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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 2016 Overall Summary

Following up on November's position, the announcement from the Bank of Canada this month has highlighted the reasoning for holding their position. Meanwhile, Canadian bond yields are the highest they have been since late in 2014. South of the border, the turbulence surrounding the U.S. presidential election, Donald Trump, and his plans have still left an amount of uncertainty in the economy and in international investor relations. But though his win has had some impact on the global economy, nothing drastic has happened thus far. As we enter the new year, it should be noted that any variable mortgage rate changes in particular will come slowly and over time.

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There is a strong consensus among fixed mortgage rate predictions for December: these are expected to raise. Canadian bond yields have reached the newest high since 2014, and the bond market has reacted as well: three- to five-year bond yields have doubled in the past three weeks. Uncertainty on Donald Trump's policies come January have made it difficult to make a confident prediction for the next few months – but overall, the belief is that it will continue to trend upwards. Keep an eye out for changes to five-year rates in the next few weeks.

Due to the strength of the real estate sector and the jobs it's created since the recession (2008-2009), it is unlikely that the Bank of Canada will announce a change in variable rates. If they were to announce a decrease, however, expect heavy backlash. Overall, small changes should be expected in the months to follow, rather than one swift change. Look out for an update on March 1st, 2017.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Explanation: Up, up and away! There are a number variables pushing rates higher, not the least of which are bond yields. Canadian bond yields have not been this high since late 2014. But that's not all; recent regulation changes are pushing up the cost of funding residential mortgages particularly mortgages with longer amortizations. All combined we could see 5-year rates move up 0.25% over the next few weeks. A Christmas present few want.

Explanation: It's complicated. Your relationship with your mortgage just got a lot more thorny. Those of you looking to refinance are going to pay more, maybe, or maybe not depending on the amount of equity you have. Perhaps you are trying to purchase a home with a sticker price of $1 million or more? Beware of higher rates regardless of your mortgage size. A dozen other changes are in the works so like I said, It's complicated.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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The surprise outcome of the US Presidential election has caused turbulence in financial markets. Bond yields are up. During October, the yield for 5-year Government of Canada bonds averaged 0.705%. It has now just over 1.0%. Correspondingly, mortgage interest rates have increased. It is widely commented that the jump in bond yields reflects expectations about a stronger US economy and more inflation. I'm not so sure. If there were strong expectations of big economic improvement, stock markets should be surging. But, as of November 30th the US S&P-500 index is up by only 3% versus the average for October. The combination of a sharp rise in bond yields and a tepid reaction in the stock market suggests that there is more uncertainty than enthusiasm. Uncertainty about what Mr. Trump's actual policies will be make it impossible to confidently predict the outlook for the economy or interest rates. That said, for the next three months, the direction for fixed rate mortgages is more likely to be up than down.

Since the recession of 2008-09, the top performing sector in the Canadian economy has been real estate: housing starts and resale market activity (plus related activities, like mortgage lending) generate a lot of jobs. There have been few other sources of growth, with the result that for almost four years, job creation in Canada has been slower than the rate of population growth. Since the federal government is now trying to slow housing activity (via changes to its mortgage insurance rules) job creation may become even weaker. Thus, it is quite unlikely that the Bank of Canada will raise its key overnight rate (which influences lenders' prime rates and variable mortgage rates). It is increasingly likely that the next move will be a reduction. It will take several months for the impacts of the policy change to materialize. Thus, the next two meeting dates (December 7 and January 18) are too soon. Therefore, there might be a reduction on March 1.

Dr. Ian Lee - Program Director, Carleton University

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The US election is over, Trump was elected contrary to almost everyone including pollsters, pundits and yes the campaign professionals advising the two Presidential candidates. But most importantly, we learned in the weeks following the election of Trump that the world did not end. Nonetheless, there is heightened uncertainty. The multiple statements by President-elect Trump and his surrogates strongly suggest that very substantial fiscal stimulus for infrastructure will be passed early in the Trump administration between $500 Billion and $1 Trillion. Moreover, the very substantial tax cuts promised to reduce the corporate income tax from 35% to 15% and the tax on repatriated profits from abroad from 35% to 10% and substantial reductions in personal income tax rates clearly point to substantial federal deficits. In turn, the bond market has reacted with 3-5 year bond yields doubling in the past 3 weeks.

In light of the US election and the expectation that the Federal Reserve will increase the US central bank rate this month and the continued very slow growth in the Canadian economy, it is extremely unlikely that the Bank of Canada will change its position. To amplify this judgment, the Bank of Canada and CMHC and OSFI continue to issue statements and speeches warning of the elevated risk from excessive housing borrowings and accelerating house prices exacerbated by low mortgage rates. A decrease in the Bank of Canada rate would contradict much of what Governor Poloz has said publicly in the last year or so and indeed would be tantamount to pouring gasoline on what these authorities view as a raging fire.