Mortgage hunters are banking on a big drop in rates, but be warned — they could yo-yo
Mortgage rates can often be disappointing. Case in point: today’s. Us commentators have been talking about diving rates for months, and yes, they’ve dropped. Fixed rates have fallen 150-plus basis points in a year.
But with all the falling rate headlines lately, people expect more. And we may not get more — for a while.
We’re now five months in from the first Bank of Canada rate cut for this cycle and fixed rates are creeping up like people’s blood pressure during tax season.
Rates aren’t rising stratospherically, mind you, about nine to 25 basis points for some of the lowest advertised fixed rates. Default insured rates — used by people with down payments of less than 20 per cent — are the most competitive, so they rise the quickest.
While the latest increases may have people on edge, the real suspense is all about what comes next.
When central banks start cutting rates — especially significant cuts like the half-pointer by the United States Federal Reserve last month — it’s usually a harbinger of economic constipation. And central bankers and economists largely expect such a slowdown — in time.
The question is, what does “in time” mean?
Economies are like slow-turning supertankers. Right now, the U.S. economy — which has a powerful influence on Canadian mortgage rates — seems to have reset its heading. Markets are gradually starting to predict more expansion than anticipated.
The Atlanta Fed’s real-time GDP indicator, for example, suggests a peppy 3.2 per cent growth rate. That’s on top of America’s latest job numbers, which blew away expectations. And then there’s U.S. inflation, which exceeded forecasts on Thursday despite hitting a 44-month low.
Canada’s rate markets are highly sensitive to any hint of inflation
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