BCREA’s Mortgage Rate Outlook
History was made in the first quarter of 2014 as some chartered banks lowered their posted five-year mortgage rate (the qualifying rate for high-ratio mortgage approval) to 4.99 per cent, the first time the five-year posted fixed rate has ever been below 5 per cent.
Interestingly, this record-breaking move in mortgage rates comes at a time when five-year Government of Canada bond yields are well off their own historical lows. Since bottoming out at just over 1 per cent in the spring of last year, five-year bond yields have settled in a range of 1.5 to 1.7 per cent through the first three months of 2014.
The record-low mortgage-qualifying rate comes at a time when consumer and mortgage credit growth has been slowing. It is therefore likely a product of intense spring-season competition for mortgage loans, particularly among first-time buyers. In addition, lower rates offer some compensation for recent, though minor, increases to the Canadian Mortgage and Housing Corporation’s mortgage insurance premiums.
However, we anticipate that these record-setting rates will be a temporary phenomenon. Indeed, while interest rates have zigged when we forecasted them to zag in the opening months of 2014, positive news on the economy and higher inflation could translate to higher interest rates on the horizon.
We are forecasting that the five-year fixed rate will remain anchored near its current level for much of the first half of 2014 before gradually increasing along with a much improved economic outlook. Variable and one-year mortgage rates should likewise remain relatively stable this year, with some upward pressure on one-year rates closer to the end of year as markets begin pricing in future rate increases by the Bank of Canada.
To read the full report, visit www.bcrea.ca.