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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?

November 2011 Overall Summary

Variable mortgage rate discounts have dropped 45 basis points in under two months, despite no change to Bank of Canada interest rates. The disappearing act isn't over yet, says RateSupermarket.ca's Mortgage Rate Outlook Panel for November 2011.

It's expected that variable rate mortgages could increase as discounts to prime shrink even more in the short term. The Panel also believes fixed mortgage rates will stay constant, as lenders wait for the fluctuating bond market to settle down.

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The financial issues across the ocean are affecting Canadian bond yields like a tidal wave. Indecision in Greece and throughout Europe is causing people to flock to the safety of Canadian bonds, driving yields down. We've seen yields fluctuate by over 50bps in just under a month or so.

With all this action, our Mortgage Rate Outlook Panel members believe the banks are likely to employ a 'sit and wait' approach, meaning fixed mortgage rates are expected to stay constant in the short term.

The Bank of Canada made no change to interest rates when they met last week. This is expected to be the norm well into the New Year as the likelihood of a double- dip recession continues - meaning that bank Prime rates won't change. However, our panel members can't say the say the same about variable mortgage rate discounts to Prime.

The likes of rates at Prime - .75% have almost disappeared in just under 2 months. This trend will continue as banks aim for greater profitability. The Panel believes Canadians can expect variable mortgage rates to inch up in the short term.

This Month's Panelists

Mark Kocaurek - Senior Vice President, ING DIRECT

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Bond yields continue to see considerable volatility as a result of the European sovereign debt crisis. For example the 5 year Government of Canada bond yield has ranged by 50bps over the past month or so. Recent developments in Greece seem to have pushed the issue to the brink and likely only foreshadow continued volatility. I believe that fixed term mortgage rates are likely to remain unchanged despite movements in bond yields as lenders wait out this period of uncertainty.

The Bank of Canada is clearly on hold for the foreseeable future and is unlikely to move its target overnight rate. As a result the Prime rate is unlikely to change. With regard to the discount or premium to Prime that Lenders offer on their variable rate mortgages I believe that the market has found its equilibrium and we are unlikely to see changes here. Net result, no change to variable rate mortgage rates.

Dr. Ian Lee - Program Director, Carleton University

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Fixed term bond yields have been declining in last week due to turmoil in Europe and especially in last few days with the announcement of a Greek referendum. The economy is slowing in Europe - see the PMI data - and the uncertainty is being transmitted to the US. It is time to fasten seatbelts.

Europe is sliding into recession according to the latest EU PMI data. There is heightened uncertainty, increasing skepticism about the deal agreed to the week before and into all of this rode the Greek Prime Minister shouting "power to the people" on Halloween night. It was either a trick (to save his political skin) or he was seeking more treats. Does not matter. No central bank is going to raise interest rates in the face of the European quagmire. Indeed, it is looking more and more likely that we are entering a double dip in Europe and US and no one will be raising rates in this scenario.

Dan Eisner - President, True North Mortgage

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Greece is the birth place of democracy so it wasn;t a surprise when they wanted to hold a vote on the bailout package. Given the indecision, Banks will take a wait and see approach before changing fixed rates.

We have seen the discounts off of prime almost disappear over the last 2 months. This trend will continue as spreads shrink and banks fear of each other grows. Which bank is the most exposed to Greek debt is anyone's guess.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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Greece's troubles continue to disrupt global markets and that uncertainty is spilling over to the Canadian bond market as yields drifted lower in October. I believe mortgage lenders are going to hold off changing fixed mortgage rates until the markets settle down, and they will remain unchanged in the short term.

The Bank of Canada left their key interest rate unchanged last week, and it's expected to remain at its current level for months to come. As a result, bank prime rates shouldn't change either. However, mortgage lenders have been decreasing the discounts offered to prime on variable mortgage rates, driving them higher. Many lenders are now offering ARM's at Prime to accommodate squeezed margins.

There are deals to be had on variable mortgage rates still at Prime - 0.50% (2.50%), but I expect these won't be around for too much longer, and variable mortgage rates will probably increase slightly from their current levels.

Elisseos Iriotakis - President, Safebridge Financial

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With so much uncertainty in the world markets, a flock to safety continues to be the name of the game. With bond yields testing the lows of mid September, an increase in fixed rates is not a sure thing over the next month or so. Instead, we may see a slight down tick.

Although the Bank of Canada will not be increasing their overnight lending rate anytime soon (thus no prime increase), unfortunately we may see a continued increase in variable rates above the Prime rate. It appears we are going through a similar economic situation we witnessed in the credit crunch of 2008, when banks were forced to increase their variable rates to the Prime + 1.00% territory. History tends to repeat itself which means we will likely see the Prime - 0.75% products again, however this will take 12 months to play out.