Canadian mortgage payers could see “upward movement in interest rates over the second half of 2017, due to a stronger Canadian economy and a large degree of policy incoherence in the United States,” according to the latest Mortgage Rate Forecast from the British Columbia Real Estate Association (BCREA).
The association said that the bond market’s wait-and-see approach following a slight upwards adjustment after the US election has meant that fixed-rate Canadian mortgages have stayed flat, but that this may change in the second half of the year. It predicted that posted rates would rise by 10 basis points in the final quarter of 2017, from 4.64 per cent to 4.74 per cent.
The report said that signs pointing to a stronger Canadian economy, combined with US monetary policies working at “cross purposes,” would be the cause of the rate increases.
It said, “The Trump administration continues to publicly push for measures that would likely be inflationary, including a budget replete with ramped up military and infrastructure spending and tax cuts for the wealthy… It is safe to say that increased spending, combined with reduced revenues, will widen the deficit while providing a temporary bump to economic growth. Most importantly, both of those outcomes will lead to higher interest rates in the United States, putting upward pressure on interest rates globally.”
The BCREA added that Canadian mortgage lenders would also likely reduce the discount offered to new applicants in the third quarter of the year by 10 basis points. This combined with a 10-point rise in the posted rate would bring the average new mortgage rate from 2.75 per cent to 2.95 per cent by the end of the year.
BCREA mortgage rate forecast spring 2017
“We expect rates to remain somewhat stable over the first half of 2017 before rising by as much as 20 basis points toward the end of the year, as markets gain clarity on the direction of US policy,” added the report.
Any increase in the posted, or qualifying, rate will put additional pressure on applicants of insured mortgages (less than 20 per cent down payment), as they are required to qualify at the posted rate under the Canadian government's new stress test rules.
To read the full report, click here.
