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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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Borrowing conditions will remain sweet for Valentine's home buyers, as both fixed and variable mortgage rates will stick close to record lows. Competitive fixed rate pricing is supported by very low government bond yields, as investors flow into safe haven options amid a shaky global economy. Variable mortgage holders can expect stability for the remainder of the month, but should brace for potential change come March.

Fixed Rates - Unchanged Variable Rates - Unchanged

Five-year bond yields are pushing record lows at barely over half a per cent. This would usually put downward pressure on fixed mortgage rates - but lenders don't have much room to discount amid today's already competitive pricing. It's expected that any change to the fixed cost of borrowing in the short term will be minimal.

With no Bank of Canada interest rate announcement this month, the variable cost of borrowing will remain stable for the short term. However, expectations grow of a rate cut by the central bank in March, as investment-grade corporate bonds have devalued, an indicator of poor economic conditions. As persistently low yields on mid-and-long term government bonds threaten to dip below 0.5% - the rate set by the Bank of Canada - the central bank may be prompted to make a downward move next month.

This Month's Panelists

Dan Eisner


True North Mortgage

Fixed Rates - Up Variable Rates - Unchanged

Bond yields have bounced up due to some strengthening of oil prices and some stability in the global stock markets over the last few days. But no fear, when mortgage rates move up in the next few days it will be a small move. More worrying is the long-term trend. Where inflation can be found in the world is in the economies that are commodity exporters that have suffered big falls in their currencies. I am looking at inflation rates in Russia (15.9%), Brazil (9.5%) and Turkey (9%), all of which saw their currencies devalue by wide margins. We have certainly seen a substantial devaluation of our currency recently and we are net commodity exporters. Inflation is next. We are already reading news articles about the growing prices of certain foods in our grocery stores. The Canadian central bank will have no choice but to raise rates to tackle inflation in the coming months. No wonder why the bank didn't drop the prime rate last month when they had the opportunity. Monetary policy won't be able to pull us out of recession and fight inflation at the same time - up goes mortgage rates.

Canadian banks are happy with variable rate spreads at this time.

Dr. Ian Lee

Program Director,

Carleton University

Fixed Rates - Unchanged Variable Rates - Unchanged

Although the fear of a global recession and the consequent "flight to quality" in the bond markets is driving down yields on U.S., German, Japanese and Canadian government bonds, mortgage rates are so low, that banks risk the wrath of politicians and regulators if they were to reduce mortgage rates further. Moreover, there is a federal budget expected next month and thus there likely is a "wait and lets see" amongst bankers before doing anything that will unnecessarily attract attention as the decision makers evaluate their choices for the upcoming budget (which could include further restrictions on mortgage lending).

We live in most unusual times for the convergence between the Canadian and American economies that has lasted a century has been upended, with the U.S. economy continuing to do extremely well while the Canadian economy sinks lower week by week. It is unlikely that Governor Poloz will reduce the central bank rate before the next budget expected in March. Indeed, this will be the one of the most closely watched and scrutinized federal budgets in years. How much will the federal government stimulate the economy? In which sectors? Will the emphasis be on infrastructure or EI reform or both? Will the government announce further restrictions of any kind on mortgage lending whether conventional or high ratio lending? Stay tuned for the ride may yet get bumpier.

Will Dunning

Chief Economist,

Mortgage Professionals Canada

Fixed Rates - Down Variable Rates - Down

Around the world, economic confidence turned down sharply during December, bringing another round of reductions for bond yields. Those yields have been roughly stable since the start of this year. For 5-year Government of Canada bonds, yields have recently been at incredibly low levels of about 0.70%, versus about 0.95% in November. Mortgage interest rates have not yet followed that drop: confidence is a fickle thing and lenders are no doubt waiting to see what the trend is before making long-term mortgage commitments at record low rates. That said, if confidence does not soon rebound and bond yields stay low, then competitive pressures will build and we could see drops, say 0.15 to 0.20 points, for 5-year fixed rate mortgages. Looking farther ahead, given evolving economic conditions, typical rates for fixed rate mortgages are likely to stay under 3.0% until at least mid-year.

The next rate-setting meeting date for the Bank of Canada is March 9. Canadian economic indicators remain mixed, showing just tepid growth in employment, lukewarm growth for retail spending (just barely ahead of inflation), and no growth in the manufacturing sector (which has disappointed expectations that it would start to contribute to growth and job creation). An added factor is the drop in stock markets in Canada and around the world, which will impair business and consumer confidence. Therefore, the odds have increased (to at least 75%) that the March 9th meeting will see another quarter point drop in the BoC overnight rate. Thus, during Ma