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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?

August 2013 Overall Summary

Changes made to the Canadian mortgage market early in the month may make it more challenging for borrowers to qualify for a mortgage, and are expected to increase fixed rates. CMHC's new limitations to lender mortgage guarantees will present new mortgage funding challenges, prompting lenders to respond with a rate hike in the near future. Variable mortgage rates will remain unchanged as the Bank of Canada is expected to maintain the current Overnight Lending Rate at one per cent well into 2014 due to slow economic growth.

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Recent changes introduced by the CMHC limit the amount of guaranteed mortgage securities to lenders, and it is anticipated that they will raise their fixed rate offerings by up to 0.5 per cent to cover their increased mortgage funding costs. While fears regarding the U.S. bond buying program have somewhat diminished, government bond yields remain high as investors remain shy of interest sensitive investments.

The Bank of Canada did not raise the Overnight Lending Rate in the last announcement, and is not anticipated to in the next as economic growth factors remain below the two per cent benchmark for inflation.

This Month's Panelists

Ron Butler - Mortgage Broker at Verico Butler Mortgage

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The quieted activity in the bond market in response to U.S. Fed Chairman's congressional testimony would make me think there will be little to no change in mortgage rates for the rest of the summer. [In response to recent CMHC restrictions to mortgage guarantees], there will still likely be no change in rates. It will take close to a month for all the parties involved to feel their way around the new rules; this is not something all the lenders are used to like bond rate increases. This will take time - one lender will have to decide to jump first.

The word from the new Bank of Canada Governor hammered home the fact that Prime Rate in Canada will stay the same until late 2014 unless a major world
economic event occurs.

Dan Eisner - President, True North Mortgage

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The recent move by CMHC to cap mortgage-backed securities sold by banks will drive up the "cost of funds" faced by many banks. This will likely drive mortgage rates up by 0.2 per cent or more. Also, given the oddities of the securitization of mortgages in Canada, we may see these rate increases only affect conventional mortgages as opposed to high-ratio mortgages. On a personal note, I find it odd how concerned our government is regarding the amount of bank liability CMHC has taken on as of late, when, just in March, the government announced that they plan on being the backstop to any major Canadian bank failure.

We will have to see a sustained recovery in the U.S. economic situation before we start seeing the Banks change their variable rates. As a result, we don't foresee any changes to the variable rates in the next while.

Dr. Ian Lee - Program Director, Carleton University

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In light of the announcement Aug. 6, 2013 by CMHC restricting the amount of CMHC guarantees under NHA MBS program, this will probably force through an increase in borrowing costs to the banks. The banks will most likely pass on these costs via an increase in fixed mortgage rates of 0.25 per cent to 0.5 per cent.

Since 2008, it is widely recognized by finance professors, policy analysts and think tanks that the watering down of the mortgage rules was a very serious error. Consequently, in Canada, Flaherty has announced four rounds of tightening of the mortgage underwriting rules to reduce systemic risk and to simultaneously cool down the housing economy and growing consumer indebtedness. However, the most recent housing data suggested that the changes thus far, have been inadequate in cooling down demand sufficiently.

As noted two weeks ago, Bank of Canada Governor Poloz is not going to end his honeymoon with an increase in the bank rate, as it is unwarranted. A central bank rate increase is most unlikely before 2014 as the Canadian and U.S. economies are still soft as the pathetic 1.7 per cent US GDP growth rate announced today demonstrated and as the Washington Post wonk blog noted, if the last nine months growth rate is calculated on an annualized basis, GDP growth is less than one per cent.

Mary Zenar - Managing Director of Zenar Financial

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Bond yields remain high in the wake of last month's investor exodus, though recent efforts from the U.S. Fed to ease quantitative easing fears may have calmed investors from taking further action. However, a recent CMHC cap on lender guarantees may lead to a new spike in fixed mortgage rates due to fewer securitized bonds. While lenders have yet to make the first move, some experts are calling for a minimum 15 basis point increase.

There is no change for variable mortgage rates on the horizon, as economic growth remains stagnant with inflation falling short of the two per cent growth benchmark. As a result, the Bank of Canada is expected to maintain the Overnight Lending Rate at one per cent until 2014.

Kelvin Mangaroo - President of RateSupermarket.ca

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Canadian fixed mortgage rates are being subjected to a number of external factors such as continued uncertainty around the U.S. Fed's bond buying program and, more recently, CMHC-imposed limitations to mortgage guarantees for lenders. As a result, banks are facing increased mortgage funding challenges, and will increase their fixed rates to cover these additional costs.

Canadian economic factors, such as the unemployment rate and inflation, remain below growth benchmarks. No change was announced in the Bank of Canada's interest rate or Monetary Policy statement last month, as policy makers take a dovish approach to Canadian economic stimulus.