What Our Inverted Yield Curve Means for Canadian Mortgage Rates

Monday Morning Interest Rate Update for June 10, 2019

by David Larock

Toronto mortgage ratesIf you are keeping an eye on mortgage rates, then you have probably been reading a lot about inverted yield curves lately.

This is a phenomenon that doesn’t occur very often. In normal markets, longer term interest rates are higher than shorter term rates. A yield-curve inversion happens when the yields offered on longer-term bonds drop below the yields offered on shorter-term bonds.

At first glance, this is counterintuitive. Why would I buy a bond that ties up my money for longer and also gives me a lower return?

Well … since you asked …

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Why the Bank of Canada and the Bond Market Still Don’t See Eye To Eye

Monday Morning Interest Rate Update for June 3, 2019

by David Larock

Toronto mortgage ratesThe Bank of Canada (BoC) left its policy rate unchanged when it met last week, as expected.

In its accompanying statement, the Bank offered its latest take on the incoming data with specific emphasis on “developments in household spending, oil markets, and the global trade environment”.

In today’s post I’ll break down the BoC’s observations and offer my take on how these three key areas are evolving.

First, some background.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Five Inflation Highlights with Implications for Canadian Mortgage Rates

Monday Morning Interest Rate Update for May 21, 2019

by David Larock

Toronto mortgage ratesThe Bank of Canada (BoC) recently reminded us that its primary mandate is to keep inflation “low, stable and predictable”, even if doing so “may create side effects that make the economy vulnerable to new shocks.”

Given that, anyone keeping an eye on mortgage rates should be paying closing attention to the inflation data, the latest of which were released by Statistics Canada last week.

Here are five highlights:

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

How Bank of Canada Governor Poloz Can Help Increase the Appeal of Longer-Term Mortgages

Monday Morning Interest Rate Update for May 13, 2019

by David Larock

Toronto mortgage ratesLast week Bank of Canada (BoC) Governor Poloz called for more innovation in the Canadian mortgage market. He specifically targeted three key areas where innovation is needed, with longer-term mortgages topping his list.

In today’s post I’ll outline why longer-term mortgages have historically had limited appeal for both borrowers and lenders in Canada, and I’ll offer a suggestion to Governor Poloz on how he can facilitate a dramatic increase in the uptake of already available ten-year fixed-rate terms.

First, a confession.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Why Our Latest GDP Data Make the Bank of Canada’s Latest Forecast Seem Bullish

Monday Morning Interest Rate Update for May 6, 2019

by David Larock

Toronto mortgage ratesLast week we learned that Canadian GDP contracted by 0.14% in February on a month-over-month basis.

While this didn’t come as a surprise to the Bank of Canada (BoC) or to mainstream economists, the contraction is nonetheless concerning because it marks the fourth time in the last six months that our GDP has shrunk. It also puts to rest any hope that the 0.3% month-over-month GDP growth we saw in January was a signal that our stalled economic momentum would recover more quickly than expected.

In its latest Monetary Policy Report (which I summarized here), the BoC predicted that our economy would return to its previous growth trajectory in the second half of 2019. The Bank lowered its estimate of our annual real GDP growth in 2019 from 1.7% to 1.2%, but it also held firm to its belief that our economy would return to “slightly above potential” after that and maintained its GDP growth forecasts of 2.1% in 2020 and 2.0% in 2021.

If the BoC’s most recent forecast is correct, we should expect that it will begin to consider additional rate hikes in early 2020. That would mean that variable mortgage rates wouldn’t rise until then but our fixed mortgage rates, which are priced of Government of Canada bond yields, would be expected to rise sooner in anticipation of the BoC’s move because longer-term bond yields are more sensitive to changes in our economic outlook.

Of course, that scenario is far from certain.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Bank of Canada Update: Rates to Stay Low for Longer

Monday Morning Interest Rate Update for April 29, 2019

by David Larock

Toronto mortgage ratesBank of Canada (BoC) economic forecasts have consistently erred on the bullish side over the past many years.

The Bank’s typical Monetary Policy Report (MPR) acknowledges that current conditions are weaker than expected but then makes the case that they are soon to improve. Wash, rinse, repeat.

The BoC’s hope for better days is not without some foundation. For example, low levels of unemployment can trigger a virtuous, self-reinforcing cycle where robust wage growth leads to increased consumer spending, which then spurs a rise in business investment that stimulates more job creation, etc.

