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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?

October 2013 Overall Summary

Fixed mortgage rates are in a for a slight dip, as investors once again favour government of Canada bonds as safe haven investments amid U.S. debt uncertainty. Canadian economic growth factors remain below par, and will fail to prompt any change to monetary policy or interest rates in the near future.

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Government of Canada bond yields have moderated slightly over the short term, as uncertainty lingers over the American debt ceiling, driving investors to safe haven investments. This will prompt lenders to conservatively lower their fixed mortgage rate offerings.

Economic growth engines such as exports and business investment continue to stall, failing to fill the gap left by diminished consumer spending. The Bank of Canada has stated that a cut to the previous growth forecast may be warranted for 2013. Current interest rates will not be altered until these factors reach their growth benchmarks in the new year, and there will be no change announced in the next rate announcement on October 23.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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The U.S. Fed surprised the market by not announcing a reduction in their bond buying last week as anticipated by many bond traders the world over. This had the intended effect of lowering long term bond yields in the U.S., followed by a corollary effect in Canada. Although the effect was somewhat muted in Canada we will still see some lowering of long term mortgage rates in the upcoming weeks.

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.

Ron Butler - Mortgage Broker at Verico Butler Mortgage

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Bond yields reversed their rise based on the U.S. Federal Reserve's decision that the tapering in Quantitative Easing would not begin this in October. Although yields are down they are nowhere near the 118 per cent five-year record low five-year yield that created this summer's historic low rates. I adhere to the best quote I heard last week about Quantitative Easing: "it is not a matter of will it end, this is only a question of when it will end". The bond market has already priced in the fact that Quantitative Easing will end so I don't expect anything but a levelling off of fixed mortgage rates with the possibility of a tiny short term drop.

The new Bank of Canada's Governor's position is slightly confusing based on his recent "spaghetti sauce ocean" metaphor but all major Canadian economist's outlook has stayed the same: with inflation way below the bank's target and economic performance remaining sluggish at best there is zero chance of a prime rate change for the balance of this year.

Kelvin Mangaroo - President of RateSupermarket.ca

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While investors shed their bonds amid U.S. tapering uncertainty, the trend saw a reversal when the Fed announced no change to quantitative easing for the month of September. Increasing instability due to the U.S. government shutdown and potential debt ceiling are making safe haven government treasuries all the more attractive to investors. Already, both American and Canadian bond yields have experienced a moderate decline, and lenders may follow suit with fixed mortgage rates as uncertainty persists for our American neighbours.

While consumer confidence is rising, inflation and GDP levels remain stagnant, and below the benchmarks required for policy makers to change their stimulus tactics. Contribution from our export industry will also suffer as uncertainty persists in the U.S., Canada's largest trading partner. Given these factors, the Bank of Canada will be in no place to change the Overnight Lending Rate on the October 23.

Dr. Ian Lee - Program Director, Carleton University

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The remarkable turmoil in Washington DC produced by the ongoing stalemate, gridlock and dysfunction between the U.S. House of Representatives (or more accurately the 60 Tea Party conservatives of the GOP in the House) and President Obama culminating in the shutdown of the U.S. Government on Sept 30, has generated a very significant increase in uncertainty and widely anticipated slowing of economic growth. Moreover, analysts understand that the current impasse is merely a warm-up for the debate in less than three weeks' time concerning the increase in the U.S. Government debt ceiling. Failure to increase the debt ceiling will result in default by the U.S. Government. These events in conjunction with less than robust growth have placed downward pressure on the yield on three - five-year Canada bonds, which in turn suggests modest reductions in fixed mortgage rates.

One of several unintended consequences of the U.S. Government shutdown is the increasingly likely postponement of tapering or the ratcheting down of QE. Indeed, Bill Gross in his latest newsletter from PIMCO suggested the Fed will keep rates at their present level until 2016. Indeed, he noted that the "125 basis point increase in a 30-year mortgage in the last six to 12 months seems to have stopped housing starts and importantly mortgage refinancings in [their] tracks". It is for these reasons there will be no increase in the central bank rate in the near future in U.S. or Canada.