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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?

September 2011 Overall Summary

The common theme to this month's Mortgage Rate Outlook is higher margins. Variable mortgage rates increased last month and Scotiabank is the first of the Big 6 to slightly reduce their fixed mortgage rates despite a huge drop in bond yields and spreads being near their historical highs.

The explanation from lenders thus far is that ultra low rates have resulted in unsustainable profitability and they are happy with increased margins. As a result, our Panel believes that fixed and variable mortgage rates will remain near their current levels in the short term.

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Many non-Big 6 mortgage lenders dropped their fixed mortgage rates over the past few weeks, while the major banks held steady and are padding their margins versus pushing further into the rate war and going for market share.

Scotiabank dropped some fixed mortgage rates slightly, but spreads to bond yields remain near their historical highs.

Our Panel believes fixed mortgage rates will not change significantly in the next few weeks.

Variable mortgage rates increased last month as lenders reduced their discounts to Prime citing unsustainable margins. This move comes as the Bank of Canada held interest rates unchanged and this is expected to continue for the rest of the year.

Our Panel expects variable mortgage rates will be unchanged in the short term.

This Month's Panelists

George Hugh - President, Taurus Mortgage Capital

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Unemployment is one economic indicator that pretty well sums up how the economy is performing. As it gets worst, it scares the day lights out of people. With all the job creation issues being witnessed, there is no reason to think that rates will not continue to have a bias to the downside. With fixed rates already at all time lows, can they go even lower? The answer is YES. I would expect to see lower fixed rates over the short term.

Variable rate mortgages have been an attractive product for Canadians over the past 10 years. Those who had them have lowered their mortgage balances when compared to fixed rate borrowers. Could it be that the latest moves in the spread to prime were triggered slightly by a potential cut in the prime rate later on in the year? Expect rates to remain where they are over the short term.

Dr. Ian Lee - Program Director, Carleton University

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The continued deterioration in the Eurozone and in EU banks and the German economy coming to a stop, is remarkable and should deeply worry many people. Can bond rates go lower? Can this unprecedented situation that borders on the absurd continue? Will owners of capital start to pay bond issuers to accept their cash in exchange for a bond? Surely we have hit a floor with no further declines in bond rates or fixed mortgage rates?

The continued deterioration in consumer and business confidence in the US as a consequence of the failures of the US economy to grow and create jobs in conjunction with the continued deterioration of all things Europe - fiscal and monetary and economic growth - virtually assures and ensures there will be no further BoC rate increases for 2011 or probably at least the first half of 2012.

Dan Eisner - President, True North Mortgage

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Rates have dipped lower in the last few weeks as a result of the poor economic news coming from the US and the Euro Zone. Unless we actually dip into a second recession we will see rates gradually creep up in the coming months.

Variable rate discounts bounced up in the last few days. We will likely see these higher variable rates hang around until October when several banks start their new fiscal year. A new fiscal year brings with it new targets and hungrier banks. Variable rate discounts bounced up in the last few days. We will likely see these higher variable rates hang around until October when several banks start their new fiscal year. A new fiscal year brings with it new targets and hungrier banks.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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The fixed mortgage rates market has broken into two separate camps in the past few weeks. On one side are the non-big 6 mortgage lenders that have dropped fixed mortgage rates in line with the plunge in government bond yields.

On the other side, there are the big 6 bank lenders that have been holding off on lowering their fixed mortgage rates and are padding margins. Scotiabank was the first one to move, but this should have happened weeks ago. I expect fixed rates to remain at current levels in the short term.

Mortgage lenders reduced the discounts to Prime on variable mortgage rates, increasing variable rates, again to increase their margins. Many lenders cited that margins were unsustainable at previous levels, and I believe they'll stay this way over the next few weeks.

Mark Kocaurek - Senior Vice President, ING DIRECT

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Bond yields declined dramatically over the last month or so in reaction to the ongoing troubles in Europe and worse than expected recent global economic performance. I believe that yields have found their new range for the foreseeable future. Fixed term mortgage rates have followed bond yields lower but, generally speaking, not fully and as a result mortgage spreads to bond yields are at the high end of the longer historical range. Although spreads are at the wider end of the range I believe that fixed rates will remain more or less unchanged in the short term as lenders remain cautious over the uncertain economic climate.

Most lenders recently decreased their discount to Prime (i.e. increased their variable rates) primarily to increase their margins. Margins on variable rate mortgages were at unsustainably low levels. Although margins are now wider on variable rate mortgages they are still at low levels. Having said that I don't believe lenders will alter their discount to Prime further over the short term. In terms of the Bank of Canada and its overnight rate I believe that they are on hold for a while.