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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 2011 Overall Summary

The recent volatility in the stock markets along with growing concern about the ability for the US and European economies to recover will keep mortgage rates in Canada low in the short term.

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The benchmark Government bond yield dropped over 40% in the last month, resulting in five year fixed mortgage rates hitting an all time low in August. Couple this with the fact that all major banks have not yet decreased their fixed mortgage rates and the Panel believes that fixed rates will head even lower before summer's end.

After the most recent Bank of Canada rate announcement, the guessing game started on when, not if, the federal bank will start increasing interest rates to "normal levels" this year. The past few weeks have changed this thinking and many believe that the Bank's hands are tied, and now expect a delay in raising rates until 2012.

As variable mortgage rates typically follow the Bank of Canada's key interest rate, in normal times it would be expected that variable rates would also remain unchanged. Our Panel believes that this is true in the short term, however, they note that mortgage lender`s profitability on variable rates are low, putting upward pricing pressure on variable rate mortgages in the longer term.

This Month's Panelists

George Hugh - President, Taurus Mortgage Capital

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It really is quite amazing on how interest rate forecasts change from month to month. With all the US debt problems coupled with a fragile European market, we are likely to experience low interest rates for the indefinite future. Lenders are looking for fixed rate mortgages, so we are likely to see lower fixed rates to try and entice borrowers to go fixed over variable. I would expect to see lower fixed rates over the short term.

Variable rate pricing movements are often influenced by liquidity challenges experienced in the markets. The latest US concerns have not resulted in any liquidity concerns. That said, profitability on variable rate mortgages remain low so we could potentially see a bias towards increasing rates over time. Expect rates to remain where they are over the short term.

Dr. Ian Lee - Program Director, Carleton University

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GDP forecasts for Q3 are being revised downward due to the profound economic problems in both the US and EU. It is likely that the unemployment rate will start to climb, consumer and business confidence will start to decline and the housing market will lose whatever steam it presently possesses, as buyers pull back due to increasing uncertainties and an increasingly bleak outlook.

In light of the increasing threat of a double dip recession in both Europe and the US, it is increasingly unlikely that that the Bank of Canada can increase rates as originally planned. Even if there is no double dip, both EU and America are very sick with debt to GDP approaching 100% and no consensus on either side of the Atlantic on how to address the collapse of economic growth or the escalating debt.

Dan Eisner - President, True North Mortgage

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We are living in very turbulent times. All this uncertainty is moving money out of the market and into bonds. As a result bond yields have fallen to very near all time lows and thus I predict fixed mortgage rates will fall dramatically as well. So, maybe stock portfolios are down but so are mortgage rates.

The recent financial turbulence will likely put a hiatuses on any plans by the Bank of Canada to raise Prime.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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The world went mad earlier this month and it's unbelievable how quickly things can change. With the drama in the US unfolding and continued problems in Europe, Canadian government bond yields headed into uncharted territories and the lowest levels we've seen in years. As these bond yields mainly influence fixed mortgage rates, we saw a big drop in fixed mortgage rates where they're likely to linger for awhile. Couple this with mortgage lenders increasing appetite for fixed mortgages and it will be a very competitive market in the short term and I expect rates to stay at their current levels or even head lower.

With the recent stock market volatility, industry talk shifted very quickly from "When is the Bank of Canada going to increase interest rates?" to "Do you think the Bank of Canada will now need to increase interest rates again?". I don't think we're at that point yet, but the likelihood of the Bank of Canada making a move in 2011 has decreased, so you can expect variable mortgage rates to remain unchanged in the short term.

Mark Kocaurek - Senior Vice President, ING DIRECT

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Longer term bond yields have declined dramatically over the last few weeks primarily in response to the continuing debt crisis in Europe and the US but also over worries that the global economy faces at best an extended period of anemic growth or worse another recession. Fixed term mortgage rates haven't fully followed bond yields as of yet. I believe that as markets stabilize and bond yields settle into their new lower trading range fixed term mortgage rates are likely to decline in the near term.

Although the Canadian economy appears to be in the midst of a slow patch and the outlook for near term economic prospects look modest at best I don't believe that the Bank of Canada will lower it's overnight rate in the near term and as a result I don't see variable mortgage rates changing.