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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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December 2017 Overall Summary

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Fixed mortgage rates will likely remain stagnant for another quarter, as there have been no significant changes in bond yields since September, though economic indicators continue to improve.

A slowing economy seems to be on the horizon, however, in response to the housing market. Increases in mortgage interest rates as of late, in addition to the upcoming OSFI rule change is likely affecting buying activity negatively.

As mentioned in previous outlooks, the results of the NAFTA negotiations will likely have a major impact on fixed rates as well.

Though two out of the three panelists agree that variable rates will not change soon, Bank of Canada Governor Stephen Poloz's comments following the last rate announcement may lead some to believe there is room for future increases. An increase in Q2, however, means more clarity on how the NAFTA negotiations will ultimately play out – a more favourable climate for change. For now, it's just unlikely that the Bank will make any changes – neither up nor down – to the overnight rate as it is merely analyzing the economy's reaction to the recent rate increase by 50 basis points in the last six months.

This Month's Panelists

Shawn Stillman - Mortgage Broker, Mortgage Outlet Inc.

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Dan Eisner - President, True North Mortgage

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Despite the U.S. government's recent prime rate move, Canadian Government bond yields continue to trade in a tight range which would suggest no fixed mortgage rate changes in the near future. 

Strong economic results and the weakening Canadian dollar will likely give the Bank of Canada cover to raise prime over the next few months.

Dr. Ian Lee - Program Director, Carleton University

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Five-year bond yields are hovering around 1.6 per cent as everyone treads water, waiting for clarity on the NAFTA negotiations. While there is a widespread consensus on the need for trade diversification, ironically, NAFTA is becoming even more important – especially after the Trudeau Government's apparent rejection of TPP and its fumbling China free trade talks.

Separately, but equally important, there is recent evidence that the latest mortgage rules reform will remove a significant number of potential borrowers from the market.  Neither trend suggests increases in fixed mortgage rates.

As expected, the Bank of Canada held rates steady on December 6. However, there were two significant pieces of information provided in the BoC's announcement last week. First, Governor Poloz noted that interest rates are a full two percentage points below the "neutral rate", suggesting substantial room for future increases. Second, Governor Poloz noted that NAFTA uncertainty is reducing business investment in Canada.  Moreover, he seemed to suggest this is the principal factor governing future rate increases.  For these reasons, a rate increase seems more likely in Q2 of 2018 when there will probably be more clarity concerning the NAFTA negotiations, notwithstanding those analysts who suggest a rate increase in the Q1.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Movements in mortgage interest rates depend a lot on government bond yields, which in turn are influenced by economic news and expectations. Since the summer of 2016, Canada's economic indicators have been quite favourable, which resulted in rising bond yields from November 2016 until this September.

More recently, there has been a mixed bag of positive and neutral reports, which has interrupted that rising trend. Five-year Government of Canada bond yields are almost one percentage point higher than they were last year. This is likely due to slower economic growth – as higher mortgage interest rates reduce home buying activity. In addition, the stress test that will soon be required for most mortgages will also weigh down the housing market, and subsequently, the economy.

It is likely that by next spring, economic indicators will become even weaker, and therefore, bond yields and typical rates for five-year fixed-rate mortgages may be a quarter point lower than present.

In response to the improved economy, the Bank of Canada raised its "overnight rate" twice, by a quarter point each time on July 12 and September 6 this year. But now, the Bank is taking a wait-and-see stance as no changes were made at the announcements on October 25 or December 6.

Based on my economic expectations, I foresee no change for some time. Since the Bank probably won't raise its benchmark rate, is also unlikely to reduce the rate so soon after the recent increases.

If we see continued strength in the economic data, then the earliest we could see another quarter point rise is at the scheduled meeting on Mar. 17, 2018, but no change at the meeting on January 17.