Only things haven’t worked out that way.

Ultra-low unemployment hasn’t fuelled the kind of broad-based wage growth that our policy makers expected to see. We have had increased consumer spending, but it’s been fuelled by rising debt rather than rising incomes – and debt is really just future consumption brought forward. Business investment hasn’t materialized as hoped, and there is little evidence of any self-reinforcing cycle.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

How Will Reduced Business Confidence Impact the Bank of Canada’s Outlook?

Monday Morning Interest Rate Update for April 22, 2019

by David Larock

Toronto mortgage ratesThe Bank of Canada (BoC) is not expected to move its policy rate when it meets this Wednesday. The real question in the lead up to this meeting is whether the Bank will continue its shift to a more dovish outlook.

Against a steadily weakening economic backdrop, thus far the BoC has conceded only that its next rate hike will likely be delayed by what it views as a temporary “soft patch”. But if the Bank is now more concerned about slowing momentum, its accompanying Monetary Policy Report (MPR), which offers valuable insights into the BoC’s evolving economic view, should make that clear.

There is an especially interesting subtext this time around.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Are Canadian Bond Yields About to Push Our Fixed Mortgage Rates Higher?

Monday Morning Interest Rate Update for April 15, 2019

by David Larock

Toronto mortgage ratesThe five-year Government of Canada (GoC) bond yield, which our five-year fixed mortgage rates are priced on, has been on a wild ride of late.

It stood at 1.82% on February 28 before plummeting to 1.40% on March 27. Lenders were initially slow to lower their five-year fixed rates, but they eventually dropped them from a range of 3.29% to 3.54% in late February to a range of 2.94% to 3.14% by late March.

Since that time, the five-year GoC bond yield has ricocheted back up, and by last Friday it closed all the way back at 1.64%. If the chart on the right were a roller coaster ride, it would come with a motion sickness warning.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Bank of Canada Governor Poloz Dampens Rate-Cut Speculation

Monday Morning Interest Rate Update for April 8, 2019

by David Larock

Toronto mortgage ratesLast week Bank of Canada (BoC) Governor Poloz threw cold water on growing speculation that the BoC’s next rate move will be a cut.

In his speech in Iqaluit, Nunavut, Governor Poloz reiterated his view that our current slowdown will prove temporary. While current Government of Canada (GoC) bond-yield levels indicate that bond-market investors are more pessimistic, when the person with his hand on our policy-rate lever offers his views, we are wise to pay heed.

Here are the highlights from Governor Poloz’s most recent speech:

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Canadian Mortgage Rates Pushed Lower by Slowing U.S. Momentum

Monday Morning Interest Rate Update for April 1, 2019

by David Larock

Toronto mortgage ratesCanadian fixed mortgage rates have been on a steady downward march of late.

Their decline has been underpinned by softening domestic economic data, which have pushed down Government of Canada (GoC) bond yields, on which our fixed mortgage rates are priced. Our weakening economic backdrop has also made the Bank of Canada (BoC) more dovish about its plans to hike its overnight rate, on which our variable mortgage rates are priced.

While our own slowing economic momentum has been the primary driver of our falling bond yields and mortgage rates, changes in the U.S. Federal Reserve’s outlook are also contributing to their recent drop. That’s because we sell about 80% of our exports into U.S. markets, and on a comparative basis, our provinces trade more with their U.S. neighbours to the south than they do with each other.

Here is a summary of the recent U.S. developments that are helping to put downward pressure on our bond yields, and by association, our mortgage rates:

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

The New Bank of Justin and Bill

Monday Morning Interest Rate Update for March 25, 2019

by David Larock

Toronto mortgage ratesToday I’ll interrupt my usual Monday Morning Interest Rate Update to cover another mortgage-related topic that garnered most of the headlines last week.

Last Thursday, our federal government released its 2019 budget, and it included several initiatives that were designed to improve housing affordability.

While on first pass this will be welcome news for home buyers and for many of our now somewhat beleaguered regional housing markets, the federal government has thus far left out many key details that are needed to assess the full impact of its main new initiative, the First Time Home Buyers Incentive (FTHBI) program.

Bluntly put, the announcement reminded me of a term paper that was written during an all-nighter the day before it was due (and my university roommates will confirm that I am somewhat of an expert on that topic).

