With homebuying season right around the corner, all eyes are on mortgage rates, with some brokers expecting we’re about to see banks begin to cut their fixed-rate products.
“I expect the fixed rate to continue to drop over the next few months,” says Shawn Stillman, director and principal broker at Mortgage Outlet Inc. “Based on the drop in bond yields...there should be another 0.3 to 0.4 [of a percent] drop on the fixed rate, and we should be able to see rates at major banks in the 2.99% range before summer.”
In what was thought to be the first move in this direction, TD Bank accidentally cut rates on its website, something first spotted by mortgage broker RateSpy on Sunday. The rate cut showed a 70 basis point drop in the five-year fixed on its website to 4.64%. TD later retracted it.
“Changes to our posted rates on our website were made in error,” a spokesperson for TD said via email to LowestRates.ca. “We apologize for any misunderstanding and please refer to the rates currently posted.”
“No rate changes were made yesterday.”
The last time the banks cut their fixed mortgage rates was in January, when RBC was the first among them to slash its five-year fixed mortgage rate by 15 basis points.
Lenders like HSBC are giving the big banks some competition, with a five-year fixed posted rate of 5.04%.
“We have already seen the fixed rate drop slightly over the last few weeks,” says Nalie Nguyen, mortgage broker and executive director at Dash Mortgage. “Lenders are being very competitive on the fixed rates. The gap between the fixed rates and variable rates is getting smaller,” she says.
With all this pressure, the question now is when the big banks will pass on the recent downward trend in interest rates to consumers.
“We cannot elaborate on pricing changes we might be considering,” a spokesperson for Scotiabank told LowestRates.ca via email. “Our number one focus is providing value for our customers – we manage our pricing very actively to do just that, using a variety of market benchmarks.”
A CIBC spokesperson said in an email that it “can only comment if our rates move.”
None of the other major banks — RBC and BMO — could be immediately reached for comment.
The pressure’s on
With significant signs of a slowing global and domestic economy, there’s a lot of downward pressure on interest rates right now. Canadian government bond yields, which impact interest rates on fixed-rate mortgages, have been falling steadily since last fall. This week, the yield on the five-year mortgage fell to 1.44%, the lowest it has been since the start of 2017.
That’s a lot to digest in and of itself. But to top it all off, Canada’s yield curve inverted on Friday. The yield curve refers to a phenomenon when long-term bond yields fall below short-term yields — which normally shouldn’t happen, as holding onto a long-term bond is viewed as riskier than a short-term bond. However, when investors expect rates to rapidly fall, as they would in a recession, yields invert.
According to Bloomberg Canada, the “yield on Canada’s 10-year bond dipped to 1.6% Friday, or six basis points lower than the rate on the three-month Treasury bill. That hasn’t happened since 2007, at the start of the financial crisis sparked by a housing crash in the U.S.”
When added to the other pile of economic concerns, this recent development could prompt the Bank of Canada to continue its holding pattern, halting any hikes in the foreseeable future and even maybe calling for a rate cut at some point.
Lower mortgage rates would certainly be a relief to young homeowners and homebuyers in Canada. Homeownership in Canada remains somewhat of a pipe dream for young people – especially in its largest and most expensive cities, like Toronto and Vancouver. Home values are declining and so are sales; the mortgage stress test continues to lock many out of the market; Canadians are getting worse at paying their mortgages on time; and the government has even felt it necessary to step in and provide a shared equity model to incentivize people to buy homes.