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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?

January 2015 Overall Summary

The new year is upon us, but 2014's mortgage rate pricing remains frozen at record lows. Flat bond yields mean brokers and lenders continue to offer competitively discounted options for winter home buyers and renewals, dipping as low as 2.69 per cent for five-year terms.

Meanwhile, the Bank of Canada remains firm in their "wait-and-see" approach; positive American economic gains won't prompt a rate rise north of the border as the impact of sliding energy prices acutely affects economic growth.

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Government of Canada bonds remain in high demand among investors, even as oil prices slide and the Loonie weakens. Yields remain low, giving lenders the room to cut fixed mortgage rate pricing. This affordable trend will remain in tandem with positive investor sentiment.

It has been widely expected that Canadian central rates would take their cues from American monetary policy - but the drop in oil has thrown a wrench into such forecasts. While increasingly positive U.S. economic conditions mean rates could rise there sooner than expected, the Bank of Canada will stick to status quo until oil's impact and inflationary risks have moderated.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Oil prices may have taken a dive and the Canadian dollar lost value but bond yields remain flat. So, even if growth in Alberta is near a cliff, it all balances out when Ontarians pay less at the pump. Mortgage rates aren't going anywhere in the short term.

The new, lower oil prices will reduce inflation pressures and have a negative effect on the value of our currency thus greatly reducing the likelihood that the Bank of Canada will mess with the Prime rate.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Low interest rates are finally generating a sustained (and apparently sustainable) economic recovery in the U.S. The U.S. recovery has been led by the housing market. House prices fell sharply after the bubble burst, but have now regained about 60 per cent of the fall. This is bringing much-improved consumer confidence and healthy rates of job creation. Still, it will be some time before the U.S. is at risk of excessive inflation. Moreover, the plunge in the price of oil is a strong deflationary force. We might some small rises in fixed mortgage interest rates during 2015, but any large rise is still far in the future.

The Bank of Canada and the U.S. Federal Reserve continue to signal that they will not be raising their administered rates anytime soon. Analysts had expected that rises for these administered rates might start about mid-2015. Now, the drop in oil prices might push that back until later this year, or even until 2016. Interest costs for variable rate mortgages rates should change very little during the coming year.

Dr. Ian Lee - Program Director, Carleton University

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The Bank of Canada average yield on three-to-five year bonds - from October 2014 to the present - has fluctuated in a very narrow band of approximately 1.2 per cent to 1.4 per cent. This movement does not suggest any change in fixed mortgage rates.

The world and Canada has been on a wild ride for the past two months concerning the price of oil. In my various media TV, radio and print interviews, while acknowledging the world of pain this will cause Alberta, Saskatchewan and Newfoundland and Labrador, I have consistently argued that the impact for the Canadian economy at most will be a slight negative. Why?

Because: 1. Oil and gas sector is only 8 per cent of Canadian GDP while the service sector is 75 per cent and manufacturing is around 12 per cent.

2. The negative hit to the oil and gas sector is offset by the positive benefit to consumers with significantly increased purchasing power to spend on consumption.

3. The decline of the loonie driven by the oil price decline benefits manufacturing.

4. A huge positive impact on the US economy will increase demand for our exports.

Nonetheless, the uncertainty to future oil and gas investment projects – which represent approximately 30 per cent of total annual investment in Canada – will provide justification to Governor Poloz to once again hit the "pause" button on interest rates. It seems increasingly likely that the U.S. will increase their interest rates before Canada does.

Kelvin Mangaroo - President of RateSupermarket.ca

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Government of Canada bonds remain in high remand despite the weakening Loonie. Yields have remained very low and dropped over 7% in January already, allowing brokers to continue with discounted fixed rate offerings.

Positive economic data and the unwinding of quantitative easing measures in the U.S. mean rates could rise there sooner than expected - but dropping oil prices will prevent Canadian economic policy from immediately following suit. As long as these risks to inflation and trade remain, it's expected that the Bank of Canada will stay dovish on the cost of borrowing, with no change in store for variable mortgage rates.