April 18th, 2024:
As homeowners with variable-rate mortgages eagerly await potential rate cuts from the Bank of Canada, the fixed-rate market is witnessing a different trajectory: an upward trend.
Since early October, Government of Canada bond yields, which serve as a leading indicator for fixed mortgage rates, experienced a significant drop of 125 basis points, or 1.25 percentage points, by early January.
However, in recent weeks, these yields have rebounded by approximately 60 basis points, with around 25 basis points of those gains occurring in the past three weeks. Consequently, fixed mortgage rates are following suit on this upward trajectory.
Blame it on Strong Economic Data
According to rate expert Ron Butler of Butler Mortgage, 2- to 5-year fixed mortgage rates have increased across various lenders by anywhere from 15 to 30 basis points in recent weeks. This surge is primarily attributed to robust economic data, particularly from the United States, including strong employment, GDP, and inflation figures.
In March, U.S. CPI inflation rose by 0.4% month-over-month and 3.5% on an annualized basis, prompting speculation among economists about the timing of U.S. rate cuts. U.S. Federal Reserve Chair Jerome Powell’s recent remarks further fueled these speculations, suggesting that interest rates could remain higher for an extended period if there’s a lack of progress on the inflation front.
In Canada, where GDP growth and employment have outperformed expectations, the market anticipates the first Bank of Canada rate cut to be delivered at either its June or July meetings, although this projection is subject to change.
Future Outlook for Fixed Rates
Rate experts believe that fixed rates still have room to increase. They anticipate another 20 to 30 basis points rise, citing the significant gap between fixed and variable rates and the market’s previous overestimation of rate cuts.
The average 5-year fixed rate for insured mortgages currently stands at around 4.79%, with some predicting a potential increase to 5.29%.
While fixed rates are expected to decline once Bank of Canada rate cuts become imminent, some experts are pointing out a potential wildcard: fixed rates could continue rising even as the BoC’s benchmark rate falls. They attribute this possibility to Canada’s fiscal policy concerns, suggesting that government bonds and mortgage rates could increase due to perceived risks in the market.
Looking Ahead
As the mortgage market navigates through these fluctuations, it’s essential for homeowners and prospective buyers to stay informed about these evolving trends. While fixed rates may experience further increases in the short term, long-term projections remain subject to various economic factors and policy decisions.
Ultimately, consulting with mortgage experts and staying abreast of market developments can empower individuals to make informed decisions regarding their mortgage options in this dynamic landscape.
By staying vigilant and proactive, borrowers can navigate through the current market conditions with confidence and clarity.
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Navigating your current situation may seem challenging, given the various factors influencing your mortgage. However, finding a solution is within reach. Whether you seek clarity, guidance, or simply peace of mind during these complex times, we’re here to assist you every step of the way.
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