Five-year fixed rates to drop to 2.77%, then hold steady: BCREA

Canadian mortgage rates are still falling, but will then level off for at least a year, predicts association

Glacier Media Real Estate
September 25, 2019

Percent down arrow

Five-year discounted mortgage interest rates are still falling and will drop to an average of 2.77 per cent by the end of the year, then hold firm for a full year, according to the B.C. Real Estate Association’s latest forecast.

The average fixed five-year rate in 2019’s third quarter is expected to be 2.86 per cent, which is down from an average of 3.16 per cent in Q2. This is just an average, as some five-year fixed rates are currently available as low as 2.25 per cent.

BCREA said in its forecast that one key reason for declining rate was because “rising trade tensions between the United States and China fed growing fears of a global economic slowdown. Those fears pulled long-term Canadian interest rates low enough to invert the Canadian [bond] yield curve, a frequent — though not infallible — pre cursor to recession. As bond yields fell, the average five-year contract rate offered by Canadian lenders declined to an average of 2.86 per cent, with five-year fixed rates as low as 2.25 per cent currently available.”

The five-year qualifying rate is expected to hold firm at 5.19 per cent, having been reduced from 5.34 per cent earlier this year. Under current rules, this means mortgage applicants will still have to qualify at this rate to pass the B-20 “stress test” (or their contract rate plus two per cent, whichever is higher), despite contract mortgage rates (the amount they will actually pay each month) dropping.

BCREA mortgage rate forecast Sept 2019
Source: BCREA Economics

The Bank of Canada’s overnight rate — which variable mortgages are based on — is expected to hold firm, although the BCREA did not rule out a decline if the Bank decides to follow the U.S. Federal Reserve’s lead.

BCREA mortgage rate forecast BoC overnight Sept 2019
Source: BCREA Economics

Overall, the report’s outlook for the Canadian economy was one of very cautious optimism. “We expect the Canadian economy will post trend growth of about 1.8 per cent in 2020, though significant downside risks remain due to elevated trade tensions and their consequent impact on exports and investment.”

On future interest rate changes, the report authors concluded, “The baseline outlook for the Canadian economy is not signalling the need for further stimulus… Policymakers remain wary of reigniting a build-up in household debt, particularly after imposing policies designed to bring those debt burdens down. We expect the Bank will therefore remain on hold as long as the Bank’s assessment of economic risk does not reach a tipping point.”

Joannah Connolly is editorial director of Glacier Media Real Estate, Glacier Media's real estate division. Joannah writes and curates real estate news for Glacier Media's local newspaper websites, including the Vancouver Courier, Times Colonist, Prince George Citizen, North Shore News, Burnaby Now, Tri-City News and others. She also writes and oversees editorial content in Real Estate Weekly Homes, West Coast Condos & Homes, Western Investor and Glacier's special real estate publications. A dual Canadian-British citizen, Joannah has 23 years of journalism and editing experience in Vancouver and London, with a background in construction, architecture, healthcare and business media. Joannah has appeared on major local TV outlets as a real estate commentator, has moderated and spoken on various industry panels, and spent two years hosting the Real Estate Therapist talk radio show on Vancouver's Roundhouse Radio.
Copyright © Western Investor

Email to a Friend

Most Popular