Rate Hike Predictions Pushed Back Slightly

Bank-of-Canada-and-Mortgage-Rates Financial markets can be a total random walk in the short-term (some would say, even in the long-term). 

When the market’s not trending, economic indicators can vary considerably from expectations on a month-to-month basis.

In November, for example, employment data was robust and the high rollers were placing bets on 3rd quarter rate hikes.  Some expected a move as early as spring.

Then we get December’s limp jobs and CPI numbers and the conversation shifts to rates staying flat until the 4th quarter. 

People are finding it tough to make heads or tails of rates at this point. 

For those wanting an “expert” opinion, here’s what they’re saying now:  

    Mortgage rates will be "low, well into the usually strong spring home-selling season." (i.e.,  at least another six months.) — BMO economist, Sal Guatieri — Winnipeg Free Press

    The BoC will lift its target lending rate 2% by early 2011. — Scotia Capital economist, Derek Holt – Bloomberg

    Reuters poll of 20 noted economists. The median forecast is for a 1/2% hike in Q3 of this year, and another 1/2% by year end. — Financial Post

    Bloomberg’s most recent economist survey forecasts rates rising 2% by first quarter 2011. -– Bloomberg

    “The dangers to keeping essentially a zero rate policy are rising. We'll be looking for the start of a tone change in (the next) statement or Canada, in our opinion, runs the risk of being the bartender who offers one too many shots to a drunken patron." — Scotia Capital economists Derek Holt and Karen Cordes — Kelowna.com

    There is no "significant risk of a double dip” recession. — TD economist, Craig Alexander — Winnipeg Free Press

    2% economic growth may be the “new normal” after 2011 says Bank of Canada head, Mark Carney (story). If he’s right, it suggests moderate interest rates over the long-term.

    By the way, don’t expect any more rate hints from the Bank of Canada for a while.  Carney says he doesn't feel “compelled” to give more “guidance” at this point.

    “On average, the first rate hike following a recession takes place one quarter before the output gap closes…If this strategy is replicated this time around…then the very earliest the bank will move is the second quarter of 2011.” -– Economist David Rosenberg –- Financial Post

    “If the bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from recession.” — Bank of Canada adviser, David Wolf -– Globe & Mail

Wolf isn’t alone in that thought. Several economists warn that premature rate hikes would damage our fragile recovery.  That ups the odds that variable mortgage rates won’t rise before at least June 30 (the end of the BoC’s conditional rate commitment).

If you throw all of these opinions into a pot and simmer for 20 minutes, it boils down to the first rate hike taking place in the third, or possibly fourth, quarter.  As always, take that with multiple grains of salt because the next round of economic data could change the course for rates…yet again.

  1. We are a part of a global economy and it pretty much all depends on what happens in the US of A, confidence in their currency and at the moment their economy is best described as coasting the bottom.
    The BofC will intervene where necessary and not allow the C$ to rise much above par against the USD given the irreparable long term damage to Canadian manufacturing sectors. At this time, the C$ is still too high for the BofC likings!

  2. while I want the economy to high high gear as soon as possible, I cant say I am hating the prime minus 0.85 situation I am in right now.

  3. rate hikes won’t occur this year. If you’re lucky they may start in 2011. World stockmarkets are trending downwards once again and looks like a double dip recession is very likely in the US and perhaps other countries around the world. Rates are again dropping despite all the predictions that they were set to rise.

  4. How on earth does a person get a prime – 0.85% mortgage? These do not exist anywhere, the lowest you can get is 2.15%. Why in sept when I refinanced to variable rate it was prime + 0.1% and I was told this was good. There are liars or something out there I think.

  5. Steve,
    Actually back in 2006-2008 anybody with decent credit could get prime minus 0.85%. Only in the fall of 2008, when credit tightened up, did banks change their policy on variable mortgages. So people who locked in to variable back then are keeping their prime – 0.85% until their five-year term ends.

  6. I am at prime minus 0.40%….got in the last week of the below prime mortgages, and am so happy that in my 1st yr of my mortgage, I actually took a chunk out of the principle.

  7. Actually prime – 0.4% mortgages are back, not sure why CMT hasn’t done a story on it yet. IA is offering a 1.85% variable mortgage maturing in 2012.
    Also, why is there no story on the falling interest rates? The 5-year yield has been dropping steadily for weeks now, sitting at 2.42%, about 30 bps below where it was at the beginning of the month.

  8. Dan, there is little coverage when rates start to fall once again, but when the reverse happens and there is a ‘hint’ of rates going up at some point in the distant future, they are all over that with articles and suggestions that people lock in to fixed rate terms before rates ‘soar’. Its quite laughable. World economies are VERY weak still and in some cases getting weaker. I just dont see rates going anywhere but flat to down yet again over the coming months. But listen to most mortgage experts and they would have had everyone lock into long term plans several months back.

  9. Hi folks,
    Thanks for the feedback as always. :)
    We do our best to get newsworthy rate-related stories up as soon as time permits. We can’t cover every fluctuation in rates but we do get the big ones–once they appear likely to have a material impact on retail rates.
    Further to Al’s points, if you look back over CMT’s three-year history you’ll find numerous posts about rates dropping. To suggest otherwise isn’t really accurate. :)
    Rates are completely random at the moment. It’s generally not constructive to continually run stories about bond yields going up and down….especially when it’s having little effect on mortgage rates. You’ll note that lenders have made very few changes to fixed rates despite all these big flucations.
    All that said, 5-year yields are approaching key support so a story will likely go out soon. I would just stress that no one has inside information on the future. While it’s interesting to hear different viewpoints, any rate predictions (from mortgage experts, economists, or otherwise) are pure opinion at this point.

  10. Nevermind … yields on the 5-year already went up 10 bps since this morning (thanks to the hawkish dissenter in the US Fed statement). Ah well.
    [Edited. Please feel free to post any verifiable lender quotes. However, we ask that broker and unverifiable lender quotes are not posted. Otherwise the site will be overrun with spam. Thanks for your understanding. – Elizabeth]

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