In today’s post, I’ll outline what we know about the two most prominent initiatives that were announced last week, I’ll offer my take on how these changes are likely to impact our regional housing markets, and I’ll explain why these changes should concern existing home owners across the country.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Fixed- Versus Variable-Rate Mortgages: Is the Reward Worth the Risk?

Monday Morning Interest Rate Update for March 18, 2019

by David Larock

Toronto mortgage ratesCanadian mortgage rates look a lot different today than they did only a few short months ago.

Last October, the Bank of Canada (BoC) had just completed its fifth 0.25% policy-rate increase in a little over a year, and variable-rate mortgage borrowers, who before then had enjoyed more than seven years without a single rate hike, were having their conviction tested.

The BoC had just cautioned that if it was going to keep inflation close to its 2% target, it would need to continue raising its policy rate to its neutral-rate range of between 2.5% and 3.5%. (The neutral range is defined as the policy-rate level that neither stimulates nor restricts economic growth.)

Mainstream economists predicted that sharply higher rates were imminent and argued about whether three or four more rate hikes were likely in 2019. This spooked many variable-rate borrowers, and some of them rushed to lock in a fixed rate before variable rates rose even higher.

Regular readers of this blog might remember that all of this angst got my contrarian itch going. When the BoC raised its policy rate in October, I challenged its rationale, arguing that the Bank’s own forecasts of slowing GDP growth both at home and abroad made it unlikely that inflationary pressures would intensify. Then in November, in a post titled Fixed vs. Variable: Is the Five-Year Fixed-Rate Mortgage Now a No Brainer?, I argued in favour of variable mortgage rates and predicted that “the BoC’s actions will not match its words over the near term”.

Fast forward to today.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

The Case for Lower Canadian Mortgage Rates

Monday Morning Interest Rate Update for March 11, 2019

by David Larock

Toronto mortgage ratesThe Bank of Canada (BoC) left its policy rate unchanged last Wednesday as expected.

In its brief accompanying statement the Bank acknowledged that our current economic slowdown is now “more pronounced and widespread” than it had previously forecast.

On Thursday, Deputy BoC Governor Lynn Patterson offered more detailed insight into the key factors that are driving the Bank’s increasingly dovish assessment of our economic momentum.

Today’s post provides highlights from both of the BoC’s communications last week and offers my take on the two key questions that matter most to fixed- and variable-rate mortgage borrowers: When will the Bank move its policy rate next? And will its next move be up or down?

Let’s start with a look at the five key factors that led to the BoC’s dovish shift.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Will the Bank of Canada Put Rate-Hike Speculation to Rest?

Monday Morning Interest Rate Update for March 4, 2019

by David Larock

Toronto mortgage ratesIf the Bank of Canada is “decidedly data dependant” as it claims, then it should put an end to speculation about near-term rate hikes when it meets this Wednesday.

Up until now, the Bank has ascribed our slowing economic momentum in the second half of 2018 to falling oil prices and predicted that it would prove transitory. In its most recent Monetary Policy Report (MPR), which I summarized here, the BoC drew a sharp contrast between the economic momentum in our oil-producing and non-oil-producing provinces. But more recent data have blurred that line, and it is now much harder to make the case that the current slow down is just an oil-price story.

The Bank is not expected to change its policy rate, on which our variable mortgage rates are priced, when it meets this Wednesday. The real debate leading up to this meeting is whether the BoC will continue to talk about rates needing to move higher or concede that higher rates are no longer imminent.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Bank of Canada Governor Poloz May Want Higher Rates, But He Needs Stable Inflation

Monday Morning Interest Rate Update for February 25, 2019

by David Larock

You can’t always get what you want
But if you try sometime you find
You get what you need

– The Rolling Stones

Last week Bank of Canada (BoC) Governor Poloz made a speech that reminded me of those lyrics.

Bluntly put, he clearly wants to raise rates but he needs to keep inflation stable.

There are factors beyond Governor Poloz’s control that are preventing him from raising the BoC’s policy rate to a neutral-rate level, which is defined as the level that neither stimulates nor restricts economic growth.

He knows that if he ignores these factors and raises the policy rate too quickly, it will unleash deflationary forces that could push inflation well below the BoC’s 2% target.

If you’re keeping an eye on mortgage rates, Governor Poloz’s speech, titled “The Power – and Limitations – of Policy”,  included valuable insights into where rates may be headed over the short and medium term. I will highlight these and offer my own accompanying commentary in today’s post.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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