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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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June 2015 Overall Summary

Recent headlines may point to economic unease internationally and at home, but mortgage shoppers can count on ultra-low mortgage rate pricing to last throughout the summer. RateSupermarket.ca's Mortgage Rate Outlook Panel points to a persistently low-yield Canadian bond market to support fixed-rate discounts, while a move by the Bank of Canada on variable-rate pricing is unexpected in the short term.

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Despite current geopolitical conflicts, Canadian bond yields have weathered the volatile global bond market, and yields have remained relatively stable, dipping back to sub-1 per cent pricing in recent weeks. Combined with a continuously competitive summer borrowing season, lenders are unlikely to switch gears on their discounting tactics.

While the Canadian economy is still absorbing the impact of lower oil prices, our central bank has stated household debt levels and real estate prices pose the greatest threat to economic stability. However, it's not expected they will take action in the short term with interest rates, leaving the variable cost of borrowing unchanged throughout June and July.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields and mortgage rates remain stable. I believe further upward pressure on mortgage rates has abated as bond yields remain very flat. This month's Bank of Canada rate announcement was expected and didn't move rates in any direction.

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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Bond yields have been quite volatile during the past month, largely due to events in Europe. For 5-year Government of Canada bonds, yields have been in the area of 1.0 per cent during the past month, higher than the 0.75 per cent that was typical earlier this year. To this point, lenders have not yet raised their rates for fixed-rate 5-year mortgages. With the U.S. economy continuing to strengthen, it is highly likely that bond yields and rates for fixed-rate mortgages will creep upwards during the remainder of this year, starting in the U.S. and Canada will partially follow. However, I expect that by year-end, 5-year rates at or below 3.0 per cent will still be widely available.

The Bank of Canada is expressing optimism that the Canadian economy will improve during the remainder of this year, and some major economic indicators have become more encouraging recently. This includes the report on June 5 that Canada gained 59,000 jobs in May. I confess that I am sometimes skeptical about the employment data – it is generated by a sample survey and like all sample surveys it has a "margin-of-error". This new data has some characteristics that cause me to doubt its accuracy. It is quite possible that actual job growth is considerably weaker. On that basis, future data may be less positive and there could be another reduction in the Bank's overnight rate at the meeting date of July 15 or (more likely) September 9 (by a quarter point). That would bring a corresponding drop in lenders' prime rates and rates for variable rate mortgages.

Kelvin Mangaroo - President of RateSupermarket.ca

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Tension over Greece's status within the Eurozone has resulted in a global bond sell off, causing German bunds and Asian yields to spike. However, Canadian five-year yields have eased back to below the 1 per cent threshold in recent weeks. Given this backdrop, and the current competitive nature of the market, lenders will likely continue to offer their fixed-rate options at great discounts.

In their recent semi-annual Financial Systems Review, the Bank of Canada indicated high household debt and real estate prices, rather than oil, pose the greatest threat to the economy. However, they also emphasized that the resulting employment consequences could trigger a long-dreaded housing price correction. It's not expected that the BoC will move their trend-setting rate in the upcoming July announcement, but change can't be ruled out for the medium-term.

Dr. Ian Lee - Program Director, Carleton University

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Since February, the 3-5 year bond yield has been bouncing around 0.5 per cent to 0.8 per cent - a very narrow range of about 30 basis points. Per CREA's latest June 15, 2015 outlook, the Canadian housing market remains "balanced overall". However, they did note that while real estate prices increased 8.1 per cent nationally. When Toronto and Vancouver are excluded, realty prices increased by a very modest 2.4 per cent. This suggests that the market is in rough equilibrium given that the majority of homeowners opt for fixed rate mortgages.

The next interest rate announcement is scheduled for July 15. While the Canadian economy still performs below long-term expectations, the most recent job numbers caught many off guard suggesting greater resilience than was understood or assumed. Indeed, per Stats Can, since May 2010, the number of Canadians employed increased from 17 million to approximately 18.2 million while since the beginning of 2015, average employment gains have averaged 20,500 per month. Again, not stellar – but completely contrary to the chicken littles who confidently predicted an economic Armageddon with the roughly 50 per cemnt decline in oil prices. And again, it reveals, contra these critics, that Canada is not a petro-state but a service economy with 16 million of the 18 million jobs in downstream service sector. For these reasons, it is more likely that the Bank will leave the rate unchanged, then reduce it one more time.