Back on March 8th, the Bank of Canada announced that they were pausing their rate hikes. This resulted in bond yields plummeting, which resulted in 5 year fixed mortgage rates dropping by as much as 0.40%. This was their lowest since early June 2022.

In early May, bond yields started trending steeply back up, virtually erasing any downward rate movement. The lowest 5 year fixed rate for an insured mortgage had bottomed out at 4.24%.  As of today, the lowest insured rate is 4.49%… however, the lender offering this rate is expected to increase it at any time. Most of the discount mortgage lenders are currently at 4.69% to 4.79% for a comparable mortgage product.

Upward pressure continues on fixed mortgage rates with more lenders expected to increase over the next few days. Anyone with a mortgage coming up for renewal, or a purchase closing within the next 120 days who does not have a rate locked in should get this done immediately.

 

How Much Higher Will Fixed Rates Go?

Between inflationary concerns and the US debt ceiling debacle, there is still a lot of uncertainty moving forward. This creates fear in the financial world, which is responsible for driving rates upward. Fixed mortgage rates do not need to wait for the Bank of Canada to make a move. They can move in either direction at any time and are largely influenced by news.

The US will come to some sort of resolution on their debt ceiling problem, likely by raising it, which is what they have done before when facing the same issue. But anything can happen and there is no guarantee that they won’t default on the debt. We’ll have to wait until the June 5th deadline to find out.

 

INFLATION

Inflation is still a concern, especially following its upward tick earlier this month. This has led some economists to forecast another 0.25% rate increase from the Bank of Canada on their next scheduled announcement on June 7th. Others were holding to their previous predictions that they will keep the status quo for the remainder of the year.

While next inflation report is not expected until June 27, the Q1 GDP report was released today, coming in much stronger than expected. The Bank of Canada was expecting 2.3%, but the report came back at 3.1%. This is not the news any of us were hoping for as it gives the BoC further reason to increase their rate by another 0.25% next Wednesday.  

Scotiabank had already adjusted their forecast shortly after the CPI inflation report released May 16th, now expecting a 0.25% increase on June 7th.

National Bank on the other hand remains optimistic that the Bank will keep their rate where it is. Their report stated, “In light of this morning’s data, we do not change our view that the economy will slow significantly over the next four quarters.”

The Bank of Canada will have a tough decision to make next week. Do they err on the side of caution and hike the rate again? Or do they leave it unchanged?

We’ll have to wait another week to find out for sure.

On May 19th, BMO Economics stated that “it’s almost certain that headline inflation will take a mighty step down next month – possibly by a full percentage point to the low 3s”.

 Let’s hope they are right. If they are, then we can surely expect to see bond yields react positively, which would then restore downward pressure on fixed mortgage rates. We’ll see.

 

Conclusion

There is still a big question mark over the Bank of Canada’s decision on June 7th. It all comes down to their beliefs on inflation and what we can expect from it moving forward. They previously said that they are prepared to hike their rate again if needed. Let’s hope that it doesn’t come to that. But if they think inflation is going to start trending back upward, then they’ll need to act by increasing their rate once again.  We’ll find out for sure next Wednesday.

Time will tell and anything can happen.