Posted Rates Drift Lower

falling-ratesFor the second time in nine days, RBC has led the banks in dropping fixed rates.

This time, all of RBC’s advertised fixed rates are falling 0.10%, effective tomorrow. The other banks should be right behind.

RBC’s benchmark posted rate is dropping to 5.49%, the lowest since March. Come June 6, that 5.49% will be the new qualifying rate for insured mortgages less than five years. (Monday’s qualifying rate will be 5.59%).

RBC’s “special offer” 5-year rate is now 4.34%, but actual street rates are below 4.00% for qualified borrowers.

Today’s rate move coincides with plunging bond yields (bond yields guide fixed-rate mortgage pricing). The rate on the 5-year government bond sank to 2.30% this morning, a new 6-month low.

Variable rates are unchanged.

Rob McLister, CMT

  1. Goes to show, conventional wisdom (“rates have nowhere to go but up” – sound familiar from the past two years?) can easily be wrong.

  2. No it isn’t because today’s rates aren’t normal. Interest rates are still at record lows but eventually they will climb. It could be 6 months or five years from now but sooner or later consumers will face more realistic rate levels.
    There’s so much economic uncertainty right now with what’s happening in Europe and the U.S. and staggering inflation in developing economies and how all of this would affect the Canadian economy. Any kind of rate call is nothing but speculation and putting a specific target band on where rates would be six months or a year from now is just nonsense in today’s environment.

  3. Right on! What’s more, inflation is still a concern in Canada. Have you gone to the store or the gas pump lately? The trend is what we need to understand; not short term rate fluctuations. Global uncertainty is only going to postpose the inevitable, not negating it! Saving, or the lack thereof, is the real issue. Higher rates encourage more savings; hence a healthier and more stable domestic economy, which actually is good for business, PERIOD!

  4. Well, Canada isn’t suffering from inflation yet. The Bank of Canada’s core rate actually decreased in April. The BoC’s overnight target rate is still 1% and the Prime rate is 3%. Compare that to Brazil where “prime” is 13%! High oil prices in Canada are not the result of inflation because inflation is a reflection of monetary policy. In Brazil the central bank is tightening, in Canada we’re not.

  5. That is easy to say in hindsight mate.
    Conventional wisdom is often wrong but it can just as easily be right. It’s like criticizing the weatherman for getting next week’s forecast wrong. What’s the point? People still want to know the forecast.

  6. ummm… rates heading lower generally points to headwinds in the economy – not exactly a positive sign for housing.

  7. Stats, you’re mixing up cause and effect.
    Poor economy in the US brings down US bond yields, which in turn brings down Canadian bond yields, which in turn brings down mortgage rates, which actually stimulates the Canadian housing market.

  8. I highly doubt that a -0.10% change in rates has any kind of noticeable effect.
    I believe that the uncertainty in the overall economy will drag the housing market down more than a 0.10% rate cut drives it up.

  9. I think that in order for interest rates in general to begin rising again, we need to see monetary inflation as well as price inflation.
    Right now we are seeing price inflation in some goods and services like consumables, but there is still very little in durable goods.
    In addition, the speed at which money is changing hands has been slowing, and this must pick up before you will see interest rates rising again.
    Efforts to inject this into the system (programs like QE) have by and large failed.
    It’s like seeing green shoots on a pile of paper garbage.

  10. Thats true Stats. Lower bond yields generally show that the bond market is beginning to price in deflation. However, it seems to be likely that we may face stagflation, rising prices such as energy and gas, but lower asset values such as housing.

  11. Rates do have nowhere to go but up. Of course that statement has been attributed to the BOC overnight rate, not fixed rates, two completely different things. And trust me, lower bond yields show much uncertainty in the market.

  12. Bond yields aren’t low enough to reflect deflation. No one in the market is calling for deflation, including the Bank of Canada itself.

  13. Stats, you shouldn’t just be referencing the 0.10% cut we got last week. Because we also got an 0.10% cut the week before. Taken in aggregate this is 0.20%, which is material enough to stimulate extra housing demand at the margins. It’s $67/month in interest on a $400K place.
    Also, that 0.20% will probably be added to this week, as mortgage rate drops have not yet caught up to bond yield drops (which are down 0.50% in the past month).

  14. Great Point Dan!
    Like what you’re saying!! Hope the rates stay low for a while and house market continues to rise!

  15. Western democracies, following the US, have discovered the enormous benefits to their current accounts by keeping interest rates artificially low and faking (lying) the true inflation rates. Pensions, savings and traditional income investment are tagged to these baloney based rates. Fixed income investors should realize that their liquidity is being drawn down to zero by the government and financial institutions at an alarming rate.

  16. Even when rates are “low” over a 30 year amortization these rates will still cost you upwards of half the value of your home in the end. If rates stayed at today’s lowest fixed, 3.74 per cent, at the end of 30 years you’d still have paid $263,717.60 in interest. How is that low?? Banks are doing just fine how it is.

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