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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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February 2017 Overall Summary

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Consensus across the board predicts that these rates will rise. Bond yields in Canada have rapidly increased since the U.S. Presidential Election last November, showing that uncertainty in our southern neighbours continues to factor into our economy. Moreover, ambiguity in President Trump's new policies has put upward pressure on interest rates. This, along with the potential for an impending rate increase in the U.S. has caused forecasters to predict that fixed rates will increase soon. Furthermore, changes in mortgage policies and increases to mortgage insurance rates by the Canadian Mortgage Housing Corporation (CMHC) will likely put pressure on lenders to increase rates as well.

Unchanged Current predictions say that the Bank of Canada plans on reducing its overnight rate, leading to a decrease in variable rates, but this likely will not happen for another few months. This comes as a strange prediction since, in contrast, the U.S. Federal Reserve is expected to increase their rate in increments over the next year. In the meantime, these rates are predicted to stay unchanged as variable mortgages are becoming more popular as fixed rates continue to fluctuate.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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The Bank of Canada won't be raising prime anytime soon but international pressure from potential future U.S. rate increases and recent upward pressure on bond yields will likely push up 5-year mortgage rates.

Variable mortgage products are growing in popularity as 5-year fixed rates rise. We don't expect variable rates to change anytime soon.

Dr. Ian Lee - Program Director, Carleton University

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Average 5-year bond yields have almost doubled since November 2016 due to both general uncertainty of economic policies and the impact of new policies fronted by the Trump Administration. Moreover, we likely have not seen the end of continued tinkering in the mortgage market by Finance Canada in response to unsustainable increases in home prices in Toronto and Vancouver that continue unabated – principally caused by limited supply of homes in these municipalities. This federal tinkering in response to municipal social engineering will likely be carried on by the banks through increases in fixed mortgage rates (not to mention increased insurance rates set by CMHC).

Forecasters are predicting the U.S. Federal Reserve Board to increase the central bank prime rate soon, and will continue to increase it periodically throughout 2017. Historically, there has been a very close relationship between the central bank rate in the U.S. and Canada. Current conjecture is that the Bank of Canada will decrease its overnight rate by June 2017 (while the Fed increases their rate – most unusual that). However, the decision will be significantly influenced by the terms of the corporate taxation bill to be introduced in the U.S. Congress once we enter negotiations to revise NAFTA. Yet, more uncertainty.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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It is widely expected that the U.S. Federal Reserve Board will raise its benchmark rate by a quarter point at its March meeting. While short term interest rates will follow in the U.S, there is unlikely to be much, if any, impact on Canadian interest rates, including our government bonds and rates for fixed rate mortgages. There has not been enough strong economic news in Canada to materially affect our rates: our economic indicators are showing only moderate growth, meaning that we should not expect a lot of upward pressure on bond yields for at least the next few months. But, another factor is that federal government policies are likely to add pressure for mortgage interest rates to rise. Firstly, lenders have to hold more capital reserves, which will cost them money and they will attempt to recover those costs. Secondly, the new policies will reduce competition in the mortgage market, which will encourage lenders to further increase rates. All of this said, there is potential for interest rates on fixed rate mortgages to rise by one-quarter of a point during the next three months.

Rates for variable rate mortgages are highly influenced by the Bank of Canada's "overnight rate". During the past year, we have seen improved job growth in Canada (at 1.6%, which is faster than the population is growing). This has reduced the pressure on the Bank of Canada to reduce its benchmark interest rate. We may soon hear more comments that it's time to raise that rate. But, my review of the employment data for Canada suggests that our job creation might have been over-estimated during the past year, especially during the second half of 2016. If that is true, and if there is a reversal in the data, then we could once again entertain the idea of a reduction for the Bank of Canada rate. The next two meeting dates (March 1 and May 24) are too soon. There could be a reduction at the July 12th meeting. This would be followed by reductions for variable rates.