels." These threats justified postponing a rate increase for now. Indeed, the consensus early this year of three to four interest rate increases in 2018 has been replaced. A number of analysts now predict there will only be one to two do Bank of Canada interest rate increases in 2018.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields have been roughly flat since mid-January, albeit at a level that is more than 1.25 points higher than what they were between 2015 and 2016. Local housing markets in Canada are now slowing very rapidly under the weight of higher interest rates and the new mortgage stress test that is required on almost all new mortgages. That being said, the next data release from the Canadian Real Estate Association – due by March 15 – is probably going to show much weaker sales than expected (about 15% lower than the average rate for 2017). Slower housing activity also means the demand for mortgages is slowing rapidly, which is forcing lenders to become more competitive and offer lower interest rates.

Looking forward, interest rates will be affected by two types of pressure. First, the downward pressure of the soft housing market in Canada, and second, the upward pressure caused by increasing borrowing requirements for the U.S. government as a result of reckless policies. These reckless policies may also cause rates to rise in the U.S. soon. Canada may not necessarily follow, and I expect any rate increases in Canada to be less substantial than rate increases in the U.S. anyway. Slow interest rate increases in Canada will cause further weakness in the Canadian dollar, which will, in turn, support our economy. This is why I predict rates for fixed-rate mortgages to rise by one-quarter to one-half of a point before the end of the year.

The Bank of Canada raised its overnight rate three times over the past year, but no change was made at the most recent meeting on March 7. The BoC is obviously taking a wait-and-see stance due to uncertainty in the housing market, "trade policy developments" considering the possibility that the Trump government may terminate NAFTA, and the impact of the previous interest rate hikes on the economy.

Most economists expect there will be one or two more policy rate increases this year. But I believe the Canadian economy is going to slow more than most anticipate, mainly due to the worse-than-expected weakening of housing activity. Therefore, the BoC will probably hold the overnight rate at its current level for some time.

Shawn Stillman - Mortgage Broker, Mortgage Outlet Inc.

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Considering our February job report and President Trump's threats of a trade war, bond yields have decreased over the past 30 days by 20bp from their recent highs. Moreover, five-year fixed rates have been lowered at many Monoline lenders between 10bp and 15bp. I still expect some downward pressure on yields over the next few weeks and can see another round of rate cuts as lenders fight for volume due to the slowing housing market. Thus, as a whole, I predict rates to remain flat or slightly lower over the next few months.

On March 7, the Bank of Canada announced that its overnight rate would remain at 1.25%. More importantly, the Bank signaled there will be a slight pause on rate movements to digest the recent economic and political news. Knowing this, the market predicts there is only a 21% chance of an increase at the next two meetings, and the chances of us seeing prime over 4% in 2018 are looking less and less likely. The big surprise in the mortgage market is that there are many more lenders offering prime – 1% or better on insured and insurable mortgages, with rates as low at 2.20% (prime – 1.25%), so many consumers are taking the variable option with such deep discounts. Variable rates will likely remain flat over the next few months until we see which direction the economy is heading.