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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?

September 2013 Overall Summary

Bond yields, the main driver of fixed mortgage rates, remained high throughout the month of August and are expected to do so throughout September, as investors react to a potential withdrawal of U.S. economic stimulus. As long as yields continue to hit new highs, lenders will respond with a hike to their fixed rate offerings. Variable rates are to remain unchanged as Canadian economic growth remains below the benchmarks required to raise interest rates.

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Global bond investors continue to react negatively to the possibility of a quantitative easing scale back in the U.S. This has impacted Canadian bond yields in turn, which hit new highs in the month of August, and are not anticipated to moderate in the short term. This will prompt lenders to increase the price of their fixed mortgage rates.

Canadian economic growth remains slow, and inflation is not expected to hit the two per cent growth benchmark until 2014. It is not anticipated that the Bank of Canada will manipulate the current Overnight Lending Rate from one per cent, where it has remained since September 2010.

This Month's Panelists

Ron Butler - Mortgage Broker at Verico Butler Mortgage

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Climbing U.S. bond yields continue to crush the Canadian bond market as five-year yields have soared from a low this year of 114 to hitting over 200 last week before backing off into the 194 – 198 range. Lenders have increased rates in a rush to keep up and while I have no perfect insight into next month's bond yields, I am more worried than positive. Since the 200 point mark has already been pierced it opens the door to 210 – 220. I am worried we will see still higher rates in September.

Variable rate mortgages look like a better and better option as the Bank of Canada's position has not changed at all and there would appear to be virtually no chance of an increase in Prime Rate until late 2014.

Kelvin Mangaroo - President of RateSupermarket.ca

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U.S. policymakers have renewed speculation that scaling back quantitative easing and increasing interest rates will occur in the short term. The news has prompted higher borrowing costs worldwide as investors drop their North American bonds, pushing both U.S. and Canadian yields to new highs. Lenders will respond to the increase with a boost to their fixed rate offerings

Unlike our American neighbours, Canadian economic growth underwhelmed with only 1.7 per cent growth in Q2, and it's not likely that our Bank will choose to scale back our stimulus efforts in the September 4th announcement. Both the Overnight Lending Rate and variable mortgage rates will remain unchanged for the time being.

Mary Zenar - Managing Director of Zenar Financial

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As long as unease lingers among global bond investors, yields and fixed mortgage rates will continue to rise. A main source of doubt stems from the U.S. Fed's comments about their bond buying program - though there's been consistent assurances that any changes will be moderate and in-line with economic growth, global investors fear an increased cost of borrowing, and are reacting as such.

Variable mortgage rates will remain unchanged this month - there hasn't been enough growth to warrant a change in course for Canada's economic policy, and economic benchmarks aren't expected to be achieved until 2014.

Dan Eisner - President, True North Mortgage

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Bond yields have been bouncing around the last few days but lack any direction. Thus, the recent rate increases we have seen in the mortgage market will remain until we have some better direction to bond yields.

Given the recent fixed rate increases in the mortgage market, variable rates are growing in popularity among Canadians. However, 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 near future.

Dr. Ian Lee - Program Director, Carleton University

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Since the Fed announced earlier this summer it was considering ending QE bond buying, U.S. Treasury bonds have increased over 100 basis points in anticipation of this day. In addition, the U.S. economy is now growing quite nicely, putting additional upward pressure on rates. Indeed, rates have increased in the last 30 days at a faster pace than in recent times. As the U.S. economy continues to grow, these trends will continue which will continue to push fixed rates up.

There is a consensus amongst market watchers that the economy is too anemic with GDP growth below two per cent to warrant or justify an increase. We will likely see an announcement of QE tapering by the Federal Reserve before we see an increase in rates in either the U.S. or Canada.