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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?

March 2015 Overall Summary

Mortgage rates have remained very competitive through the first months of 2015, with both fixed and variable options discounted after the Bank of Canada's surprise January rate cut, the effects of which are still being absorbed by the economy and lenders alike. However, whether or not the central bank takes further action with monetary policy this month, the approaching spring market is sure to prompt lenders to bring their best borrowing options to the table.

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Bond investors, encouraged by a lower-rate environment in response to plunging oil, clamoured post-announcement, driving yields to sub 0.7 per cent levels. Combined with competitive pressures from the heating spring market, lenders are expected to work with the limited discounting room they have in order to capture market share.

Canada's biggest lenders have yet to fully implement the 0.25 per cent discount prescribed by the Bank of Canada in January. Regardless of whether the Bank cuts rates again in the short term, competitive factors could lead the "Big Five" to finally concede the remaining 10 basis points to borrowers.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields and mortgage rates remain unbelievably low. I believe further downward pressure on mortgage rates have abated. But we are heading into the spring home buying season and we often see mortgage specials at this time of the year so we never know what a bank may have planned.

The lower oil prices have not caused enough deflationary pressures to spawn another prime rate decrease by the Bank of Canada.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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The huge drop for the five-year bond yield ( and other maturities) was most likely an over-reaction to the plunge in oil prices. Yes, reduced energy costs will reduce inflation, directly and indirectly (as costs for many other goods and services are falling). That is sufficient reason for bond yields to fall. But, the reduction for bond yields appears to be larger than the likely change in inflation rates. For five-year Government of Canada bonds, recent yields of about 0.75 per cent are lower than the inflation rate that we should reasonably expect over that same five-year period. Mortgage rates have not yet fully followed the drop in bond yields that has occurred over the past year, and there is now an unusually large spread between bond yields and mortgage interest rates. Some kind of adjustment should occur, to close that large spread. My most likely scenario has two parts: firstly, bond yields are likely to partially reverse their recent plunge (this has happened in the US, but not in Canada); secondly, mortgage interest rates (after lender discounts) should fall slightly.

The major banks have only partially followed the quarter point drop in the Bank of Canada overnight rate that occurred late in January (they implemented just 15 basis points of the 25 basis points drop in the overnight rate). Since the mortgage market is highly competitive, it is highly likely that the remaining 10 basis points will get passed to borrowers. This could happen in several different ways. Even if the banks don't announce further reductions for prime rate and variable rate mortgages, competitive pressures should eventually affect what can be negotiated. Another possibility is that lenders won't adjust their prime rates, but they will increase the amount by which variable rates for mortgages are discounted below prime.

Kelvin Mangaroo - President of RateSupermarket.ca

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Government of Canada bond yields have plummeted in the aftermath of January's Bank of Canada rate announcement, and lenders have responded with shockingly low fixed rate offerings, with the most competitive lenders featuring rates in the 2.60 per cent range. And, while such narrow spreads leave little room for further maneuvering, warmer buying conditions will further fuel competition among big and small lenders alike. Already, Bank of Montreal has reinstated their 2.99 5-year fixed rate - a sure sign the spring buying season is on the way.

Whether or not the Bank of Canada makes further changes to Monetary Policy this week, the fact that the banks held back on a full 0.25 per cent discount in January means they still have room to compete now. We may see them concede the final 10 basis points as the spring buying season heats up.

Dr. Ian Lee - Program Director, Carleton University

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Since the Bank of Canada average yield on three- to five-year bonds declined in December from an average of 1.25 per cent to 0.5 per cent, they seem to have stabilized. For this reason, further declines in fixed rates are not expected in the next 30 days.

Governor Poloz likes to surprise us. He is clearly pulling back and likely to do away with forward guidance. He caught every economist off guard with his rate cut. Now, a consensus has formed he will follow with another rate cut. I beg to differ. His key sentence in his UWO speech concerning "reinventing central banking" was that the January BoC rate cut gave them "time to see how the economy actually responds" – similar to his "we bought some insurance" at the press conference announcing the rate cut. For this reason, and the slow recovery of oil prices, stronger than expected GDP growth and core inflation higher than thought, it is unlikely the Bank will reduce further reduce the central bank rate this month.