March Madness - Market Update

March Madness has begun. The annual spring real estate season is officially underway. The starting gun sounded with the latest round of posted mortgage rate cuts – in some cases to all time record lows.

But, of course, there is a catch. Mortgage shoppers will have to take a very close look at the conditions attached to these deals. They can be very restrictive, designed more to tie the borrower to the bank and build market share, rather than offer a genuinely cheaper rate.

It has been noted by savvy market watchers that the new, posted rates are not really any lower than the unadvertised rates that have been out there recently.

The services of an independent mortgage broker can be very helpful as springtime temperatures rise and the market hype heats up.

Panel Predicts Future of Rates

Just prior to the Bank of Canada’s rate announcement four industry leaders predicted where rates will go within the next 30-45 days, and a consensus was reached.

As part of RateSupermarket.ca’s expert panel, both Dan Eisner, president of True North Mortgage and Dr. Ian Lee, program director at Carleton University Will Dunning, CAAMP’s chief economist, and Kelvin Mangaroo, president of RateSupermarket.ca came to a consensus that fixed rates will drop.

“Bond investors, encouraged by a lower-rate environment in response to plunging oil, clamoured post-announcement, driving yields to sub 0.7 per cent levels,” the panel wrote. “Combined with competitive pressures from the heating spring market, lenders are expected to work with the limited discounting room they have in order to capture market share.”

According to the panel, rates have remained competitive since the surprise overnight rate drop by the Bank of Canada in late January, with lenders discounting both fixed and variable rates.

And despite the fact that the Bank of Canada held its overnight rate at ¾ per cent this morning, the panel believes variable rates will see a drop in the next month as well.

“Canada's biggest lenders have yet to fully implement the 0.25 per cent discount prescribed by the Bank of Canada in January,” the panel wrote. “Regardless of whether the Bank cuts rates again in the short term, competitive factors could lead the "Big Five" to finally concede the remaining 10 basis points to borrowers.”

DLC Chief Economist Comments on BoC Rate Announcement

Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres (DLC) was expecting the Bank of Canada to leave interest rates unchanged today in the wake of the surprising rate cut in late January. Governor Stephen Poloz signaled this wait-and-see stance last week, following criticism that his surprise move had destabilized financial markets, thwarting the Bank’s efforts to boost economic activity. “The Bank has become increasingly concerned about the dampening impact of the plunge in oil prices on business capital spending and production in the oil sector—a key component of Canadian economic expansion in the past,” said Dr. Cooper. Recent layoff announcements in the oil patch exacerbate this concern.

“For now, core inflation in Canada remains quite low, giving the Bank plenty of leeway to maintain a very accommodative policy stance,” said Dr. Cooper. “However, the weakness in the Canadian dollar will increasingly show through in rising import prices, as so many consumer and business products are imported from the U.S.”

The Bank of Canada continues to project that the dampening impact of lower oil prices will be felt in the first half of this year, leaving open the possibility of another rate cut in coming months, maybe as soon as its next meeting on April 15. The hope is that the weaker Canadian dollar will offset the oil price shock by boosting non-energy exports and investment. Lower oil prices have been good for consumers and non-energy businesses that are heavy users of energy.

Dr. Cooper believes that with “the U.S. economy leading global economic expansion, the Federal Reserve is poised to hike rates for the first time in nearly eight years, probably by the late-June meeting. This alone will put some further downward pressure on the Canadian dollar. Hence, the Bank of Canada’s caution in cutting rates now; but if non-energy exports and business investment do not follow through, the Bank will cut interest rates further, accepting the Canadian dollar fallout”.

“My view is that the Canadian economy will grow at about a 2-1/4 percent pace this year with long-term yields edging higher by yearend. In sum, while mortgage rates might fall a bit further in the next couple of months,” said Dr. Cooper. “They are headed higher by year end. The rise, however, will be muted. Next year, expect the Bank of Canada to begin to tighten, raising overnight rates very gradually. This, of course, is predicated on a near-term bottoming in oil prices, edging to the $60-to-$65 a barrel range in the next year. As always, central bank action will be data dependent.”