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Have fixed mortgage rates peaked?

The latest in mortgage news: uninsured posted rates at decade-highs

Uninsured posted rates from Canada’s Big 6 banks have skyrocketed over the past year, according to data from the Bank of Canada.

The average 5-year conventional rate rose from 4.79% in March 2022 to 6.49% today—a jump of 170 percentage points. Shorter 1- and 3-year terms have seen a similar increase, increasing in line with prime rate, which has risen 425 basis points since the Bank of Canada began hiking rates a year ago.

The last time rates were this high was in early 2009.

The Bank of Canada’s data monitors posted rates from the Big 6 banks, which are generally higher than the discounted rates most well-qualified borrowers can actually obtain.

Bond yields plunge

The Government of Canada 5-year bond yield—which typically leads fixed mortgage rates—plunged nearly 50 points since the start of March, and are down 40 bps this week alone.

As of this writing on Friday morning, the 5-year bond yield was hovering at around 3.17%.

So, what’s behind the sharp move lower?

There are several reasons, according to Ryan Sims, a mortgage broker with TMG The Mortgage Group and former investment banker.

One is the recent remarks made by Fed Chair Jerome Powell, who said this week, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell’s comments “made it abundantly clear (or should have) that the Fed is going to raise rates far higher than A ) the market thought, B) for longer than the market thought, and C ) quicker than the market thought,” Sims told CMT.

The continued slide following Friday morning’s employment data release suggests there was “way too much optimism baked into the 5-year yield,” he added.

Bond yields tend to lead fixed mortgage rate pricing, but don’t expect any big moves in mortgage rates so long as yields remain volatile.

“I would expect the 5-year yield to dance around in the range, but any bad news [for yields] like lower inflation, lower employment, etc. will pull to the lower end of the 3.00% range, and any good data like higher inflation, higher employment, etc. will pull the rates towards the 3.60% range,” Sims said, explaining that higher rates are “actually a good thing” since it means the economy is firing on all cylinders.

“Look to see some ‘re-pricing’ of bonds, yields, CAD, and all economic predictions coming out in the next 3 to 4 weeks.”

February employment figures “still too high” for the BoC

Canada’s economy added another 22,000 jobs in February, according to employment figures released by Statistics Canada on Friday.

All of the jobs added in February were in full-time employment, which increased by 31,000 from the previous month while part-time jobs were down by 9,300. The unemployment rate remained unchanged at 5%.

The February reading was above expectations, but well below the blockbuster 150,000 positions created in January.

“For the Bank of Canada, the headline print might be more ‘normal’ compared to prior months, but it is still too high,” noted James Orlando of TD Economics.

“The BoC is in wait-and-see mode with its conditional pause, it believes that it is only a matter of time before a slowdown shows up in the broader economy,” he added. “But with today’s labour market report, it will have to wait a little while longer.”

BC budget includes $4.2B investment in housing

The government of British Columbia delivered its Budget 2023 last week, which included $4.2 billion in funding related to housing.

It’s the largest three-year housing investment in the province’s history, and is meant to tackle homelessness and increase rental supply. Of that investment, $1.7 billion over three years will be allocated towards building more homes through the B.C. Builds and Building B.C. programs.

“We need to do more with the housing plan and that’s what this budget is going to do,” Minister of Finance Katrine Conroy said.

Other housing-related initiatives announced in the budget include:

  • A new property tax incentive to encourage the construction of new purpose-built rentals.
  • A pilot project that will provide financing incentives to encourage homeowners to develop new secondary suites on the property of their principal residence to rent to long-term renters.
  • Additional supports and protections for renters, including a renter’s tax credit. The credit would be income-tested, with a maximum amount of $400 per year for households with adjusted income up to $60,000. This amount will be indexed to inflation each year.
  • A plan to unlock more homes through new residential zoning measures, while reducing the time and cost of local government approval processes.