There is a general consensus among CDN economists is that we can expect a 0.25% rate drop in the next year, which would bring Prime from 3.95% to 3.70%.
The US Federal Reserve (the equivalent to our Bank of Canada) has hinted at 2 x 0.25% rate drops in the coming year. The Bank of Canada typically moves in step with the US Federal Reserve. In this instance, the Bank of Canada is not expected to do two rate decreases, since our projected growth and inflation targets are on pace at 2%. Add to that strong employment data and an overall slightly optimistic outlook from the CDN business community and it is hard to imagine rates dropping significantly in the next year.
Meanwhile…
For the first time in many years, the 5-year fixed rate for new business is lower than the 5-year variable rate.
Investors are pulling their funds from the stock market and placing them in reliable, safe mortgage and government bonds. That pool of money is where the fixed rate mortgage money comes from and so we have seen a drop in 5 and 10-year fixed rates over the last 6 months.
Clearly the market’s confidence has been shaken by trade tensions and the prospect of a global slowdown.
While the fixed rates are low, it is time to consider the option of converting to a fixed rate. We are going through our client list and contacting any clients that should be considering a move to a fixed rate.
The rapid decline in fixed rates is the result of a market that believes we can expect volatility in the coming years. If their worst fears come true, the variable rates will also drop and so it is in the interest of most of our clients to stay variable for the time being.
Variable Rate Update: July 2019
