With much stronger employment statistics coming out of both the US and Canada earlier last month, bond yields started to soar which have resulted in fixed mortgage rate increases across the board. While I would love to tell you that fixed rates have stabilized, further increases are not only possible, but likely.

Anyone with a mortgage coming up for renewal or those with a purchase closing within the next 120 days should get a rate locked as soon as possible if they have not already done so.

 

What Can We Expect From The Bank of Canada Next Week?

The next scheduled rate announcement from the BoC is on March 8th where they are expected to keep their rate unchanged for the first time since January 2022. While there were some thinking that we could see another 0.25% hike next Wednesday, this is not the popular belief among economists. Besides, the Bank of Canada is already struggling with a bit of a credibility issue considering how badly they got it wrong when forecasting for 2022. In their December 8, 2021 rate announcement, they expected inflation to ‘ease back towards 2.00% in the second half of the year’ (2022). Here we are in the latter half of the first quarter in 2023 and inflation is almost three times that number.

It’s for this reason that they need to tread lightly on any promises. 

The last thing they would want to do is increase their rate again after promising to pause hikes in their January 25th rate announcement. They did state that they are still prepared to go higher if needed, but they would prefer to avoid it, especially this soon after their promise.

It all comes down to getting inflation under control.

 

Inflation Drops Again!

Last week’s report from Statistics Canada confirmed that the CPI dropped to 5.9% in January, down from 6.3% the previous month. This is great news, however the bond market didn’t react.  This either means that the market was already expecting the drop or that it is taking more of a ‘wait and see’ approach.

 

BOC Rate Forecasts From The Big Six Banks

In the last forecasts released in February, not one of the big six banks are expecting any further increases in 2023. Both TD and Scotia are holding on to their previous predictions that we’ll see a BoC rate cut toward the end of 2023.

ALL of the big six banks are expecting multiple rate cuts throughout 2024.

Five of them believe that the cuts will begin in the first quarter of the year. (BMO has not yet released their 2024 forecast breakdown). If the banks are right then we could be less than a year away before the prime rate start to fall. Let’s keep our fingers crossed.

 

Conclusion

There is still a lot of uncertainty moving forward and anything can happen. Variable rate mortgages now carry a significant premium over fixed rates, which make them a risky choice in today’s volatile market.

Given that rates are expected to come down over the next few years, 3 year fixed rates remain the most popular options. 5 year fixed are too long in my opinion, and the significant rate premiums on most 1 and 2 year fixed rate mortgages may make them cost prohibitive.  

As for the right choice?  We would need to have a crystal ball to know for sure.