Achi news desk-
Market watchers say some Canadian lenders are raising their available fixed mortgage rates despite indications from the Bank of Canada that rate cuts are possible in the coming months.
Mortgage experts who spoke to Global News say that while Canada’s central bank has opened the door on rates coming down by the middle of the year, stubborn economic data in the US could be a bane for prospective homebuyers eyeing spring market.
The Bank of Canada kept its benchmark interest rate steady at 5.0 percent for the sixth straight decision last Wednesday, amid signs that key inflation indicators are heading in the right direction.
Governor Tiff Macklem told reporters last week that an interest rate cut in June was within the “realm of possibility” – a departure from previous messages when he said it was “too early” to talk about lowering the policy rate.
He said the central bank is now looking for evidence that the recent easing in inflation will be “permanent.”
A ‘bumpy road’ for fixed rate mortgages
The Bank of Canada’s key interest rate informs rates that Canadian lenders post on products including various mortgages.
Changes in market sentiment about the rate path can also influence the rates offered, as the bond yields that drive fixed rates rise or fall based on traders’ expectations for the policy rate.
Despite signs that the Bank of Canada’s tightening cycle may be coming to an end, bond yields have been rising over the past few weeks.
The five-year Government of Canada bond – the one that drives five-year fixed mortgages – topped 3.8 per cent on Monday morning before settling somewhat. That compares with a yield of 3.4 per cent three months ago and 3.6 per cent a month earlier.
That’s pushing some lenders to raise their fixed rates offered, said Victor Tran, a broker with True North Mortgage and the mortgage and real estate expert at Rates.ca.
Fixed-rate insured mortgages are typically offered around the low to mid-five percent range right now, Tran said, depending on the length of the term and whether or not the mortgage is insured.
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Rates.ca’s comparison tool shows the lowest five-year fixed-rate insured mortgage available in the market at 4.84 per cent as of Monday afternoon. That’s up from rates of 4.79 per cent just a month ago.
“Fixed rates have been uneven over the past few months,” Tran said.
US economy affects Canadian mortgage rates
James Laird, co-founder of Ratehub.ca, says there is “upward pressure” on fixed rates right now.
Some lenders have been raising their rates but others are waiting for Statistics Canada to release inflation data for March on Tuesday.
Although inflation has tended to be lower in Canada over the past few months – the annual rate cooled to 2.8 per cent in February from 2.9 per cent the previous month – many economists expect an increase in gas prices last month the headline inflation figures will rise in March.
“Those borrowers who are holding out may be forced to move this week,” Laird told Global News.
Last month also saw consumer price index figures in the US running hotter than expected for the third consecutive month.
That, along with other signs that the American economy is holding up well under the weight of higher interest rates, is pushing back market bets on when the US Federal Reserve will start cutting rates south of the border .
Although Macklem has made it clear that the Bank of Canada sets monetary policy based on Canadian trends – not the timelines of its US counterparts – there are risks for the central banks’ rate paths to diverge.
If the Bank of Canada cuts faster and more frequently than the US Fed, the gap in the rate could hurt the Canadian dollar relative to the American greenback.
That, in turn, could raise the price of imports from the United States, which risks adding fuel to inflation at a time when Macklem and his cohorts are looking for constant downward pressure on prices.
Laird says that if the US economy wasn’t performing so well right now, forecasters could be pulling ahead with calls for rate cuts in Canada.
“I actually think the Bank of Canada might be considering a cut sooner if it wasn’t for what was happening in the United States,” he said.
But Laird also says that last week’s confirmation that the Bank of Canada is preparing for a possible interest rate cut at its next meeting in June has already “priced in” to the bond market, so it didn’t sway sentiment as much as that.
He says bond traders are now looking for hints of what happens after the first interest rate cut – whether there will be a series of rate cuts, or whether the central bank will hold again after the that point?
Could higher rates block the spring market?
Rising fixed mortgage rates among some lenders come as potential home buyers and sellers try out the typically busy spring housing market.
Tran says he doesn’t expect fixed rates in the five to six percent range to put too much of a “damper” on the spring housing market.
After two years of the Bank of Canada’s interest rate hike cycle, he says buyers on the fringes will be tired of putting their lives on hold and may have to pull the trigger on higher rates — if they can afford it.
“Buyers who are ready to buy and need to move on, they’re going to make moves. Some of those who are not ready to buy will continue to rent and save until that opportunity comes through,” Tran said.
Laird says the market is off to a “slower start” this year than last year, when the Bank of Canada’s pause in rate hikes drove down bond yields and borrowing costs for homebuyers. Higher fixed mortgage rates could prevent the market from rising, just as last spring’s momentum was cut short when bond yields rose in the fall of 2023, he said.
“Rates are critical,” Laird said.
“Right now I think Canadians expect rates to go down. That drives a lot of the demand. And if that narrative changes, expect a lot of people who are currently in the market to go back to the sidelines as they were in the second half of last year.”
Even with talk of rate cuts in the cards, Laird says it’s wise not to assume rates will continue to fall from this point. He advises prospective buyers to get mortgage pre-approved as soon as possible to lock in rates at current levels to insulate themselves from potential future increases in borrowing costs.
