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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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May 2016 Overall Summary

The busy mortgage season continues to march along with banks and brokers offering more competitive rates to get home buyers attention. For the medium term, it seems rates will continue to stay low. In its latest announcement The Bank of Canada held its target at 0.5%, but did revise up its economic activity projection for 2016 and 2017. Still, there is no indication of when they will raise their overnight lending rate. Mortgage rates, therefore, are expected to stay near these historically low levels. The next announcement comes on May 25th, when the Bank of Canada is expected to leave rates unchanged.

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Fixed rates remain near historic lows, but recent increases in the 3-to-5 year Bank of Canada bond yields are threatening to increase them slightly. The strength in bonds comes as oil starts to gain momentum (after hitting a 13 year low in February), so the increase is very much dependent on where the price of oil will go over the next few months. Most agree that any increase in fixed rates will be small in size. Experts forecast fixed rates to stay below 3.0% for the medium term.

Canada's economy is looking heathier this month then it has for the previous 12 months. The Bank of Canada has upped its outlook. Recently, appearing in front the House of Commons Finance Committee, the Bank of Canada Governor Stephen Poloz said, "Our projected growth profile is generally higher than it was in January. We are now projecting real GDP growth of 1.7% this year, 2.3% next year and 2.0% in 2018." But this is still unlikely to lead to a rate hike in the near future. The messages are still mixed on where interest rates are headed in 2016.

This Month's Panelists

Dr. Ian Lee - Program Director, Carleton University

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The 3 to 5 year Bank of Canada bond yields have increased marginally to just under .08.  However, they are still far below the long term average. With the continued soft economy and slowing demand, at most we can expect a very small increase in fixed rates.

From the April 2016 Bank of Canada Monetary Policy Report (MPR, p. 9): "The projection for economic activity through 2016 and 2017 has been revised up".  This was confirmed and elaborated on by Governor Poloz' testimony before the House of Commons Finance Committee April 19, when he stated: Taking all of these changes on board, our projected growth profile is generally higher than it was in January. We are now projecting real GDP growth of 1.7 per cent this year, 2.3 per cent next year and 2 per cent in 2018. Our forecast suggests that the economy will likely use up its excess capacity somewhat earlier than we predicted in January—sometime in the second half of 2017".   These statements clearly suggest the Canadian economy is on the mend – indeed growth estimates were revised upward.  In turn, this suggests to me the Bank of Canada will not be reducing rates going forward.  At the same time, in both the MPR and his appearances before the Senate and House of Commons Finance committees, Poloz urged caution due to the variability and uncertainty in the international arena due to the restructuring in China and slowing growth around the world.  I interpret this to mean that for these reasons, neither should we anticipate a rate increase in the next several months.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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A fresh wave of optimism and enthusiasm about the economic outlook in the US and Canada has caused bond yields to surge. Whereas so far this year, yields for 5-year Government of Canada bonds had been below 0.75% most of the time, the last few days have seen a rise to just over 0.90%. So far, this has not caused a rise in typical discounted mortgage interest rates. This is because the spread between bond yields and mortgage rates had gotten a bit fat and so there was some room for lenders to tolerate the rise in bond yields. At this point, the spread has compressed to a normal level, so any further rise in bond yields could bring corresponding rises for mortgages. Confidence in the economy is likely to remain volatile for some time, and I continue to expect that it is too earlier for any sustained, material rise in Canadian interest rates.  We may see some minor rises in the coming months, but my most likely scenario is that typical rates for fixed rate mortgages will stay under 3.0% for some time to come.

Key decision makers are more confident about the economic outlook. But, the available indicators are sending mixed messages and it is too soon to expect a substantive "lift-off" in Canada. Therefore, for now we should expect that there will be growth in jobs and output, but at only moderate rates, and that there are not any clear threats on the inflation front: job growth is currently just 0.7% per year in Canada, which is slower than the rate of population growth (just over 1%). In this context, the Bank of Canada is most likely to leave its benchmark interest rate unchanged at its next meeting (May 25). Looking farther ahead, low oil prices will continue to produce a mix of positive and negative effects across the country, and it will be some time before the rate of job growth exceeds the rate at which the population is growing. For now, the Bank of Canada key interest rates, prime rates, and variable mortgage rates are unlikely to change.

Dan Eisner - President, True North Mortgage

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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 regulatory environment. A number of new regulations are coming into force this summer which could add 0.25% to all mortgage rates.

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