“The key determinant of mortgage rates are bond yields and those yields are falling,” Michael Campbell, Verico
’s economist, said in his Q1 financial report, which was obtained by MortgageBrokerNews.ca. “The five and ten year treasuries are both trading at record lows – with the five year bond at .511 and the 10 year at 1.192. This is not the fuel for higher mortgage rates.”
However, Campbell acknowledges the fact that rates have edged up – as brokers may have noticed. That, however, is not due to the traditional determinants.
“Over the last couple months mortgage rates in various products edged up. This is not due to increasing yields in the bond market, (the usual reason),” Campbell said. “The increases are a reflection of the higher costs for the banks associated with the mortgage changes initiated in December by the new Liberal government.”
The Bank of Canada recently held its benchmark for the overnight rate at ½%. That, despite many forecasting a rate cut.
“There is absolutely no pressure in terms of inflation or demand to move rates higher as the Federal Reserve did in the States in December. In fact, with oil prices continuing to fall while manufacturing exports continue to limp along, the pressure is mounting on the Bank of Canada to reduce rates.”
The next move by the bank could, however, be a cut. According to Campbell the economy is “a long way from approaching robust growth.”
“In December, Stephen Poloz mentioned the possibility of negative rates for the first time,” Campbell said. “He added that it was a low probability but the fact the he mentioned it reflects an underlying concern about the Canadian economy’s strength.”
The super low rate era will continue, according to one broker network’s economist.