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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?

March 2016 Overall Summary

Good news for early spring mortgage borrowers: interest rates won't be rising along with the thermometer. While early signs of economic improvement are promising, consumer lenders and the central bank alike are holding their breath, looking to the Liberal stimulus announcement later this month before adjusting the cost of borrowing. This means both fixed and variable mortgage rate shoppers will access great discounts this month, and perhaps more to come as the spring mortgage wars traditionally heat up this season.

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Government of Canada bond yields remain in high demand among investors seeking stability, pushing yields to new depths. While recent news of tepid economic growth eased yields slightly higher over last four weeks, they remain well below the 1% threshold – and only a few precious basis points above Prime. This won't lead to further discounts for fixed mortgage rates, however – lenders have resisted the trend set by yields for several months now, as rates are already at competitively low levels. Such discounts are expected to remain throughout the month.

The Bank of Canada is in no hurry to further stoke Canadian household debt nor does it wish to shock the system with a premature rate hike, despite encouraging GDP growth reported for Q4 2015. With the federal government to reveal its fiscal stimulus plan later this month, it's expected the central bank is taking a wait-and-see approach, and will update its stance in its April Monetary Policy Report – once it has had the opportunity to assess the impact from the Liberal's budget.

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.

Lower commodity pricing and the low dollar is creating inflationary pressure within Canada. We have seen the Canadian dollar increase in value as of late as the odds of a prime rate increase by the Bank of Canada improves.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields remain exceptionally low in Canada and around the world, as economic confidence is still weak. For 5-year Government of Canada bonds, yields have changed only slightly from day-to-day, and remain in the area of about 0.70%. Mortgage interest rates have not fully followed the reductions for bond yields: lenders have not been able to reduce their deposit rates to the full extent of the drop in bond yields. Economic confidence is likely to improve later this year, which should bring an upward creep for bond yields. That said, the initial increases in bond yields would not affect lender's funding costs (they won't need to raise the interest rates they pay for deposits), and therefore mortgage rates would be unaffected for a while. Consequently, 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. The Canadian economic environment has not improved: job growth has been negligible during the past four months, retail spending is lukewarm (with growth just barely ahead of inflation), and the manufacturing sector remains weak (which has disappointed expectations that it would start to contribute to growth and job creation). Stock markets have rallied recently, but index levels are well below the levels seen previously. Unless we see a stronger rebound in stock markets, this will impair business and consumer confidence and inhibit economic growth. Therefore, the odds are at least 75% that the March 9th meeting will see another quarter point drop in the BoC overnight rate. If it occurs it would be followed by a drop for prime rates and variable mortgage rates. If a drop does not occur on March 9, the following meeting (April 13) is highly likely to bring a drop in the overnight rate.

Dr. Ian Lee - Program Director, Carleton University

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With 5 year Canada bond yields averaging around .5%, a slow (ing?) Canadian economy and an imminent federal budget that may change an awful lot of rules and assumptions, everybody is sitting still waiting for the "shoe to drop". Thus, no change in fixed rates before April at earliest.

An intriguing phenomenon has emerged in the last 2 months with an increasing number of pundits and journalists claiming doom and gloom, crash and burn of the Canadian economy. "Recession is nigh"! Then we turn – as everyone must from time to time – to examine the actual statistical economic data. One discovers with great shock that Canada's GDP is growing! Steadily albeit weakly. Faster than 2/3 of European economies! For this reason and due to the new Liberal Government leaks and pronouncements concerning the avalanche – nay – tsunami of spending that is being suggested in the March 22 budget – will ensure that Governor Poloz will be sure to sit tight next week and not decrease rates.