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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?

February 2012 Overall Summary

Who knows what's in store for mortgage rates anymore?! Recent fluctuations in variable and fixed mortgage rates have left the average consumer confused about the future direction of home loans.

At the end of last year banks reduced their discounts on variable rate mortgages due to tightening margins and then recently dropped fixed mortgage rates to record lows to kick off 2012 and develop their sales pipelines for the year.

The good news is that February should be less volatile, with our panel members anticipating that both fixed and variable mortgage rates will remain level.

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The big banks recently dropped fixed rates for 4 and 5 year term mortgages to record lows, causing a frenzy in the market. Although the hyper competition to lock down market share early in the year has started to cool, spreads between bond yields and current fixed rates still remains attractive (technically lenders have room to drop fixed rates even more!). However, the banks are likely to practice caution given the continued uncertainty in the global economy and the escalating political and media pressure about low rates fuelling a housing bubble.

As a result, our panel members think fixed mortgage rates will remain unchanged in the short term.

The next Bank of Canada rate announcement will take place on March 8, 2012. At which time most experts believe the Finance Minister will continue the trend of maintaining the current interest rate. Leaving variable mortgage rates unchanged.

Given the Fed's recent announcement that it will keep US interest rates low into 2014, coupled with very weak recent Canadian economic data, our Panel members think any alternative action from the Bank of Canada is unlikely.

This Month's Panelists

Mark Kocaurek - Senior Vice President, ING DIRECT

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We recently saw some aggressive pricing from some of the big banks particularly in the 4 and 5 year terms. They seem to have backed off somewhat in recent days. Bond yields have remained virtually unchanged over the last few weeks and look to remain where they are for the foreseeable future. I believe fixed term mortgage rates are likely to remain unchanged over the short term. Even though spreads are relatively attractive from a historical perspective I believe that lenders will be cautious regarding pricing considering the escalating political and media pressure about low rates fueling a housing bubble.

The Fed's recent announcement that it will keep US rates low into 2014 coupled with very weak recent Canadian economic data will keep the Bank of Canada on hold with regard to its overnight rate for the foreseeable future. As a result, the Prime rate will not change and therefore variable mortgage rates will not change either.

Dr. Ian Lee - Program Director, Carleton University

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At the present, we are in a state of suspended animation. This week on CBC Power and Politics, in an interview from Israel, Finance Minister Flaherty said that the budget date "has not yet been set" as they are waiting and watching what is going on in Europe (i.e. negotiations concerning Greek write downs to determine if it will be disorderly or orderly) and as a consequence, whether there will be knock on effects on the American banking system.

While the US economy is showing some signs of life, European PMI is not looking good (except for in Germany) and Canadian GDP tipped negative. On top of this is the continued barrage of negativity concerning the Canadian real estate values (Kevin O'Leary insists condos are overvalued by 20%) and the continued concern over Canadian household indebtedness - notwithstanding that household balance sheets show aggregate gross assets of around $7.5 Trillion less the $1.5 Trillion in debt leaves a healthy household net worth of around $6 Trillion or about $180K per household in net worth (Stats Can).

Fixed rates are already unbelievably low; I was a mortgage manager in the early 1980s when mortgage interest rates hit 20%, so surely they cannot go lower?!

By the way, I would not be shocked if Flaherty nudges up the minimum down payment to 7% in the 2012 budget. I will be in the 2012 Budget Lockup (as I have been for the last 4 years). If you hear hooting and hollering, it will be me, responding to a modest increase in the down payment.

The Federal Reserve announced a new commitment to keep rates low into 2014 or was it 2024? It just seems forever. This is constraining Gov Carney in what Al Gore would call a "lock box" as he can hardly be increasing rates now or any time soon given the Fed commitment. In Dr. Bernanke's words at his November 2011 post-FOMC news briefing, "we are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people" - savers, pension funds, insurance companies and finance-based institutions among them. He countered though that "there is a greater good here, which is the health and recovery of the U.S. economy, and for that purpose we've been keeping monetary policy conditions accommodative."

In the wise word of Bill Gross, PIMCO: A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets - bonds, stocks, real estate and commodities alike - is now deleveraging because of excessive "risk" and the "price" of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time.

Dan Eisner - President, True North Mortgage

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Now that a lot of the hyper competition between the big banks over the last few weeks has died down, the banks will retreat to more sustainable fixed mortgage rates.

We won't see any significant moves until the current European financial turmoil plays out over the coming months or perhaps years.

Elisseos Iriotakis - President, Safebridge Financial

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I see lenders over the next 3 or 4 weeks becoming aggressive with pricing on the 4 and 5 year fixed terms, since the spring real estate market is just around the corner and lenders are looking to lock down their market share.

If the Canadian Dollar continues to gain strength and the next GDP report shows a decline, similar to the November results which were just reported, then it will force the Bank of Canada to consider lowering rates even though they really do not want to. I don't see this happening for a few months yet, but something we will keep our eye on.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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Canada's big banks aggressively went after market share in January 2012 and dropped 4 and 5 year fixed mortgage rates to all time lows. Some of these rate specials have ended and the others will most likely disappear very soon in February 2012. Bond yields also remain very low and unless the Greek crisis gets resolved, they will most likely stay that way. As a result, I believe fixed mortgage rates will remain near their current levels this month.

The Bank of Canada is not expected to change rates anytime soon, so they will not affect variable mortgage rates. For the most part the discounts to the Prime rate have been hovering between Prime - 0.20% to Prime + 0.10% or 2.80% to 3.10%, and it doesn't look like the we'll be returning to the days of Prime - 0.90% anytime soon unfortuantely.

I believe variable rates will remain steady in February 2012.

George Hugh - President, Taurus Mortgage Capital

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Though the Bank of Canada and Fed Reserve in the United States have been vocal about keeping interest rates low for the foreseeable future, we have been seeing other factors popping up that also have an influence on mortgage pricing ex. CMHC announcement that they are approaching mortgage default insurance limits. It is my guess that banks are finally thinking about increasing mortgage rates to compensate for the inherent risks that the global markets have been creating. What people have to realize is that the overnight rate isn't the only factor that influences mortgage rates. Might not happen over the next 30 to 45 days but it will.

Expect VRM pricing to stay in close proximity to Prime (3.00%). VRM pricing will remain unchanged over the next 30 to 45 days.