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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 2010 Overall Summary

This month, the panel believes that despite increasing inflation, an economy on the rebound, and a hot housing market, the sustainability of these trends is uncertain, resulting in variable and fixed mortgage rates remaining at present levels during March 2010.

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The housing market is flying with low interest rates and motivated buyers and sellers. Although the new mortgage rules announced by Finance Minster Jim Flaherty should have minimal impact on the market, it's expected that pre-approvals will rush in before the April 19 deadline. Higher inflation and a quickly rebounding economy suggest upward pressure on bond yields. However, there are doubts about the sustainability of these trends; therefore, fixed mortgage rates are unlikely to move over the next month.

With the Bank of Canada rate announcement coming tomorrow, March 2, expect the Bank of Canada to acknowledge the fragility of the current economic recovery and repeat its conditional commitment to keep the target for the overnight rate steady until after the second quarter 2010. This means variable mortgage rates should remain unchanged.

However, banks are becoming more and more comfortable with better discounts off of prime. We saw evidence of this during February when the 5 best year variable closed rate dropped to Prime - 0.45% (1.80%), the biggest discount since the global economic crisis began. The lowest variable rate has eased off slightly to Prime - 0.40% right now, but we could see 1.80% or lower again.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Like the Dow Jones in 1999 compared to 2009.

How now brown cow is only down. Banks are becoming more and more comfortable with better discounts off of prime.

George Hugh - President, Taurus Mortgage Capital

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The low interest rate environment combined with motivated buyers and sellers has the housing market hopping.

The real question remains, will the new mortgage rules introduced by Ottawa have an impact on this hot market? My guess is that on its own, the impact will be minimal, it's the so called other factors such as the new HST and higher interest rates that are the wild cards. If the media driven slowdown that we have been hearing about does come to fruition, it will have to fight off low mortgage rates especially in the near term.

With the threat of increasing interest rates over the next year 12 to 18 months, many banks are in favour of placing their clients into VRM mortgages with the hope of locking them into a higher fixed rate.

Gregory Klump - Chief Economist, CREA

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Inflation has recently moved higher, and the economy is rebounding more quickly than previously thought. On their own, these factors suggest upward pressure on bond yields. However, there are doubts about the sustainability of these trends. The five year bond yield, to which the five mortgage interest rate is tied, has moved very little over the past month as a result. With little recent or prospective change in bond yields, and a highly competitive market for mortgage financing before tighter regulations take effect April, fixed mortgage rates are unlikely to rise over the next month.

No change in VRMs, which are tied to the Bank of Canada's trend-setting overnight lending rate. Expect the Bank of Canada to acknowledge the fragility of the current economic recovery and repeat its conditional commitment to keep the overnight lending rate on hold until the second half of 2010 when it makes its interest rate announcement on March 2.

Dr. Ian Lee - Program Director, Carleton University

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The 5 year bond rate is relatively stable while demand for mortgage financing will likely decline somewhat due to the changes to the mortgage financing rules announced last month by Finance Minister Flaherty, that will make it more difficult for marginal borowers to obtain approval for mortgage financing.

The Bank of Canada promised that it would not not increase rates in the first half of 2010 and I expect Governor Carney will honour this commitment.

Garth Turner - Author, Former MP

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My forecast is for a stand-pat March, with nothing but an occasional tweak in short-term rates on the higher side. In addition, it's budget time in Ottawa, when we all get an abject lesson in what not to do with our own finances.

This is the month when things start to thaw, including the freeze that teaser Mark Carney put on out absurdly-low interest rates. Although the B0C will not official raise its trendsetting rate this month, I expect the bank to starting tightening up on their intra-bank lending, setting the scene for inevitably higher rates to come.