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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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August 2018 Overall Summary

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The panel is somewhat in agreement that certain threats to the economy's growth are slowly but surely brewing – from flat job growth, slowing GDP, to NAFTA negotiations being prolonged. As such, fixed rates will likely remain flat for the foreseeable future.

Bond yields have also been flat since the beginning of the year, but this may change slightly if bond yields increase in the U.S. The U.S. government recently implemented enormous tax cuts domestically and tariffs on imports from various countries – including Canada – leading to increased economic pressures and potential trade wars.

Seeing that the Bank of Canada (BoC) recently increased its rate by another 25 basis points to 1.5%, the panel believes for the most part that another variable rate increase won't be warranted until the end of the year. Higher rates will soon translate to higher borrowing costs for Canadians with floating rates loans and variable mortgages. And while the Canadian economy seems to be doing well with slight inflationary pressures, the Bank explained in a statement following the recent rate hike that it will continue to take a "gradual approach, guided by incoming data."

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields have traded in a fairly tight range over the last three weeks, so I don't expect fixed mortgage rates to move up or down in the short term. In some regions, the housing market is starting to pick up, suggesting that home buyers have adapted to the recent regulation restrictions. Maybe the end of the year will finish on a high note on the housing front.

The recent prime rate move helped the major banks. Therefore, Canadian banks are happy with variable rate spreads at this time. I don't expect to see any changes.

Shawn Stillman - Mortgage Broker, Mortgage Outlet Inc.

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Between a flat job report, slowing GDP, a trade war with the U.S., and NAFTA slowly going over a cliff – the risks to the economy are quietly increasing, and as such, bond yields have been flat since the start of 2018. However, five-year fixed rates were quick to increase in the first half of 2018 and have not dropped as quickly. They are currently 20bp higher than the start of 2018, and thus, I expect flat to slightly lower rates over the next few weeks if yields remain at the current level.

Given the uncertainly in the Canadian economy, it looks like rate increases are becoming fewer and father apart, with most banks only expecting only one more in late 2018. The big surprise in the mortgage market is that the major banks are still offering prime – 0.95% or better, and monolines are still offering rates as low as low at 2.41% (prime – 1.29%) on insured and insurable mortgages. Many consumers are taking the variable option with such deep discounts. I still see the discount offered on variable mortgages to remain flat over the next few months.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields continue to move in small waves, as economic expectations shift. But, the trend for bond yields has been essentially flat since early this year. As a result, interest rates for fixed-rate mortgages have also only made small moves this year.

Economic conditions remain quite positive in Canada, the U.S., and indeed, in much of the world. Inflationary pressures are starting to develop, but only moderately. The enormous tax cuts in the U.S. are also adding to economic pressures, and resulting in extremely large borrowing needs for the U.S. government. In consequence, it seems very likely that bond yields will rise in the U.S. during the remainder of this year. Canadian bond yields may follow, but only partially. I expect that by the end of the year, the rates for five-year fixed mortgages in Canada will rise by one-quarter to one-half point from current levels.

Looking further ahead, the developing trade war between the Trump administration and many other countries is already starting to do economic damage. Unless those dangerous policies are reversed, economic conditions in the U.S. will weaken materially next year, which will reduce the pressure on interest rates. I don't expect rates to fall next year, but it is less likely that they will increase.

Over the past year, the Bank of Canada raised its overnight rate four times. In a statement that accompanied the July 11 increase by 25 basis points, the BoC said it "expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data."

Economists and financial market analysts generally expect that there will be one more increase by a quarter-point, although the timing is uncertain. While the Canadian economy is strong and there are signs of slight inflationary pressures, major factors are starting to turn negative. For instance, growth in Canada may be harmed by the developing trade wars and sharp slowdown of housing activity caused by the stricter mortgage stress test.

On the positive side, the price of oil is recovering, but so far, the level is not going to stimulate a strong recovery in the producing provinces. Meanwhile, higher gasoline prices will weigh down the other provinces, as consumers will be less able to spend on other goods and services. It is possible that the BoC will increase its rate one more time this fall, and variable rates will correspond.