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    Mortgage Rate Forecast

    Uploaded by

    Igor

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    of 2

    ECONOMICS

    Mortgage Rate Forecast

    March 2023

    HIGHLIGHTS Mortgage Rate Forecast

    • Economic uncertainty driving substantial 2023 2024


    volatility in Canadian bond markets.
    Term Q1 Q2F Q3F Q4F Q1F Q2F Q3F Q4F
    • Is the Canadian economy just slowing or
    Variable
    something worse? Rate 6.35 6.35 6.35 6.35 6.35 5.85 5.60 5.35
    • Inflation trending the right direction, will that
    5-Year
    be enough to keep the Bank of Canada on hold? Qualifying 7.24 7.19 7.05 6.95 6.95 6.75 6.65 6.55
    Rate

    5-Year
    Mortgage Rate Outlook Average
    Discounted 5.24 5.19 5.05 4.95 4.95 4.75 4.65 4.55
    Rate
    Mixed signals from Canadian economic data are making
    Source: Bank of Canada; BCREA Economics; Rob McLister, Mortgage
    the outlook for the Canadian economy somewhat cloudy. Rate Analyst
    While labour markets remain very strong, economic Note: Average five-year discounted rate is the average rate available in
    the market, offered at a discount from the posted five-year qualifying rate.
    growth appears to have stalled in the fourth quarter
    of 2022. Most importantly, the monthly inflation rate
    has significantly decreased, although it still remains
    high when compared to the previous year, with total
    CPI trending at 2.5 per cent annually over the past three
    months and core measures of inflation trending at
    between 2.5 and 3.5 per cent.

    That mixed data has led to uncertainty about the


    economy’s direction, which has expressed itself as
    significant volatility in bond yields as financial markets
    grasp for clues on future monetary policy decisions.
    Movements in bond yields that used to be relatively rare
    have become commonplace. Since 2007, the five-year
    benchmark bond yield has risen or fallen by ten basis
    points in a day just 5 per cent of the time. Since 2022,
    ten basis point moves are occurring 20 per cent of the
    time – or roughly every five trading days.

    Moreover, of the 18 times since 2007 that the five-year


    yield has changed by 20 basis points in a day, 30 per cent
    of those occurrences have happened in just the past year.
    In just the week, volatility in bond markets increased even As long as the Bank of Canada remains on hold, and
    further when the failure of Silicon Valley Bank caused a fixed rates experience only minor increases, the
    flight to safety, pushing down US and Canadian long-term uncommon scenario of a notable negative difference
    interest rates once again. During the past three months, between variable and fixed rates will persist.
    the five-year bond yield rose from 2.8 per cent to
    nearly 3.7 per cent before falling to under 3 per cent.
    Our baseline is still for a sub-5 per cent five-year Economic Outlook
    fixed mortgage rate by the end of the year,
    but clearly, there will be much volatility on the
    journey there.
    BCREA Mortgage Rate Forecast March 2023

    As long as the Bank of Canada remains on hold, and fixed A complicating factor of course, is the trajectory for inflation.
    rates experience only minor increases, the uncommon Any economic recovery is contingent on interest rates coming
    scenario of a notable negative difference between variable down sharply from their current level, which will not occur
    and fixed rates will persist. unless inflation is back under control.

    Economic Outlook Bank of Canada Outlook

    Growth in the fourth quarter of 2022 was nearly unchanged The Bank of Canada has moved to the sidelines while
    from the prior quarter, following five consecutive quarters of it judges the past year’s impact of rate increases on the
    growth and real GDP declined in the final month of the year. economy, particularly on inflation. Several factors point
    Declines in business inventories and business investment to inflation beginning to normalize this year. Barring a
    balanced out higher consumer and government spending significant shift, gas prices will start to subtract from year-
    and more favorable net trade. Higher interest rates are clearly over-year CPI inflation. Additionally, raw materials and
    impacting the most rate-sensitive sectors of the economy. shipping costs should benefit from a downtrend in global
    Housing investment fell 2.3 per cent in the fourth quarter and commodity prices and a normalization of supply chains.
    was down 11.1 per cent in 2022. As tighter borrowing conditions
    One complicating factor for the Bank of Canada is the
    impact the wider economy, we anticipate that growth will slow,
    potential for a more hawkish US Federal Reserve. A widening
    and the labour market will soften.
    gap between Canadian and US interest rates would put
    The open question for the economy remains whether a downward pressure on the Canadian dollar, which would
    recession is likely to occur this year. Given the pace and cause import prices to rise, adding to Canadian inflation.
    magnitude of tightening by the Bank of Canada, and signals
    Nonetheless, we expect the Bank will remain on hold this
    from traditional recession warning tools like the slope of the
    year before lowering rates in 2024 once inflation returns
    yield curve, the recession probability is high. Our model shows
    to its target of 2 per cent.
    two quarters of negative GDP growth starting in the second
    quarter before a recovery begins toward the end of 2024.

    Send questions and comments about the Mortgage Rate Forecast to:
    Brendon Ogmundson, Chief Economist, [email protected]; Ryan McLaughlin, Economist, [email protected].

    Additional economics information is available on BCREA’s website at: www.bcrea.bc.ca.


    To sign up for BCREA news releases by email visit: www.bcrea.bc.ca/subscribe.

    Mortgage Rate Forecast is published quarterly by the British Columbia Real Estate Association. Real estate boards, real estate associations and REALTORS ® may reprint this
    content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.”

    BCREA makes no guarantees as to the accuracy or completeness of this information.

    S u i t e 1 4 2 5 , 1 0 7 5 W e s t G e o r g i a S t r e e t , V a n c o u v e r, B C V 6 E 3 C 9 | Phone: 6 0 4 .6 83.7 702 | Email: [email protected]

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