rates
MORTGAGE RATES FALL TO THE DELIGHT OF MOST, BUT NOT ALL Falling interest rates are a great thing if you’re a debtor or would- be borrower with confidence in your employment prospects; for all others, they are a warning.
It’s remarkable the extent to which the interest rate environment has changed since the fall of 2018. At that time, Canadian and US central bankers had been increasing their trend-setting short-term rates for a year- and-a-half, longer-term bond yields had been steadily rising—bringing mortgage rates up with them—and all of this was occurring against a backdrop of rising inflation. Today, the go-forward trajectory for rates is, at its highest, flat, and at its lowest, down. By the beginning of Q3 2019, Canadian inflation had settled itself right in the middle of the Bank of Canada’s target band of 1%-3%, at 2.02%. The Bank’s policy rate has remained unchanged at 1.75% since October and it is expected that there will be at least one 25 basis-point cut to this rate by the end of 2019. The real attention-getter, though, has been the steep decline in bond yields. Government of Canada 5-year bond yields have fallen to
1.46% most recently, from 2.42% at their peak at the end of last year—a 40% drop. As bond markets heavily influence fixed mortgage rates, it has become cheaper to borrow for your home: the CMHC 5-year conventional mortgage rate has dropped by 8% over the same period, to 4.14% today. Of course with discounts, most mortgage holders would pay a far lower rate, with some chartered banks currently offering 5-year fixed rates of 2.49%. In a housing context this is excellent news for those looking to renew, refinance, or take out a new mortgage, as it is has become markedly cheaper to do so. However, to the extent that rates are coming down due to a world that seems increasingly beset by uncertainty, some sober contemplation of the bigger picture is required. Let’s hope that lower rates provide a solid foundation that supports our collective economic performance.
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