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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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The panel held its course this month – predicting no change to either fixed or variable rates.

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Only one of our experts, True North Mortgage's Dan Eisner feels optimistic about a possible rate cut. That's a reflection of looming global trade tensions and despite strong economic conditions.

Aggressive competition in the floating rate market means banks are already offering larger-than-usual discounts from prime rate. That fact alone is reason to expect little near-term change to variable rate pricing.

This Month's Panelists

Will Dunning

Chief Economist,

Mortgage Professionals Canada

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Interest rates (including mortgage rates and the yields for government bonds) have fallen during the past month: for example, the yield for five-year Government of Canada bonds has dropped by about one-quarter of a point since the start of July. These movements have very little to do with economic realities: economic conditions are currently very strong in Canada and the US, and on that basis interest rates should actually be somewhat higher than they are. The falling interest rates are due to fears that reckless economic policies and increasingly dysfunctional politics in the US might impair the economy later this year and into next year. These conditions make it very difficult to predict the direction of interest rates.

Economic conditions remain quite strong in Canada and the Bank of Canada does not expect any substantive deterioration. Therefore, it is very unlikely to change its key interest rate during the next few months.

There is, of course, uncertainty, but even if we see some signs of economic weakening in Canada in the coming months, it would take some time for the Bank of Canada to alter its fundamental view that the current level of its benchmark rate is appropriate.

Any change in variable rates would therefore have to be due to changes in the discounts (versus their prime rates) that lenders offer. These discounts are already larger than average (reflecting that the lending environment has become quite competitive). Therefore, it is unlikely that there will be further reductions. Is there a chance that variable rates could rise? Housing activity has improved during the past few months, but is still below average. Therefore, continued competition should prevent rises in these rates.

Dr. Ian Lee

Program Director,

Carleton University

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As Will Dunning and other economists have noted, the mortgage stress tests continue to depress demand for housing. Consequently, three to five-year GoC bond yields appear to have stabilized around 1.3 percent, suggesting no immediate increases or decreases in variable rates. In further support, there is no evidence of a sudden surge in demand for housing and thus mortgage funding.

The return to economic growth trend line – announced by the Bank of Canada at the MPR Press Conference July 10, 2019 – is sharply mitigated by the increasing uncertainty around trade policy and US-China trade relations and secondarily Canada's relationship with both the US and China. It was for these reasons the Bank did not increase interest rates and such increases are not expected in the near future.

Dan Eisner


True North Mortgage

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It has been a turbulent few days in the financial markets. China reacted to US tariffs announced last week by letting the Yuan devalue. This will have the affect of making US goods in China more expensive and Chinese good cheaper in the US. The US called the move currency manipulation. China is a currency manipulator and has been for a long time, except they typically manipulate their currency to be higher than is would otherwise be. In this case they are letting it float closer to its actual value. Regardless, stocks fell five percent or more. All that cash flowed into bonds lowering bond yields by 0.1 percent or so. Bonds haven't been this low since March 2017 and mortgage rates were 0.1 percent lower back then so I would expect to fixed mortgage rates to fall by 0.1 percent.

We could be looking down the barrel at a lower prime rate soon.