This post is guest-written by: Penelope Graham, Zoocasa
Variable mortgage borrowers are enjoying a six-month stretch of price stability as the Bank of Canada, which sets the cost of borrowing for consumer lenders, kept its trend-setting Overnight Lending Rate at 1.75% in its July announcement.
It opted to do so despite some strong signs that the economy has been improving – labour numbers remain optimistic, and consumer spending has picked back up in the second quarter of the year, following a winter slump caused by poor weather and low oil prices.
Such improvements would typically set the stage for the BoC to hike rates. However, the picture isn’t as cheery on a global scale, and that’s put a crimp in the BoC’s upward stance. International trade tensions, particularly the growing tiff between the U.S. and China, have slowed global GDP growth and have led to central banks around the world to hold or cut their own rates. This includes the U.S. Federal Reserve, the American counterpart to the BoC, and arguably one of the largest influences on Canadian monetary policy.
While the BoC continues to hold off on cutting its rate, it’s prevented from actually increasing them, as bucking the trend would overly strengthen the Canadian Dollar and be bad news for exports and investment. The central bank acknowledges that, “escalation of trade conflicts remains the biggest downside to the global and Canadian outlooks.”
The BoC also predicts that Canadian GDP will grow to 1.3% in 2019, and up to 2% in 2020 and 2021, with inflation sticking close to its 2% target. Perhaps even more telling of an economic uptick is performance in the housing market; demand for MLS listings had previously dropped from its 2016 peak as the result of new federal mortgage stress testing and provincial regulations designed to cool the market. However, the data reveals home buyers are now returning to the market in droves, with demand boosted by lingering low mortgage rates.
Stated the BoC, “At the national level, the housing market is stabilizing, although there are still significant adjustments underway in some regions. A material decline in longer term mortgage rates is supporting housing activity.”
Economists have been in consensus that the BoC will stick to status quo on its rate throughout the rest of this year, and may even be poised to cut it in 2020; according to a Reuters poll of 40 economists, 40% are anticipating the cost of borrowing will fall next year.
This would typically signal that, for borrowers who have the risk appetite, it’s a great time to get a variable rate, as they’re expected to stay stable and low for the foreseeable future.
However, five-year bond yields – the economic metric that banks use to price their fixed-rate mortgages – are also hovering at historical lows, well below 2%. That’s prompted banks to offer deeply discounted fixed mortgage rates. While typically priced higher than variable rates due to the stability they provide, today’s fixed rates are nearly on par, or lower, than variable options.
You credit score carries a lot of importance when lenders and brokers are taking your information and calculating your interest rate. If you’re looking to refinance your mortgage, check out the Borrowell Mortgage Coach to find the best mortgage for you based on your unique credit profile.
Penelope Graham is the Managing Editor of Zoocasa.com, a real estate website that combines online search tools and a full-service brokerage to let Canadians purchase or sell their homes faster, easier and more successfully across the nation. Home buyers and browse both current and past sold prices in Toronto, as well as browse listings on the site, or with Zoocasa’s free iOs app.
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