Modest Mortgage Rate Rises Predicted in 2016: BCREA

Joannah Connolly
December 10, 2015

Canadian home owners and home buyers can expect to pay slightly more for their mortgages next year, according to a forecast issued December 10 by the British Columbia Real Estate Association.

The association observed that although the prime rate and benchmark qualifying rate have remained steady, offered or discounted mortgage rates at banks and other lenders have recently moved higher. The average five-year fixed rate has increased about 20 basis points in recent weeks to 2.79 per cent and the discount off prime lending rates on variable-rate mortgages has been reduced by between 20 and 60 basis points.

BCREA predicted, “While these recent increases are likely one-time adjustments, the forthcoming normalization of US monetary policy will likely be a more persistent factor in determining future mortgage rates. Surveying the economic landscape, the case for the US Federal Reserve (the Fed) to raise rates is mixed at best.”

It forecasted that five-year benchmark qualifying rates, currently 4.64 per cent, would rise 14 basis points in early 2016, another 14 in fall 2016 and a further 18 by the end of next year, to 5.11 per cent. This would take the average offered five-year fixed mortgage rate to around 3.25 per cent at the end of 2016.

The association also predicted that the Bank of Canada would keep its overnight rate stable for the foreseeable future, but improvement in oil prices and steady economic growth could the central bank to raise rates the following year.

“A baseline scenario of economic growth above two per cent, paired with low inflation and steady job growth, should keep the Bank of Canada sidelined over the medium run. However, several quarters of steady growth following the oil price shock of late 2014 may convince policymakers that the economy is no longer in need of monetary stimulus injected into the economy via the two rate cuts in early 2015. If so, the Bank may shift back to a tightening bias with a potential rate increase as early as 2017.”

Joannah Connolly
Joannah Connolly is editorial director of Glacier Real Estate, Glacier Media's real estate division. Joannah writes and curates real estate news for Glacier Media's local newspaper websites, including the Vancouver Courier, North Shore News, Burnaby Now, Tri-City News and others. She also oversees editorial content in Real Estate Weekly Homes, West Coast Condo, Western Investor and Glacier's special real estate publications. A dual Canadian-British citizen, Joannah has 22 years of journalism and editing experience in Vancouver and London, with a background in construction, architecture, healthcare and business media. Joannah has appeared on major local TV outlets as a real estate commentator, has moderated and spoken on various industry panels, and spent two years hosting the Real Estate Therapist radio show on Roundhouse Radio.