Following weeks of upward pressure on fixed mortgage rates, we’re now starting to see some mortgage lenders come through with cuts. This doesn’t mean that fixed rates are going to start plummeting, but at least the upward trend has been broken. Fixed rates have risen by as much as 0.30% over the last few weeks so it’s nice to finally catch a break.  

The reason for the relief in upward rate pressure is due to weaker employment numbers released out of the US on Friday, May 3rd. The forecasts were calling for the addition of 240,000 US jobs in April, which fell substantially short at only 175,000. This was the smallest number in the past six months. We also saw US unemployment increase by 0.10%, from 3.8% to 3.9%.   

While weaker employment is generally viewed negatively, it is what the central banks in Canada and the U.S. are aiming for. This is because low unemployment leads to higher wages, which, in turn, drives inflation. To further reduce inflation, an increase in unemployment can contribute to achieving this goal. When the employment numbers were released, U.S. bond yields fell, subsequently pulling down Canadian yields as well. 

 

Minor Cuts to Fixed Rates  

While some lenders have reduced their fixed rates, the decreases have been modest, ranging from 0.05% to 0.10% at most. Given the recent focus on rising rates, even these small reductions are a welcome relief! If bond yields keep falling, we can expect further declines in fixed mortgage rates. However, it’s still too early to draw any firm conclusions. While we anticipate rates will eventually drop further, it’s premature to predict if this trend will continue over the next week or so. A continued decrease in bond yields will be necessary before we see more significant rate reductions. 

 

Conclusion  

Mortgage rate forecasts are constantly updated as new information emerges. The recent decline in bond yields can be attributed to weaker employment in the U.S. While we are approaching the anticipated rate cuts by the Bank of Canada, there is always a degree of uncertainty on their timing and size. Ultimately, we can expect more substantial reductions in mortgage rates to come. But until then, anything can happen.