Canadian borrowers have enjoyed record low mortgage rates for the past six years. Could these discounts soon come to an end? Global influences, such as an international bond sell-off and the chance of an American rate hike, pose the possibility in the medium term. However, summer buyers still have reason to smile, as an expert mortgage panel calls for fixed and variable deals to last throughout the summer.
Fixed Mortgage Rates Won't Be Swayed by Bond Sell-Off
"Tension over Greece's status within the Eurozone has resulted in a global bond sell-off, causing German bunds and Asian yields to spike. However, Canadian five-year yields have eased back to below the one per cent threshold in recent weeks," says Kelvin Mangaroo, panel member and founder of rate comparison site RateSupermarket.ca. "Given this backdrop, and the current competitive nature of the market, lenders will likely continue to offer their fixed-rate options at great discounts."
Next Steps for the Bank of Canada
Variable mortgage rate holders can also expect stability - at least for the short term. Despite the lingering economic impact of lower oil prices, jobs and manufacturing data have surpassed expectations, leading experts to believe that a rate cut is less likely in the coming months - though not completely off the table.
"(It) reveals, contra to critics, that Canada is not a petro-state but a service economy with 16 million of the 18 million jobs in downstream service sector," states panelist Dr. Ian Lee. "For these reasons, it is more likely that the Bank will leave the rate unchanged, then reduce it one more time."
Stated Mangaroo, "In their recent semi-annual Financial Systems Review, the Bank of Canada indicated high household debt and real estate prices, rather than oil, pose the greatest threat to the economy. However, they also emphasized that the resulting employment consequences could trigger a long-dreaded housing price correction."
Experts also keep a close eye on American rate policy, which traditionally dictates the Canadian cost of borrowing. An improving U.S. economy feeds speculation that the U.S. Federal Reserve is poised to hike interest rates, but that movement won't occur until September, and will be implemented at a gradual pace.
The consensus: RateSupermarket.ca's Mortgage Rate Outlook Panel points to a persistently low-yield Canadian bond market to support fixed-rate discounts, while a move by the Bank of Canada on variable-rate pricing is unexpected in the short term.
Click here to read the entire forecast for summer fixed and variable mortgage rates.