What is the mortgage rate outlook? Now that the Bank of Canada is lowering its policy rate, many expect fixed mortgage rates to fall. However, the impact on fixed mortgage rates may not be significant. Since late 2023, markets have anticipated falling rates, meaning five-year fixed mortgage rates have likely already priced in expected rate cuts.
Fixed Mortgage Rates
The bond market, which influences mortgage rates, has already factored in the Bank of Canada’s expected rate cuts. Historically, the spread between the overnight rate and five-year fixed mortgage rates averages around 225 basis points. With the Bank’s policy rate expected to settle at 2.75%, five-year fixed rates would be about 5%. This suggests little downward movement in five-year fixed rates, even as the Bank lowers its policy rate.
Variable Mortgage Rates
Variable rates are currently around prime minus 60 basis points. To see variable rates fall below the average five-year fixed rate, it would take seven rate cuts, or a 175 basis point decline. Therefore, variable rates may remain higher than fixed rates for some time.
Economic Influences
Interestingly, five-year bond yields are more influenced by US economic data than by the Bank of Canada. This means that even if the Bank cuts rates, borrowing costs could rise if US economic conditions improve unexpectedly.
Market Conditions in North Vancouver
Real GDP rose by 1.7% in the first quarter of 2024, narrowly avoiding a recession. Despite this growth, Canada’s economy remains weak, with the unemployment rate at 6.2% and job vacancies falling. This economic backdrop supports the Bank’s decision to cut rates.
What This Means for Homeowners
For North Vancouver homeowners and potential buyers, this means that while fixed mortgage rates may not drop significantly, the current economic climate might still offer favorable borrowing conditions. It’s crucial to stay informed and consider your options carefully.
Read more in the BCREA’s recent article here.
As local realtors, we’re here to help you navigate these changes. Whether you’re looking to buy or sell, understanding the mortgage rate outlook is key. Let’s discuss how these trends impact your real estate goals. Call us or click here to book a discovery call. 604.230.9339
About the Author:
Suzanne Callaghan is a top real estate expert in Metro Vancouver with over 12 years of experience. Passionate about matching families with their perfect homes, Suzanne provides personalized guidance and market expertise. Learn more about Suzanne here.