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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?

August 2010 Overall Summary

Though mortgage rates are itching for ways to rise, it won't be this month that we see the increase. In fact, Canadians should expect lower fixed mortgage rates as lenders respond to dropping bond yields, while variable mortgage rates should remain unchanged until the beginning of September.

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The majority of our panel members believe fixed mortgage rates will decrease in August, and during the first few days of the month we have already seen this happening. As mortgage lenders react to lower bond yields, their continued strong demand for residential mortgages is increasing competition for mortgage customers.

Dr. Ian Lee, Director of MBA Program at Carleton University summarizes this scenario well: "There is an excess of mortgage funds and lenders chasing a decreasing number of mortgage borrowers". This increased competition is likely to be good news for mortgage shoppers resulting in price cutting and lower fixed mortgage rates.

Expect variable mortgage rates to remain level in August, but to increase at the beginning of September following the next Bank of Canada rate announcement. The Central Bank's most recent Monetary Policy Report indicates that an increase in the Bank's trend-setting overnight lending rate in September is likely.

Despite the weak US job numbers and soaring unemployment in most of Europe, the Bank predicts a gradual reduction in monetary stimulus in Canada. With only three Bank of Canada meetings remaining till the end of the year, it is likely that the September announcement will push interest rates up.

Video Summary - August 2010

This Month's Panelists

Dan Eisner - President, True North Mortgage

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As bond yields remain low, banks will bend to the pressure to reduce rates.

Banks have fairly priced their variable rate products.

George Hugh - President, Taurus Mortgage Capital

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Though rates are itching for ways to rise, a number of key global factors continue to oppose it. The massive stimulus packages that were once prevalent have slowed, credit creation remains dysfunctional, household deleveraging to continue, and for the most part, creditor nations are reluctant to spend. Economic recovery in Canada remains strong. Even if rates start to trend upwards in the short term, I still believe consumers will be protected from this due to the strong demand for residential mortgages by the large banks.

With three Bank of Canada meetings remaining till the end of the year, it is highly likely that it will only move the overnight lending rate once. The highest chance of a move seems to be in Sept. Though the Prime rate is likely to change, the spread to prime will remain relatively unchanged.

Gregory Klump - Chief Economist, CREA

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Economic growth is widely expected to continue to slow, and inflationary pressures remain well anchored. However, new economic data that comes in above recently downgraded expectations could move bond market yields higher, which I expect will be the case. Given that the five-year mortgage interest rate is closely tied to the five-year benchmark bond yield, I see fixed mortgage interest rates moving higher, but only ever so slightly.

The Bank of Canada continues to signal that it is leaving its options open regarding the next interest rate announcement in September. However, the Bank's most recent Monetary Policy Report warned that its inflation "projection includes a gradual reduction in monetary stimulus." Financial markets interpret that to mean that an increase in the Bank's trend-setting overnight lending rate in September is a slam dunk - and so do I.

Dr. Ian Lee - Program Director, Carleton University

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Housing demand and thus mortgage demand is slowing down, partly because of the high ratio mortgage policy changes announced by Flaherty which reduced demand and partly because of declining consumer confidence and a slowing economy reflected in the anaemic .1% GDP growth rate last month - which further reduced demand. As CREA noted, resale of housing units will decline 1.2% for 2010 while the average house price will increase by 3.5%. Thus, there is an excess of mortgage funds and lenders chasing a decreasing number of mortgage borrowers, suggesting price cutting or decreases in the offered fixed mortgage rate.

The latest job numbers from the US continue to reveal a jobless recovery while the Canadian economy is slowing down and Europe is stalled (excepting Germany) with over 10% unemployment. There is increasing discussion of a double dip recession. The Bank of Canada does not examine interest rates again until this September. Thus, no change.