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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?

June 2016 Overall Summary

The busy home-buying season continues in Canada's hottest real estate markets and buyers are being offered more competitive rates. As anticipated, the Bank of Canada left rates unchanged at 0.5 per cent in its most recent announcement on May 25th. It appears that for the medium term, rates will stay low. As for the Canadian economy, the Bank of Canada says growth was in line with its projection for the first quarter, but the wildfires in Alberta could lower growth by as much as 1.25 per cent in the second quarter. However, it is predicting a rebound in the third quarter. Therefore, with no indication of when the Bank of Canada will raise its overnight lending rate, mortgage rates are expected to remain at historically low levels. The next Bank of Canada rate announcement is scheduled for July 13th.

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The consensus from our three experts is that there are no reasons or pressures to increase fixed rates. They expect rates to remain below 3.0 per cent for the medium term. While three- to five-year Bank of Canada bond yields are staying in the 0.7 per cent to 0.75 per cent range, the experts say it depends on how the price of oil changes over the next few months (it has been gradually rising since March). In addition, as the U.S. economy continues to strengthen, bond yields south of the border could also begin to gradually grow. If Canada's bond yields don't follow, then the Canadian dollar may go lower - something that's good for export industries on this side of the border.

Prior to May, Canada's economy looked as though it was strengthening. However, between the wildfires in Alberta, subdued inflation and general anemic growth in the Canadian economy, our experts believe that prime rates and variable mortgage rates will remain unchanged at the next Bank of Canada meeting on July 13th, and they don't believe there will be any movement at the following meeting on September 7th. The lower Canadian dollar is thought to help our economy more in the near future than another rate cut, and our experts don't believe there's any justification for an increase.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields and mortgage rates remain stable. I believe further upward pressure on mortgage rates have abated as bond yields seem to be trading in a narrow band. We may see some upward movement when the US actually increases their prime rate.

The Bank of Canada has little reason to raise rates given that Inflation remains subdued and the forest fires in Alberta has cut the prairie's GDP substantially. The lowered Canadian dollar will do a better job at stimulating the economy than another rate drop in any case.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Confidence about the economic outlook continues to move in waves. For example, a burst of enthusiasm in late April brought a quarter point rise in bond yields. That wave has already dissipated and yields for 5-year Government of Canada bonds are once again in the area of 0.75 per cent. The US economy is showing sustained strengthening and therefore, US bond yields are likely to begin a very gradual upward trend during the next few months. But, Canada's lagging economic performance means that our bond yields won't necessarily follow. That difference in trends would cause the Canadian dollar to weaken, which would be positive for our export industries. In short, it is most likely that rates for fixed rate mortgages in Canada will remain at or close to current levels for the next six months. My most likely scenario is that typical rates for fixed rate mortgages will stay under 3.0 per cent for some time to come.

Economic growth remains disappointing in Canada, which continues to surprise the Bank of Canada as well as most economic pundits. Thus, we continue to see deferral of expectations for the date of "lift-off" of the Bank of Canada's key rate. In my view, the most likely near-term outlook is for some growth in jobs and output, but at only moderate rates. There are not any clear threats on the inflation front. In this context, the Bank of Canada is most likely to leave its benchmark interest rate unchanged at its next meeting on July 13th, and probably for the September 7th meeting as well. For now, prime rates and variable mortgage rates are unlikely to change.

Dr. Ian Lee - Program Director, Carleton University

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