Since March we have been treading water with rates, fixed rates have remained flat with bond yields not moving and variable rates have not changed as the BoC did not increase rates as expected. With an increase in inflation and flat job numbers there is only a 50% chance of the BoC increasing rates over the next few months. Given these factors I don’t see any major changes over the next few weeks.
The Bank of Canada announced on April 18th that the overnight rate would remain at 1.25%, with inflation at 2% and the economy picking up, the chance of a rate increase over the next two months is a coin flip. Given the slowing pace of rate increases it looks like the changes of seeing prime over 4% in 2018 are less likely. The big surprise in the mortgage market is that there are many monoline lenders offering prime – 1% or better on insured and insurable mortgages, with rates as low at 2.16% (prime – 1.29%), many consumers are taking the variable option with such deep discounts. I still see the variable rates flat over the next few months until the next BoC increase whenever that might happen.
Based on the April job report, a potential NAFTA settlement and pipeline wars between Alberta and BC there are a lot of uncertainties in the market and as such bond yields have remained flat over the past 30 days; however,there was a 10bp increase in mortgage rates of most monoline lenders. Even though TD and RBC raised posted rates this week, I don’t see the discounted fixed rates changing much over the few weeks. However, this increase in posted rates will cause the qualifying BoC rate to increase from 5.14% to 5.59%, which will reduce the amount borrowers can borrow going forward.
Shawn Stillman, CPA, CA
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