It was another quiet quarter in the Canadian mortgage market. Canadian five-year fixed rates moved essentially sideways over the summer as optimism about the end of the pandemic faded under the weight of a fourth wave of cases. Canadian economic growth remains strong, if uneven, and inflation continues to be elevated. However, global financial market attention has entirely shifted from concerns over rising inflation to fears over the impact of the delta variant of COVID-19. Indeed, rising cases across G7 countries has prompted a retracing of bond yields with the Canadian five-year Government of Canada bond falling from about 1 per cent in June to 0.8 per cent in September. That decline in bond yields prompted a modest five basis point cut in mortgage rates by major Canadian lenders.
Given that the direction of interest rates is being determined by epidemiologic factors rather than macroeconomics, it is difficult to forecast with any certainty. It is perhaps more likely in the short-term that five-year fixed rates will decline further, at least until we are past this most recent uptick in COVID-19 cases. Once normal macroeconomic drivers again take precedence in determining mortgage rates, whenever that might be, we expect fixed rates to gradually rise back to pre-pandemic levels while variable rates follow the Bank of Canada’s timetable. That means a fixed five-year rate of 2.1 per cent for the remainder of this year, along with a 1.5 per cent variable rate available through 2022.
For more information, please contact: Gino Pezzani.