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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?

December 2010 Overall Summary

The experts believe Canadians will enjoy low fixed and variable mortgage rates for the month of December and into the New Year.

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Although the Canadian economy is recovering, our growth is still greatly affected by the US. As long as the recovery of our key trading partner continues to lag, we can expect stunted growth on this side of the border. Economic concerns in Europe are still prevalent, consumer spending is expected to weaken due to high debt loads, and inflation should remain flat. These indicators suggest that bond yields, despite their recent increase, are set to level off meaning fixed mortgage rates will remain unchanged.

Don't expect the government to take the wind out of the consumer spending sails over the Christmas holidays by increasing interest rates. Until we see sustained economic recovery in the US, Canadians should expect the Prime Rate to stay where it is and only increase gradually over the next couple of years. Expectations for economic growth have also softened giving the Bank even more reason to hold off on a rate increase in December and well into 2011, meaning variable mortgage rates will remain level.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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After the recent upswing in 5 year fixed rates we will see a slight downward trend as rates stabilize.

Until we see a sustained economic recovery in the US, Canadians will not see Prime move significantly. Canada cannot afford to diverge from the US monetary policy for any length of time.

George Hugh - President, Taurus Mortgage Capital

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Looking back, the US economy continues to chug along at a clip that most would agree is below expectations. The economic concerns in Europe are still very much a concern. Though the Canadian economy remains strong, the reality is that the outside forces mentioned above still have a very strong impact on our economy. One can argue that this risk has not been built into Canadian mortgage pricing spreads by Lenders. Combine this with the fact that bond yields have risen by 40 to 50 bps over the last little while, I would be inclined to say that rates will remain unchanged. What you see is what you will get over the short term.

Though we are definitely in an increasing interest rate environment, the increase will be very gradual over the next couple of years which continue to make VRM mortgages very attractive to home buyers. Buyer beware, when it comes to VRM pricing, there is more to it than just a rate.

Elisseos Iriotakis - President, Safebridge Financial

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Fixed rates have increased in the last few weeks by 0.20% to 0.30% across the board but we may still see a further 0.10% to 0.15% increase in the next 30 - 45 days. If the Christmas retail numbers are strong when reported in January and if the corporate earnings season is strong as well, then don't be surprised if we see a further increase in fixed mortgage rates. By mid January, we will have all the data necessary to understand the direction of fixed rates for the 45 day period to follow.

An increase in the overnight lending rate by the Bank of Canada isn't expected on December 7th or on January 18th. Even though there are signs that the economy is starting to move in the right direction, Governor Mark Carney doesn't want to disrupt this momentum especially during the month of December. December is a very important month in regards to GDP growth and consumer confidence and an increase in rates right now, may discourage consumers from spending that extra little bit required to push GDP in the right direction.

Gregory Klump - Chief Economist, CREA

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Economic growth downshifted in the third quarter of 2010 even more abruptly than the Bank of Canada anticipated in its recent downwardly revised economic outlook, and its momentum is flat going into the fourth quarter. Consumer spending is expected to weaken due to high debt loads, and hiring prospects are modest as businesses focus on machinery and equipment investment to boost productivity.

Inflation isn't expected to become something worrisome, since its recent uptick is not expected to repeat. On balance, economic indicators suggest that bond yields are set to remain low for a while yet. The five-year mortgage rate is closely linked to the five-year benchmark bond yield, so fixed mortgage interest rates are unlikely to rise until we see more promising signs of a resurgence in economic growth later next year.

Economic growth in the third quarter of 2010 came in below expectations, and its outlook is softening. That means the Bank of Canada looks set to stay on the sidelines over the winter months, so variable mortgage interest rates will remain stable.

Dr. Ian Lee - Program Director, Carleton University

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We see almost no movement in the 5 year Government of Canada bond rate in the most recent period. It is increasingly clear that the economy is slowing down, which suggests declining demand for homes and mortgages.

Notwithstanding the recent unexpected increase in the inflation rate, it is extremely unlikely that the Bank of Canada will increase its prime rate before April 2011 at the earliest, due to the poor job growth numbers in the US and to a lesser extent in Canada. Moreover, the GDP growth numbers in both countries are very soft. And even more critically, the Euro crisis seems to be escalating, as Germany resists E-bonds, and increases in the bailout fund, feeding back into the markets causing increased uncertainty.