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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?

October 2011 Overall Summary

Mortgage lenders are trying to shift clients from variable to fixed mortgage rates as low bond yields provide them with room to maneuver and additional discounts.

The European financial crisis is affecting us at home - lenders have already increased variable rates. However, our Panel Members foresee no additional change to variable mortgage rates, but they do think fixed rates will head lower.

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In an effort to try and put longer term assets on their books, lenders are enticing consumers with lower and lower fixed mortgage rates. Bond yields remain low providing them with ample room to pass on the discounts. Our Panel believes the short term fixed mortgage rate trend is down.

"Nein to Greece" is what one Panel member believes Europe will decide; putting them into default as the outlook worsens for the financial crisis across the Atlantic. This result would greatly affect all global economies and is already starting to have an impact. Overnight cash shortages have affected Canadian lenders thus leading to higher variable mortgage rates as lenders reduce their discounts to Prime.

Our Panel believes that in an effort to shift consumers away from variable rates, lenders will keep them stable over the short term with a bias towards increasing them closer and closer to Prime.

This Month's Panelists

George Hugh - President, Taurus Mortgage Capital

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The consumer preference for variable rate mortgages has been a contributing factor to the lower fixed rates that are being offered. In an effort to try and put longer term assets on their books, the banks have been enticing consumers with lower and lower fixed rates. Low fixed rates are here to stay with a bias to the down side.

As the interest rate differential between fixed and variable rates narrow, the decision on what to choose becomes that much more difficult. The decision really comes down to the preference of individual home owners. In an effort to try and shift consumer behaviour away from variable, variable rates will likely remain stable over the short term with a bias towards increasing closer and closer to Prime flat!

Dr. Ian Lee - Program Director, Carleton University

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As Ambrose Evans-Pritchard said last week, Germany has repeatedly said:

  • No to full European fiscal union
  • No to Eurobonds
  • No to increasing EU bailout fund
  • No to common debt pool
  • No to EU Treasury
  • No to fiscal transfers in perpetuity to European south
  • No to stability union or European monetary union

It seems clear to me:

  • That means NEIN to Greece
  • That means Greece default
  • That means eurozone banking crisis
  • That means RECESSION in US and EU

The situation in Europe goes from bad to worse to "worser" with growth stalled, uncertainty increasing and cost of insuring bank debt ratcheting up. Latest Bloomberg Global Survey of Investors revealed that 1/3 believes a global meltdown will occur and 70% believe a European recession is inevitable.

Meanwhile ECRI, forecast last week that the US is going into recession. It is inconceivable that the Bank of Canada will be increasing interest rates any time soon.

Dan Eisner - President, True North Mortgage

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Banks want to sell more fixed rate mortgages and will lower rates to encourage the process. Bond yields remain low (as does the return on my stock portfolio) and thus give the banks a lot of room to discount rates.

The financial crisis in Europe will continue to grab headlines around the world which has and will continue to result in a slow motion bank rush in Europe. This has lead to overnight cash shortages that have even affected Canadian lenders thus leading to the lowering of discounts off of prime.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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1 and 2 year fixed mortgage rates are now on par with variable mortgage rates at approximately 2.50%. The fixed versus variable debate is moving even more to the consumer's choice as the gap has narrowed.

With bond yields roughly where they are versus last month, and lender's looking to drive more fixed rate business, I expect fixed mortgage rates to stay where they are or move lower.

Variable rates have become less profitable for lenders and the international economic situation has not improved in the past month. Despite the fact that the Bank of Canada is not expected to increase their key lending rate for the foreseeable future, you can expect variable mortgage rates to increase before they come down.

Mark Kocaurek - Senior Vice President, ING DIRECT

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Fixed term bond yields have been quite volatile over the past few weeks primarily in response to the ongoing European sovereign debt saga. Despite the volatility yields have remained within a 5bps to 20bps range. I believe that yields will remain low for quite some time. However, I believe that fixed term rates are more likely to rise in the near term primarily driven by the banks and their desire to improve margins.

Banks have substantially decreased their discount to Prime (increased overall rates) for their variable rate mortgages over the last few weeks. These changes came about in an effort to improve margins. Variable rate margins had reached unsustainable lows. I believe that there is likely to be some continuation of this trend over the near term. The Bank of Canada is likely on hold for the foreseeable future and as a result Prime is unlikely to change over the near term.