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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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August 2015 Overall Summary

It may be the dog days of summer, but there's been plenty of activity on the monetary policy front. Economic unease fueled by the Chinese market crash and EU concerns have fed healthy appetite for Canadian bonds, keeping yields and fixed mortgage rates relatively unchanged and at record lows. And, with no Bank of Canada rate announcement slated this month, variable mortgage holders can count on unchanged monthly payments - for the time being.

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How long can today's fixed-rate mortgage bargains last? Despite increased speculation that a U.S. Fed rate hike could occur as early as September, it's not expected that Canada's cost of borrowing will be impacted in the short term - great news for buyers looking to break into the market before back-to-school season.

Lackluster economic data spurred the Bank of Canada to slash its trend setting interest rates by 0.25 per cent last month, setting the national cost of borrowing at 0.50 per cent. It was the second time since January the Bank has made such a move, in response to fallout from low oil prices. However, whether Canada is truly in a recession - and whether a third cut will be warranted - is still heavily debated. Our panel calls for unchanged variable mortgage rates for the time being.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Government bond yields continue to trade in a tight range which would suggest no mortgage rate changes to come. Although last month's bank of Canada Prime rate reduction didn't affect the five-year rates, it did dampen expectations of any future rate hikes.

The banks followed the Bank of Canada by lowering their prime rates by 0.15 per cent last month. We don't foresee any changes in the coming weeks to variable rates.

Dr. Ian Lee - Program Director, Carleton University

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As I noted in the last outlook, from February 2015 until the present, the three-to-five-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. The numbers suggest that supply and demand are in relative balance. Thus no change in fixed rates is expected.

As I forecast in the last Mortgage Rate Outlook, the Bank of Canada did reduce the central bank rate, and as I and others predicted, it further weakened the loonie. This week, we saw the long projected outcome with the latest export figures up 7 per cent to the U.S. – our largest trading partner – and by 3.8 per cent to other countries. Moreover, the gains occurred in nine of 11 export categories including most impressively, consumer goods. Governor Poloz must have a huge smile on his face. Moreover, an increasing number of Fed watchers believe the Federal Reserve will increase its rate in September. This will ensure that the Bank of Canada rate will not be changed again this year.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Rates for five-year fixed-rate mortgages depend a lot on yields for five-year Government of Canada bonds, because these influence the lenders' cost of funds. Anticipating changes in bond yields and interest rates is challenging enough. 2015 has brought a further wrinkle: the relationship between U.S. and Canada bond yields has changed. A year ago, there wasn't much difference between yields in Canada and the U.S. This year, Canada yields are far below those of the US – currently by about 0.8 percentage points. This large "negative spread" has contributed to the weakening of the Canadian dollar, which will gradually provide benefits to our economy. One of the challenging questions in the outlook becomes – what will happen to the spread? At this point I'm inclined to assume that the spread will remain at the current level, which will mean that as and when U.S. yields increase during the coming year, Canada's interest rates will more or less follow. This gives us a scenario of gradual rises for fixed rate mortgages. But, it is also possible that the spread will expand even more, in order to further weaken the dollar. This could mean no increases for fixed rate mortgages for some time. All of this considered, I still expect that by year end, five-year rates at or below 3.0 per cent will still be widely available.

The Bank of Canada reduced its official rate (the "overnight rate") at its July meeting. For the second time, major lenders did not fully follow, and reduced their prime rates and variable mortgage rates by 0.15, not the full 0.25. It is possibly that competitive pressure will force them to further trim these rates, but that unfortunately appears unlikely. At this time, with Canada in a recession of sorts, we are unlikely to see any further changes (rises or drops) for the overnight rate, prime rates, or variable mortgages until well into 2016.

Kelvin Mangaroo - President of RateSupermarket.ca

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Government of Canada bonds remain in consistently high demand and yields have stayed within a very tight 0.7 - 0.8 per cent range over the past month, setting the course for continued low fixed borrowing costs. While talk of a likely U.S. Federal Reserve rate liftoff could cause fluctuation in September, it's not anticipated today's fixed-rate deals will change in the short term.

In July's rate announcement, The Bank of Canada responded to pessimistic economic data by cutting the Overnight Lending Rate by 0.25 per cent for the second time this year. However, the vote is still out on whether Canada is officially in a recession, and whether the Bank will take further action with rates in September or October. I believe variable mortgage rates will remain unchanged in the short term.