Rates are Falling. Keep it on the Down-Low


Over the last two months, there’s been an eerie sentiment shift in the rate market.

In March, the BoC‘s hints of tightening drove yields to 7-month highs. Financial markets almost guaranteed rate hikes by December.

Now, a tsunami of fear out of Europe has pushed borrowing costs to unsettling levels. The most glaring example is Canada’s 10-year yield, which made an all-time low today. What’s more, OIS traders have now completely priced out any chance of BoC hikes in the next 12 months.

The upshot: Lower yields mean lower fixed-rate funding costs. As a result, we’re starting to see alluring rate cuts. Just don’t count on the flashy national mortgage wars we saw in March.

With DOF Minister Jim Flaherty discouraging rate sales, banks are now more cautious about their promotions.

In fact, almost every bank cutting rates this week refrained from publicly advertising cheaper discounted rates. Their press releases announced only posted rate drops, which is unusual on such a wide scale.

The only exception was BMO, which had the conviction to advertise a lower 5-year discounted rate at 3.39%.

rates-mortgagesWith or without hoopla, rates are dropping industry-wide. In the broker channel, Scotiabank published its lowest 5-year rate ever at 3.19%. In the retail channel, we’re hearing bank specialists quote comparable rates on a “discretionary” basis.

Hence, despite Flaherty’s apparent efforts to slow mortgage discounting, it looks like we’re headed right back to near-3%-land on 5-year money. The rate market is no one’s puppet.

Rob McLister, CMT

  1. Isn’t it ironic that the economic woes afflicting much of the globe are what continue to indirectly prop up what is considered one of the riskiest real estate markets (bubbles) in the world, here in Canada?
    Looks like the 90s Liberals’ conservative banking policy prescriptions, prudent regulatory regime and their refusal to allow Canadian banks to deregulate, consolidate and experiment — to the degree U.S. banks were allowed to — in all manner of exotic debt instruments and labyrinthine derivatives arrangements is what is responsible for Canadian banks’ good standing in the world and hence Canadian RE escaping the devastation experienced by mature markets throughout the developed world.

  2. Even if banks don’t advertise, cheap rates are out there and people will find them. Flaherty is spinning his wheels.

  3. … riskiest ???
    … bubbles ???
    Are we living in the same country??
    Are you sure you don’t work for Flaherty ??

  4. Admonishing the banks like children for doing business as usual is never going to work. If the government thinks the lending at those rates is irresponsible then they can cut back on CMHC, or raise the capital requirements.
    Wagging a finger because the banks have been naughty is pretty naive.

  5. Amen. I’m not sure what JF was hoping to accomplish? If its HR, than by all means throw in a higher qualifying rate to tame the flow. But restricting low rates on conventional lending seems like something that is a little too draconian…

    Good to see you come out of the shadows and make a post… I need a good rate so don’t tell anyone your writing my next mortgage I am sure you are definately on Flaherty’s radar!
    LS – is also an Islander sounds like time for Beer, Patio, and a live CMT debate??

  7. OSFI is no one’s puppet. Prepare to be worked, all of you who think that OSFI won’t implement LTV regulations….

  8. What are the feds going to do if 5 year rates drop to 2.49%? Institute 50% down payments?
    If rates reach 1.99% they’ll probably want to ban mortgages altogether.

  9. Two curious political stories out today: a) Muclair has apparently refinanced his home 11 times since the 1980s; b) Peggy Nash has asked the federal government to overrule one of OSFI’s new rules to prevent Canadians losing their homes. Perhaps this is just a taste of election themes to come: irresponsible NDPrs who can’t be trusted to manage the countries financies vs heartless Tories and their stooges in OSFI and the banks forcing hard working, law abiding, mortgage paying Canadian families out of their homes. Our times are getting more interesting.

  10. The five year Canada could easily break 1%. Ottawa better get used to stimulative mortgage rates.

  11. Everyday mortgages renew at lower rates and every day hundreds if not thousands of people close home purchases using these low rates. Investors calculate their rental break-evens based on these rates.
    Humans, being what we are, think 3.00% money becomes the new normal and in our fight or flight wired minds we feel this is not an abberation.
    In the commentary posts on this article I read suggestions that rates can go lower; even much lower and there is no end in site.
    Does anyone else but me think that this is creating a distortion in real estate pricing?

  12. Rates will increase eventually but I doubt they will skyrocket. A 2% overnight rate could be the new normal for all we know. In that case today’s real estate values would not be irrational.

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