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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?

July 2012 Overall Summary

Canadian Government bonds continue to attract investors in the face of European crisis - and fixed mortgage rates could take another dip as a result of consistently lower yields. With some experts confident that the Bank of Canada will hold interest rates well into next year, and as consumer interest dwindles, it appears as though variable rates will be staying put for now.

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As investor confidence continues to grow in Canada's economy in contrast to European and U.S. stalled growth, our Mortgage Rate Outlook Panel members believe this will be reflected by continuously low Government of Canada bond yields. In addition to this market dynamic, changes to Canadian mortgage rules could prompt some lenders to push for volume while continuing their aggressive stance on rates. Both factors are expected to slightly decrease fixed mortgage rates in the short term.

Our panelists doubt that a Bank of Canada rate change is due any time soon, as optimism for a stronger Canadian economy, along with the awaited effects of mortgage underwriting changes, may mean rates will stay static until 2013. Time will tell as the next rate announcement is scheduled for July 17.

This Month's Panelists

Mark Kocaurek - Senior Vice President, ING DIRECT

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Bond yields have continued to drift lower as markets come to terms with the fallout to global economic growth from the ongoing crisis in Europe. As a result fixed rate mortgage spreads have widened and offered some room for movement downwards. In addition, the recent changes to the underwriting rules for high ratio mortgages may spur some lenders into action in order to capture volume if they feel that these rule changes may limit future market growth.

The Bank of Canada is unlikely to change its overnight rate anytime soon given the headwinds to Canadian economic growth and will therefore not prompt any changes to variable mortgage rates. However, given the competition for mortgages I believe that there may be some modest movement down on variable mortgage rates.

Dr. Ian Lee - Program Director, Carleton University

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Canada looks better and better with each passing month - relative to the US and Europe. In the words of Bill Gross of PIMCO, "we have a cleaner dirty shirt". Thus, some investors are buying up Canada bonds, pushing up the price of bonds which pushes down the bond yields. This market dynamic is continuing in light of the continued deterioration of Greece, Spain and Italy and the continued refusal of Germany to bail them out with Eurobonds.

It is now clear that the Bank of Canada will not change its rate before 2013 given the ongoing weakness in the US economy and the Feds' commitment to keep rates at present levels until 2014, and the continued decline in the European economies, which goes from bad to worse to "badder and worser".

Dan Eisner - President, True North Mortgage

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Bond yields have been trading in a tight range and thus we don't expect any major rate movements in either direction.

Banks and Canadians in general do not seem interested in variable rate options. As a result, we don't foresee any changes to the variable rates.

Wayne Spinney - Mortgage Agent, Centum Mortgage Professionals

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The 5 year Canada Government Bond yield has been decreasing over the last couple of months which could signal a decrease in rates. However, early in the month the new mortgage rules for CMHC insured mortgages came into play. These rules are expected to cool the market enough to take the urgency off of a rate increase. Bond yields are hinting at a decrease and lenders could decide to drop rates ever so slightly to assist with approval rates which have been compromised with the stricter new rules.

The Bank of Canada is meeting on July 17th to discuss any possible changes to the overnight lending rate. Experts have predicted that the overnight lending rate (and therefore prime lending rate) will not increase over the summer months and that sentiment hasn't really changed. Especially since The U.S. Federal Reserve has indicated that it will keep their rates around the 0 per cent level until Q4 (July - September); it would not be wise for Canada to jump the gun on increasing rates without the U.S. paving the way. Raising rates too soon would negatively impact many industries across Canada and not just the housing market since an increase in rates would cause an unfavourable change to the exchange rate.