End In Sight For the Fixed Rate Limbo? The August Mortgage Panel Weighs In

By Penelope Graham
RateSupermarket.ca

In the midst of some of the lowest fixed mortgage rates ever, home buyers and experts alike are wondering – are we due for some stability, or could these rates go even lower? Turns out, August may be tame in comparison to July's movement. According to the Mortgage Rate Outlook Panel, an expert survey assembled by RateSupermarket.ca on short term mortgage trends, both fixed and variable rates are looking to stay put.

Despite the latest sizzler record low five year fixed mortgage rates Mark Kocaurek, Senior Vice President of Treasury and Lending at ING DIRECT Canada believes we've hit bottom – for now. "Economic data from around the world has been uniformly tepid at best or outright poor," he says. "As a result, I believe long term government and swap yields will remain close to where they are now for the foreseeable future as will fixed mortgage rates."

Kocaurek's sentiment on global economic uncertainty is a common theme amongst panelists. Dr. Ian Lee, Director of the MBA program at Sprott School of Business at Carleton University, says Europe's economic woes, as well as stalled growth in the U.S., can only mean consistent investor confidence in Canada's economy. By contrast, Canada is one of the strongest economies in the G7 and across Europe. This attracts buyers to Government of Canada bonds and drives down yields.

In addition to Canada's safe haven status, the five year fixed limbo may also be attributed to the aftermath of recent CMHC rule changes. Put in place on July 9 to balance an overheated market and stem Canadian household debt, these record lows – which went as low as 2.88 per cent in some provinces – seem to fly in the face of government efforts. The culprit? As five year fixed is consistently the most popular mortgage product (RateSupermarket.ca's Canadian mortgage stats say accounts for 39.2 per cent of mortgage seekers on their site in July), competition is heating up among lenders looking to woo a shrinking pool of mortgage shoppers. As high ratio mortgage seekers often first time home buyers are bearing the brunt of the CMHC's docked amortization and LTV borrowing possibilities, that pool is shrinking indeed.

So what of variable rates - traditionally the lowest available on the market? Well they've been affected by the fixed feeding frenzy as well. In addition to the Bank of Canada holding its key interest rate (a direct correlation to variable rates), mortgage shoppers are increasingly honing in on stable options at an unprecedented low. As a result, lenders are shifting their discounting - and the demand for variable has dropped. Dan Eisner, president of True North Mortgages says, "Banks and Canadians in general do not seem interested in variable rate options with 5 year fixed rates so low. As a result, we don't foresee any changes to the variable rates in the next while."


About RateSupermarket.ca
RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. The Mortgage Rate Outlook Panel is published monthly by RateSupermarket.ca, and compiles the outlook of top mortgage professionals on the short term trends regarding fixed and variable mortgage rates.

Read more about their August outlook here.