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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?

November 2016 Overall Summary

Following October's Monetary Policy Report which saw a downward revision to Canada's economic forecast, economists will now be watching for the outcome of two distinct events this month – one that will impact mortgages directly and the other indirectly. November is the first full month that the brand new mortgage changes – introduced on October 17 – will be in place, meaning experts will soon have a better idea of the impact on the country's real estate markets. Meantime, in the US, policymakers will be closely watching the results of the Presidential Election on November 8, an event which will have ripple effects throughout the global economy – especially in the case of a Donald Trump victory. The effects of both events are considered uncertain at this point, and Canadians will have a better idea of what we can expect in the mortgage market and the greater economy at the next Bank of Canada meeting on December 7.

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The changes announced by Finance Minister Bill Morneau back on October 3 took many in the mortgage industry by surprise. None of the changes involve the rates themselves: they concern giving potential buyers a stress test in the case that rates rise, a tightening in qualifications for mortgage insurance and capital gains tax reporting changes come tax time. However, some experts believe this will make it more difficult for a first-time homebuyer on a tight budget to make their first step into the housing market. Furthermore, as panelist Dan Eisner says, these new rules will make it more expensive to provide financing to clients. And while bond yields remain stable for the time being, the impact of the presidential election or a US rate hike (which many anticipate will happen at the final Federal Reserve meeting of 2016) could bring about some fluctuation. As a result, our panelists see little change in fixed rate mortgages for now, but this could change as early as next week.

October's Bank of Canada decision to keep the overnight lending rate at 0.5 per cent, where is has been since July 2015, came as no surprise. The revised economic outlook finds annual growth will not surpass 1.1 per cent for the entire year and the numbers won't start to improve until 2017 – this despite the expectation for a rebound in the second half of the current calendar year with oil production picking back up in Alberta. At this point, it appears any movement in the overnight rate won't happen until next year. CIBC Capital Markets chief economist Avery Shenfeld recently told the Financial Post that the new mortgage rules have been put in place to lower the risk of a crash in the housing market in the event that the Bank decides to lower the rate even further. Our panelists appear to be in agreement, with none of them seeing the rate moving the other way anytime in the near future.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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It's complicated. The mortgage industry as a whole was surprised by the number and the magnitude of changes announced by the Department of Finance a couple of weeks ago. The full ramifications of these pronouncements may take months to play out. Although these changes don't directly change rates, they do make it costlier to provide mortgage financing to certain clients. As a result, we may see rates fall for some and rise for others. Even a small difference in a purchase price or mortgage size could sway the rate up or down by 0.5 per cent. In the very short term, bond yields remain stable, but we are seeing individual lenders trying to grab as much business as they can before the new regulations take full effect so we could see slightly lower rates for most clients.

We will likely see the same rate pattern for variable rates as we see for fixed rates. In other words, rates will go lower for some and higher for others.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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At the moment, there are two big items of uncertainty. Firstly, there is the US election, which is being fought on personalities rather than the substance of policies. That makes it hard for markets to assess the implications for economy going forward, and that creates uncertainty for interest rates.

Secondly, On October 3rd, the Canadian government announced a major change for mortgage insurance. There is agreement that this will reduce housing activity and result in slower economic growth (and job creation). The most common opinion is that resale housing activity will fall by 8 per cent compared to what should have happened. But of course, there are, of course, other opinions. All of this said, it appears that any rise for fixed rate mortgages is being pushed into the future.

For almost four years, job creation in Canada has been slower than the rate of population growth. On top of these "serial disappointments", we can now expect that the "policy-induced housing market slowdown" will impair the economy. Not too long ago, the discussion was about when the Bank of Canada will announce an increase to its key overnight rate. Now, some of us expect that the next move will be a reduction. The next two meeting dates (December 7 and January 18) are too soon to draw firm conclusions on a negative change to the outlook. Therefore, there might be a reduction on March 1.

Dr. Ian Lee - Program Director, Carleton University

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The US election is now only one week away and the latest state polls suggests that Hilary Clinton will win the Presidency, albeit narrowly. This alone will calm the markets including the bond markets and introduce some badly needed stability. However, there is a possibility the polls are undercounting Trump supporters which could make a difference in a close election. Moreover, Trump has strong support from seniors who have much high voter turnout than the general population. If Trump were to win Nov. 8, 2016, chaos in the markets would ensue due to the remarkable uncertainties that would be unleashed by his election concerning NAFTA, China, Russia, NATO, the Middle East, the deficit and the tax code. This is because his election would upend and overturn a 70-year bipartisan consensus in Washington that has been operative since 1945.

Bank of Canada Governor Stephen Poloz' appearance October 24 before the House of Commons Finance Committee, was most illuminating. It is worth quoting two sentences: "There have been two developments that led us to downgrade our outlook for the Canadian economy. The first is a lower trajectory for exports... The second major factor behind our downgraded growth outlook is the federal government's macroprudential measures to promote housing market stability".
The governor then suggested what I have argued for quite some time – that there are longer term structural issues that must be addressed in the economy. Regardless of the reasons for the downgrade, it is clear that with yet another downgrade in the Bank's economic outlook, there will not be a Bank of Canada rate increase anytime soon.