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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?

July 2017 Overall Summary

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Rumour has it that the Bank of Canada is planning to raise its key interest rate at its next scheduled announcement on July 12, and the panel agrees. Economic indicators like job creation, auto sales, and the BoC's Business Outlook Survey are pointing upwards. In addition, there is reason to believe that a rate hike is near after comments made by BoC Governor Stephen Poloz that low interest rates in Canada had "done their job." On top of that, bond yields have recently increased to new highs, with three- to five-year bonds sitting approximately at 1.4 per cent. If they continue to increase or at least sustain themselves, a slight prime rate hike would be warranted.

As we anticipate a rate change this week, the panel also agrees that variable rates will likely rise along with the BoC's key interest rate. Those with variable rate mortgages or open rate lines of credit may see an increase in their rate, and should compare the market and opt to lock in their rate as soon as possible. On the other hand, there is the chance that any increase will only be slight, as the quarter-point decreases back in 2015 only translated to a 0.15 per cent drop in prime and variable interest rates.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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The Bank of Canada has been using new, more positive language to describe the potential of a prime rate change before the end of the year. This messaging surprised the market and sent five-year bonds yields up 0.4 per cent, a rate unseen since late 2014.  As a result, we have seen fixed rates increase 0.2 per cent.  But, if bond yields stabilize at their current level, we will likely see five-year fixed rates increase another 0.2 per cent in the coming days.

Prime rates will likely increase in the coming days and variable rate holders will see their rates increase as a result. That being said, new borrowers will likely see discounts off of the prime rate increase in the coming days.

Dr. Ian Lee - Program Director, Carleton University

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In the past 30 days or so, the yield on three- to five-year Government of Canada bonds has almost doubled from around 0.8 per cent to approximately 1.4 per cent.  Indeed, some banks have already announced increases in their fixed mortgage rates in response to increases in the wholesale cost of money.  The market is signalling loudly that our long national "holiday" of unprecedented low fixed mortgage rates is finally coming to an end.

On July 12, the Bank of Canada will release the latest Monetary Policy Report. Most likely, the bank will finally increase the central bank rate after seven years.  The signals from the Bank of Canada itself have been quite clear.  In early June, Senior Deputy Governor Carolyn Wilkins stated that the Canadian economy was "picking up" and had "moved past" the oil shock.  Then, Governor Stephen Poloz stated that low interest rates had "done their job."  Note the past tense of these words. Furthermore, the latest research from the BoC – the Business Outlook Survey - showed that aside from below-target inflation numbers, several key metrics showed that the economy is growing, providing favourable conditions for a rate hike.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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In the past month, yields for five-year Government of Canada bonds have increased by one-half point. And to date, mortgage rates have only partially followed. The consequence is that the spread between mortgage rates and bond yields is unusually low, which means there is room for mortgage rates to increase by as much as one-quarter of a point. Since there is no evidence that inflation will accelerate, the recent rise in bond yields is related to strengthening Canadian economic indicators and "swing-in-market" psychology. However, this psychology is unpredictable – it is possible that bond yields are currently over-shooting where they "should" be (which could also mean that bond yields will retreat at a later date). This uncertainty may also be the reason why lenders have only partially responded to the one-half point rise in bond yields. So in the short term, there is a very high degree of uncertainty in interest rates. If the current level of yields is sustained or rises even more, we should expect some increases in rates for fixed mortgages. But looking further ahead, the lack of inflationary pressure should prevent any significant rises in bond yields. There will always be week-to-week movements in interest rates, but the balance of probability is that it will be a long time before we see a significant and sustained rise.

Rates for variable rate mortgages are highly influenced by the Bank of Canada's "overnight rate." The BoC is now signalling very clearly that it wants to reverse the reductions that were made in January and June 2015, which totalled one-half point. Those reductions were in response to the plunge in oil prices, which was expected to have significant negative effects on the Canadian economy. Now, the overnight rate is expected to rise by 0.5 points in two steps, most likely starting this week, and again in the fall. But, there is no indication at this time that the BoC wants to go any further than reversing those two reductions. As we anticipate what will happen to lenders' prime rates and variable rates for mortgages, we should recall that the 2015 reductions were not fully passed onto borrowers. Each of the quarter-point drops back in 2015 resulted in just a 0.15 per cent drop in the prime and variable interest rates. Now it's up to the banks to behave symmetrically alongside the increases, or be subject to a great deal of criticism from clients and politicians.