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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?

January 2011 Overall Summary

Canadian home owners will be glad to hear that low mortgage rates are expected to continue well into 2011. Despite Canada's economic recovery, our growth is hindered by the slow-moving US and Global markets, which means that rate increases are likely to be put off as we wait for the rest of the world to play catch-up.

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The decrease in demand for mortgages and relatively stable bond yields, leave our panel of experts to believe that fixed mortgage rates will remain unchanged for the month of January. However, this outlook is susceptible to change with additional defaults in Europe or poor results on upcoming US economic indicators.

Also, ultra low interest rates for the past few years have fuelled a borrowing frenzy creating concern about mounting debt levels for Canadian consumers. It wouldn't be a surprise if the government made a policy change announcement to address the potential debt problem by adjusting the mortgage rules, likely spurring a change in fixed rates as well.

Our panel members believe the Bank of Canada will hold off on increasing interest rates during the first half of 2011. This means variable mortgage rates will also remain at low levels during this time and then gradually increase from there. As the Canadian economy continues to recover, the sluggish progress in the US and the frailty of the EU, tasks the Central Bank with maintaining a tricky balancing act.

This Month's Panelists

George Hugh - President, Taurus Mortgage Capital

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As you go from one economic forecast to the next, the only thing that seems to be consistent is that all the opinions are inconsistent! Lots of talk about adjusting mortgage rules to try and address a potential debt problem in Canada. Given that this is likely to occur in one form or another, I'd expect this to have some sort of slowing impact on the housing market. As a result, I don't expect any significant actions that will result in the acceleration of interest rates above current levels as this would result in a double slowing impact.

Expect interest rates to remain at existing levels over the short to medium term.

Though we are definitely in an increasing interest rate environment, the increase will be very gradual over the next couple of years which will continue to make variable mortgage rate (VRM) mortgages very attractive to home buyers.

Dr. Ian Lee - Program Director, Carleton University

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Final Q4 home sales and 2011 home sales forecasts reveal declining sales i.e. demand for mortgage funding. 5 year Canada bond yields are not showing significant movement in Canada fluctuating around 5 basis points, although this could quickly change with a default in the Eurozone or with any policy change announcements or speeches by key players in the Eurozone or a US state default or refusal by US Congress to bailout e.g. California or Illinois or NY.

The mixed job forecasts Jan. 7 from Stats Can (quite good) and US Labour Dept (poor), ensure that once again, Governor Carney and his people will be trying to threat the needle on interest rates trying to balance the rising loonie against low interest rates that encourage further consumer indebtedness and significant weakness in US and EU economies (see latest EU forecast for 2011 Q1 - not good).

Thus, it is very unlikely that the Bank of Canada (BoC) will raise rates before late spring or early summer 2011 at the earliest.

Elisseos Iriotakis - President, Safebridge Financial

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Last week we saw some encouraging job numbers both in Canada and the U.S. This type of news would typically have one believe that interest rates should start to rise as job growth is an indication of an improving economy. My belief is that rates won't start their rise just yet, as these job numbers are not as strong as the government would have you believe.

More in the U.S. than in Canada, the reason that fewer citizens were on unemployment was not because more jobs were being created, but because fewer individuals qualified for unemployment. This to me doesn't point to an improving economy and thus will force the hand of the U.S. to keep rates where they are at, well into 2011. This in turn means that Canada won't be able to move as fast as they would like.

No real pressure to increase just yet as the economy is slowly improving but not on stable ground just yet. Increasing rates too early will only delay the economy from getting back to a reasonable growth rate where higher rates are warranted. 0% chance of the Bank of Canada raising rates at their January 18th meeting, and a 25% chance that they raise rates by 0.25% at their following meeting to be held on March 1st.

Rob Mclister - Editor, Canadian Mortgage Trends

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Fixed rate predictions hinge on bond yield predictions and unforeseen economic events make those virtually futile. All one can do is extrapolate from the trend in yields, which has been powerfully up over the last 11 weeks. Economic optimism is back and (barring any crises) that could drive yields--and hence fixed rates--even higher. If I had to lock in a fixed mortgage soon, I'd watch the 2.65% level on the 5-year yield (http://bit.ly/cSmOlD). If yields close above that number, you'll hear technical analysts calling for a 3% medium-term target on the 5-year government bond (about 1/2 point higher than today - Friday January 7, 2011).

Barring the low probability of financial crisis, the Bank of Canada (BoC) is the dominant driver of variable mortgage rates. Financial markets price in just a 14% chance of higher BoC rates through the end of February. The odds therefore suggest variable rates will remain roughly the same for the next 30-45 days.

Dan Eisner - President, True North Mortgage

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Fixed rates will fluctuate in a narrow range over the next 45 days.

Like my son in front of his X-Box, Prime is not going anywhere.