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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?

December 2015 Overall Summary

Sorry, mortgage shoppers - you won't find many Black Friday or Boxing Day deals on your home financing this month; the fixed cost of borrowing is inching higher along with bond yields, prompting lenders to cut their once-sizzling discounts.
While jolly economic conditions south of the border will likely prompt a U.S. rate rise, the cheer won't extend to Canada's central bank; slow economic recovery will hold the Bank of Canada at status quo until well into 2017.

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Mortgage shoppers and renewals will encounter slightly higher fixed mortgage rates this month as lenders face rising costs and lower demand. The impending U.S. Federal Reserve rate rise has thrown fixed rate pricing into flux as investors dump their bonds, driving funding costs higher. And, as the winter market approaches, lenders are less competitive with their off-peak season pricing.

The latest GDP numbers may reflect a 2.3% growth in the third quarter, but it's not enough to prompt the Bank of Canada to ease up on stimulus; in fact, the strongly anticipated U.S. rate rise later this month will likely depress the loonie further, taking the onus off the BoC to take further action. While economists aren't ruling out the possibility of a 2016 rate cut, it's not expected the central bank will be in a position to raise rates until 2017.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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The Bank of Canada won't be raising prime anytime soon but international pressure from a potential U.S. rate increase and perceived economic risks growing in China will surely push up our 5-year mortgage rates as investors sell off their bonds.

Canadian banks are finding their short term funding sources to have run dry. We will continue to see discounts off of prime abate. The bank prime rates have not changed. It is the discount that has changed. Last month a P-.60 was a common variable rate, now a P-.40 is typical.

Dr. Ian Lee - Program Director, Carleton University

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Fixed rates have recently been increasing modestly, but not due to changes in Canada as such. Rather, markets are anticipating an increase in the U.S. Federal Reserve rate, which affects U.S. bond yields. Market anticipation is pushing up U.S. bond yields. However, U.S. bond yields affect Canadian government bond yields and upward increases in the former have pushed up Canadian bond yields by approximately 20 basis points since September. Some analysts suggest a further increase of 50-70 basis points in Canadian bond yields which would place additional upward pressure on fixed mortgage rates in Canada.

Although the latest GDP growth numbers showed unexpected growth in August, the latest PBO report on the Government of Canada's fiscal position. as well as the increasingly poor economy in western Canada and especially Alberta, strongly suggest that the Bank of Canada is not going to increase its rate any time soon. The more relevant immediate question concerns the degree to which the new Finance Minister will provide fiscal stimulus to complement the very significant monetary stimulus, to stimulate the economy and job growth. If as expected, more fiscal stimulus is adopted, the critical question for the mortgage market concerns the impact on housing prices and housing demand of enhanced fiscal stimulus.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Yields for 5-year Government of Canada bonds have broken out of the range that was seen during the summer and fall, increasing slightly. Yields typically were close to 0.80% but in early November rose to slightly above 1.0%. More recently, they seem to have settled at about 0.90%. This small rise – about one-tenth of a percentage point – has been passed into rates for fixed rate mortgages, which are now slightly above the record lows that had been seen since the spring. In all likelihood, bond yields and mortgage rates will continue to creep upwards. But, in both Canada and the U.S., economic conditions remain tentative and neither country could tolerate large rises. I still expect that 5-year rates at or below 3.0% will still be widely available until at least next spring. That said, it is possible that there will be brief periods of higher rates (depending on swings in investors' expectations), but those would not persist.

Canadian economic indicators remain lukewarm at best (apart from a large rise in employment in October that was due to temporary part-time jobs for the election – the data for November will most likely show a reversal from the ending of those jobs, restoring a trend of job growth that is slower than population growth). It is expected that the Bank will stand pat for its December 2nd meeting (and probably January 20th as well) . We are unlikely to see any further changes (rises or drops) for the overnight rate or prime rates for at least the next six months. During the past month, however, there was a small uptick in variable mortgage rates, as lenders reduced their discounts compared to prime rates.