It’s amazing the impact that news can have on mortgage rates. Up until Thursday of last week there was upward pressure on fixed rates which was building quickly. We had already seen them increase over the last few weeks, and the precipitous upward trend in bond yields continued to pressure fixed mortgage rates to move even higher.

That is… until the news broke informing us of the collapse of Silicon Valley Bank in the US, shocking the banking world and rattling consumer confidence along with it.

While it already appeared that a recession was imminent, the fear created by the bank’s demise should put an end to any doubt… if there was any to begin with. 

The news resulted in plummeting bond yields which has reversed the trend, placing significant downward pressure on fixed rates. It also means that we could see the Bank of Canada cut their rates sooner than expected. In fact, the bond market is now pricing in three 0.25% rate cuts in 2023.

 

Large Cuts to Fixed Mortgage Rates Coming

Since the news on the fall of SVB broke on Friday, bond yields have tumbled by more than 20% and continue to fall at the time of writing this blog.

This means that we should be seeing cuts to fixed mortgage rates soon. 

While we don’t yet know how much fixed rates will drop, it’s possible that the cuts could be significant. And by significant, I mean greater than 0.25%. There is definitely room for lenders to drop even further. But there is also a chance that they could hold on to some extra margin due to fear and uncertainty. We’ll find out soon enough. 

 

Is This a Market Overreaction or is it The Real Deal?

We knew that mortgage rates were eventually going to drop, which was expected to happen at some point in 2024. If this is the start of a new downward trend, and not just a market overreaction to the news, then we could see fixed rates continue to tumble. It also increases the chances that the Bank of Canada will start cutting their rate sooner than later, which the news anyone currently in a variable rate mortgage has been waiting to hear.

Fixed rate cuts are expected either way, which is great news for anyone looking to buy a new home or those approaching their mortgage renewal. 

Even if you have already purchased and have a rate locked, you are not obligated to go with that offer. It doesn’t matter if you have already signed the mortgage approval documents or not. Finding the lowest mortgage rates on the market are what we do best! Please reach out to us with some details on your situation and we’ll let you know the lowest mortgage rates you are eligible for.

 

Conclusion

You can see how much influence major news can have on previous rate forecasts and predictions. At least this time it’s in our favour.

There is still considerable uncertainty moving forward and we are by no means in the clear when it comes to inflation. While the fall of Silicon Valley Bank is bad for the economy, it’s the most promising news we’ve had for mortgage rates in the past year. But as always, circumstances can change and anything can happen.