Mortgage Outlook September 17, 2014

The Following articile was published by the BCREA today reguarding Mortgage Rates in relation to Real Estate first and second mortgages:


Mortgage Rate Outlook

In stark contrast to the consensus of economists’
expectations at the end of last year, bond yields
have spent most of 2014 trending downward. Indeed,
perhaps weary of previous false starts, bond markets
have even shrugged off recent signs of a strengthening
economy, an acceleration of inflation and the unwinding
of stimulus from the US Federal Reserve. Lenders have
responded in kind, offering homebuyers record low
mortgage rates.

• Mortgage rates remain at historic lows
• Canadian economy roars back in second quarter
• Poor job growth keeps Bank of Canada in neutral

Mortgage Rate Forecast
2014 2015
Term Q1 Q2 Q3F Q4F Q1F Q2F Q3F Q4F
1-Year 3.14 3.14 3.14 3.24 3.24 3.44 3.60 3.60
5-Year 5.19 4.81 4.79 4.99 5.14 5.24 5.65 5.65

Given well anchored inflation expectations and
near consensus that short-term rates will be higher
next year, the continued downtrend in bond yields
this year is difficult to explain. One factor could
be that investors are acclimating to the idea that
the neutral rate, or the Bank of Canada’s preferred
destination for interest rates once it tightens,
is likely much lower than in the past and that
realization is being priced into expectations and
therefore long-term interest rates.

Additionally, the performance of Canada’s financial
and banking system post-financial crisis has won
it a reputation among foreign investors as a safe
harbor. Foreign holdings of Canadian government
bonds and treasury bills have jumped from
15 per cent to over a quarter of outstanding debt
since the global financial crisis. As uncertainty
mounts in other areas of the world due to weak
economic growth or unresolved conflicts, assets
have crowded into both US and Canadian debt
securities, forcing yields lower. Given these factors,
rates could remain below historical average levels
even as the Bank of Canada begins tightening.
While we do not expect the Bank to act on interest
rates until late in 2015, bond yields could rise
modestly before then in anticipation of higher
rates, particularly if economic growth is stronger
than expected. If so, we expect to see a slight
increase in five-year and one-year fixed mortgage
rates by the end of 2014.

Economic Outlook

As was widely expected, the Canadian economy’s
weak start to the year proved to be temporary as
growth roared back in the second quarter. Canadian
real GDP expanded 3.1 per cent at an annual rate
last quarter, the highest rate of growth in close
to three years. That growth was largely spurred by
exports to a similarly resurgent US economy, which
grew at a robust 4.2 per cent annual rate in the
second quarter. If momentum in the US economy
can be sustained, the long awaited rotation of
Canadian economic growth towards exports and
business investment could be realized. Indeed,
in past business cycles, a recovery in business
investment tends to lag behind a recovery in export
Note: Data is average of weekly rates
Source: Bank of Canada; BCREA Economics
Foreign Investment Boosted by Canada’s Financial Credibility
Mortgage Rate Forecast is published quarterly by the British Columbia Real Estate Association. Real estate boards, real estate associations and REALTORS® may reprint this
content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.”
BCREA makes no guarantees as to the accuracy or completeness of this information.
1420 - 701 Georgia Street West, PO Box 10123, Pacific Centre, Vancouver, BC V7Y 1C6 | Phone: 604.683.7702 | Fax: 604.683.8601 | Email:
BCREA Mortgage Rate Forecast September 2014
Send questions and comments about Mortgage Rate Forecast to:
Cameron Muir, Chief Economist,; Brendon Ogmundson, Economist,
Additional economics information is available on BCREA’s website at:
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While we expect that economic growth will
slow moderately from the robust pace of the
second quarter, it will remain relatively strong
at 2.3 per cent for 2014 before accelerating next
year to 2.7 per cent.
CPI inflation, which has been above the Bank’s
2 per cent target for several months, is showing
some signs of softening due to a sharp decline
in the price of energy products and other
commodities. Core inflation, which the Bank
uses as its operational guide for monetary policy,
has drifted higher but remains relatively muted.
Though some wage inflation has occurred of
late, slack in the labour market and continued
competitive pressure in retail sectors will likely
keep core inflation from breaching the Bank’s
2 per cent target in the short-term.


“Copyright British Columbia Real Estate Association. Reprinted with permission.”


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