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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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Fixed Rates - Up Variable Rates - Unchanged

As bond yields continue to trade at their highest in over three years,and as Canada's economic numbers strengthen, fixed mortgage rates will likely rise soon.

Though mortgage stress tests and rate increases may have had, and continue to have, a negative effect on the housing market, we did start the year off on a good note, as buyers rush for mortgage approvals before rates increase again.

The future of U.S. rates may also play into how Canadian rates trend; however, Canada is not always known for following movements in U.S. interest rates. In the meantime, the Federal Reserve is expected to raise rates in the near future after it left rates unchanged at its last meeting.

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

Last month, the Bank of Canada once again increased its key interest rate by a quarter point - for the third time within the last 12 months. The overnight rate is now 1.25 per cent, and as a result, all the major banks hiked their prime rates to 3.45 per cent.

All this considered, some may expect another rate increase rather soon; however, NAFTA negotiations could persuade the bank to hold off on any more increases for a while. In the meantime, the Bank will likely continue to monitor the economy's response to the most recent rate hike.

This Month's Panelists

Will Dunning

Chief Economist,

Mortgage Professionals Canada

Fixed Rates - Up Variable Rates - Unchanged

Several events have caused me to sharply revise my outlook on interest rates. Improving economic conditions in Canada, the U.S. and elsewhere are certainly a factor. But more importantly, the idea of "crowding out" is now floating around.

Massive tax cuts in the U.S. are rapidly causing an increase in the U.S. federal government deficit and thus, its need to issue new bonds. Meanwhile, the U.S. Federal Reserve has also stopped "quantitative easing" (buying government bonds). That being said, there is now a huge increase in the volume of U.S. government bonds that must be sold in financial markets. This in itself can cause further rises in U.S. rates.

In the past, Canada has not always fully followed the movements in U.S. interest rates, and I expect this will be the case now. Still, it is quite possible that U.S. bond yields will rise by a point this year, as Canadian yields increase by one-half to three-quarters of a point. Fixed mortgage rates will follow.

It should be noted that this rate increase in combination with the negative effects of mortgage stress tests will weigh on our housing market. This, in turn, will negatively affect the broader economy in Canada. And as higher interest rates start to affect U.S. consumers, we may very well see a return to "quantitative easing" in the U.S., which may very well call for a partial reversal of the rate increases.

In response to the improved economy, the Bank of Canada hiked its "overnight rate" three times in the past year, by a quarter point each time. The BoC continues to talk about its wait-and-see stance but there is evidence of heating-up in the economy, which may point to one more increase in the next few months.

On the other hand, fears of a slowing housing market and of NAFTA's termination in the near future will probably cause the Bank to hold the overnight rate at its current level for some time.

Shawn Stillman

Mortgage Broker,

Mortgage Outlet Inc.

Fixed Rates - Up Variable Rates - Up

Based on the December job report, bond yields have increased over the past 30 days and five-year fixed rates have increased between 15bp and 25bp since the start of the year. Given that yields have continued to rise since the rate announcement, it seems like we're facing another 10bp increase in February, with more increases over the next few months.

It's incredible how much can change in a few short weeks. With strong job numbers and oil reaching over $60 USD per barrel, things are looking up for the Canadian economy. And now that the Bank of Canada has increased its overnight rate yet again, rates will likely trend upwards over the next few months. Bank of Canada Senior Deputy Governor Carolyn Wilkins said, "while the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target."

The Bank of Canada recently increased its overnight rate by 0.25 per cent, so that it now sits at 1.25 per cent. As a result, all the major banks quickly followed by raising their prime rates to 3.45 per cent. The market is estimating another increase within the next few months, and it's clear that variable rates will rise over the next 90 days. This may be delayed based on how the NAFTA negotiations play out, but considering the meetings in Montreal last week, things are looking more positive. I would expect another increase in March or April.

Dr. Ian Lee

Program Director,

Carleton University

Fixed Rates - Up Variable Rates - Unchanged

The latest economic data from the U.S. and Canada show that both economies are operating flat out at full capacity. More troubling is that wage inflation seems to be emerging in the U.S., with the risk that inflation will become untethered. Bond yields are reflecting this increasing perception. Indeed, five-year bond yields have moved from 1.5 per cent to around two per cent since November. These pressures will continue (notwithstanding softening mortgage demand in Canada), suggesting further increases in fixed mortgage rates soon.

The Bank of Canada increased the central bank rate recently as "the Canadian economy is operating close to its potential level of activity, and inflation is close to two per cent." While the U.S. Federal Reserve is likely to increase its rate sooner rather than later, it is doubtful the Bank of Canada will increase its rate as well.

Dan Eisner


True North Mortgage

Fixed Rates - Up Variable Rates - Unchanged

As the economy thrives and inflation worries begin to rise, bond yields have been trading at their highest point since late 2014. We have seen five-year fixed rates move up lately and will likely see more rate increases soon. We got off to a busy start this year as home buyers are eager to purchase before rates increase even more.

Canadian banks are happy with variable rate spreads at this time.