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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?

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May 2015 Overall Summary

It's been a truly outstanding season for mortgage-rate pricing – and such deep discounts couldn't last forever. Slightly higher fixed mortgage rates may be around the corner, as lenders adjust to a higher bond yield environment. Meanwhile, the Bank of Canada isn't expected to make a move on their trend-setting Overnight Lending Rate, meaning a season of stability is in store for variable-rate customers.

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The economic factors that paved the way for the season's record low rates are experiencing a slight about-face; government of Canada bond yields have been nudged higher as European instability prompts global investors to shed their nationally-backed investments. The change is minimal – about one per cent – but could spur some lenders to ease up on their cut-throat discounting tactics. But, not to fear, home buyers – we're still in the midst of one of the most competitive mortgage seasons in recent history as big and small lenders alike compete for buyer business.

Despite an uneasy first quarter, and oil's prolonged decline, the Bank of Canada's economic stance appears to have stabilized, and remains optimistic for broad recovery in 2016. It's not expected that they'll make any move to change the cost of Canadian borrowing in the short term. Variable-rate holders can expect Prime to remain at 2.85 per cent for the time being.

This Month's Panelists

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields (for 5-year Government of Canada bonds) have increased by a quarter of a point during the past two weeks. While they are currently higher than the historic lows that have been seen this year (in the range of 0.75%), they are now (at about 1.0%) still exceptionally low. At the time of writing, mortgage rates have not followed the rise in bond yields. This has meant that lenders' margins are being reduced. It is quite likely that any further rises in bond yields will lead to correspondingly higher mortgage interest rates. However, at this time it seems unlikely that bond yields will increase by any further material amount, as economic data points to only moderate economic growth in both Canada and the U.S. Thus, it is most likely that any increases in mortgage rates will be minor.

The Bank of Canada is expressing optimism that the Canadian economy will improve during the remainder of this year. On that basis, we should not expect any changes in its overnight rate at the next meeting (May 27). But, I see some risks that the economy will be weaker than the Bank of Canada expects. In that case, there could be another surprise reduction at the meeting dates of July 15 or September 9 (by a quarter point). That would bring a corresponding drop in lenders' prime rates and rates for variable rate mortgages.

Dan Eisner - President, True North Mortgage

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Bond yields have been on the rise lately and so we will likely see some upward movement in fixed mortgage rates shortly.

The oil prices have appeared to stabilize so it is very unlikely we will see another prime rate decrease by the Bank of Canada.

Dr. Ian Lee - Program Director, Carleton University

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The 5-year yield on Bank of Canada bonds is bouncing around a 20-basis point range – just under a 1 per cent yield. In plain English, the yield is increasing – but ever so slightly. Given that mortgage lending margins are so narrow, this may put a little upward pressure on 5-year fixed rates. However, contradicting that is the increasing mortgage lending competitiveness caused by a slowing in demand as consumers are extended in terms of borrowing.

As I predicted in last month's outlook, the Bank of Canada did not change its rate. The next interest rate announcement is scheduled for July 15. However, it is fair to suggest that Governor Poloz and his senior team are going to earn their paycheques in the next 75 days. Why? Because of the apparent softness in the US economy and the continuing anemic performance of the Canadian economy – and all within 60 days of the Labour Day weekend kickoff to Election 2015. Does this suggest that central bank Governors are "political"? Of course not - but neither do they live in in a bubble – as studies of the Federal Reserve have shown over the years. Indeed, see the recent comments of the Federal Reserve Chair who clearly sees its role to help grow the economy.

Kelvin Mangaroo - President of RateSupermarket.ca

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Instability in Europe has led to a global bond sell off, the effects of which are being realized on home soil: five-year government of Canada bond yields, which lay below the 1 per cent threshold for many months, have risen 50% in the past month. As a result, some lenders may react with minor increases to their fixed-rate offerings. However, given that this has been one of the most competitive mortgage markets in recent history, prospective home buyers will continue to access a historically low cost of borrowing in the months to come.

Economic data for Canada points to continued sluggish short-and-medium term growth, and it's widely expected the Bank of Canada will hold off on further rate action. There will be no change to come in the May rate announcement, as the BoC will likely stick to their mandated 2016 recovery timeline, as stated in the Monetary Policy Report.