With all the writing I’ve done on rising mortgage rates this year, I was starting to feel like Bill Murray in Groundhog Day. But instead of reliving the same day over and over, it felt like I was writing the same blog over and over. ‘Mortgage Rates are rising again!”  So far this year, I’ve blogged about increasing mortgage rates nine times, compared with only twice when it comes to rates dropping.

Fortunately, it now seems like we may be catching a break.

Does this mean that we’re finally at the point where fixed mortgage rates will start dropping?

Fixed mortgage rates are largely priced based on bond yields, which have dropped roughly 8% after reaching their 16 year high on October 2nd, 2023. The drop is large enough that we could start seeing mortgage lenders do some minor trimming to their fixed rates. If the bond yields continue to decline, then we can certainly expect to see some cuts with a bit more substance.

 

Fixed Mortgage Rates and the Bank of Canada

Fixed mortgage rates can have a mind of their own and do not need to wait for the Bank of Canada to make a move. All it takes is one headline-grabbing event to send bond yields soaring or plummeting.  

One example of this was the collapse of Silicon Valley Bank back in March 2023. Bond yields had been rapidly increasing, but the news shocked the financial world resulting in a large drop in bond yields which brought fixed mortgage rates down with them. Once the confidence in the financial system was restored, the bond yields started trending upward once again.  The result was a large upward trend in yields which led to fixed mortgage rates increasing by more than 1.25% over that period.

 

Larger Drops to Fixed Mortgage Rates?

Eventually, we’ll get to the point where we start seeing larger drops to fixed rates, and we won’t need to wait for the Bank of Canada for this to happen. As soon as we hear some promising news relating to inflation, we can expect the bond market to fall, which would then put immediate downward pressure on fixed rates. It would not take mortgage lenders long to respond with lower rates at that time.

 

Conclusion

While the new downward trend in bond yields is promising, it’s still a bit too soon to break out the party hats to celebrate falling rates. There is still a lot of uncertainty moving forward, and there may still be some hurdles along the way. There is guarantee that the downward trend in yields will continue, but it’s looking good given that they have been trickling down for the past month now.