We haven’t seen the bond market this low since November 2010. The current 5 year Canadian Bond yield is 2.24%. It’s only been below 2.00% a couple of times… Just after the 2008 U.S. mortgage crisis from December 2008 to January 2009 and late last year in October 2010.
Last year we saw the 5 year fixed mortgage rates hit an all time low of around 3.49%. Today’s best 5 year fixed rate is hovering at around 3.79%…. Could be even be more room for fixed rates to drop….
Enjoy the low rates!
Earlier this month, we saw Fixed mortgage rates go up and the forecasts were calling for rates to continue to go up over the next 2 years. It’s important to remember that all forecasts make certain assumptions and don’t allow for the unexpected… These forecasts may still be accurate but of course, no one was expecting the uprising in Egypt, now Libya and possibly other Middle East countries…
The Canada Bond yield has dropped around 22bps to 2.58% from a 10 month high of 2.80%. This takes some of the pressure off to raise fixed rates… and we might even start to see some Fixed rate decreases if the Bond yields fall further…(or course, the Banks are famous for raising rates immediately but lowering them slowly and this was even identified by the most recent Bank of Canada quarterly review)
I can’t help but to reflect on Professor Moshe Milevsky’s article from a few weeks about how to deal with rising interest rates…. In this article he cautioned us about overreacting to warnings of huge rate hikes or calls to lock in your mortgage… Wow, the timing of his article couldn’t be more perfect. I recommend you take a moment and read what the Professor has to say.
Some things never change…..On Oct 19th, 2010, the 5 year Canadian Bond yield was 1.85%… It fluctuated up and down but staying below 2.00% until Nov 5th when it closed at 2.053%… We were expecting the Banks to adjust their Fixed rates downward but it didn’t happen..
Since then, it has kept above 2.00% and is currently at 2.27%…. This increase in the Bond yield usually means Fixed Mortgage Rates will go up.. See the chart here.
But earlier this week, the Big Six Banks lowered their posted 5 year mortgage rate to 5.19% from 5.29%… This is just a delayed reaction the low bond yields.. but it just goes to show that the Banks continue their pattern of reacting slowing to lowering rates but move like Formula 1 race car to raise rates..
Of course, Posted Mortgage Rates really don’t mean much as the Wholesale Market or Broker Market deals with the true rates.. And Fixed rates dropped late last week to their lowest levels ever. … 5 year fixed rates are now at around 3.49%… with some Lenders even offering 3.39%… WOW!
Watch for Fixed rates to move upward slightly as the Bond yield is now high enough to warrant an increase…
We’ve reached the middle of summer and there is very little to report… hey, that’s a good thing.. remember, boring is good when it comes to mortgage rates..
Remember those Experts that called for people to lock into a long-term fixed rate at or around 4.00% last year?.. Variable rates have been under 2.00% for over a year and recently went above 2.00%…. I do understand why some would call for us to lock in….but I’m glad I wasn’t one of them…
Look at today’s 5 year bond rate and it’s 2.29%… WOW! That’s unbelievably low… the 5 year fixed rate is priced from the Bond market and normally, we will see a spread of 1.20% to 1.40% above that… so really, we should be seeing fixed rates as low at 3.50% but the Banks are taking advantage of the spreads and maximizing their profits…..
Let’s not be in too much of a hurry to improve bank profits….
Watch for possible increases in fixed and variable rates later this year.. but remember, we’re still near record low rates.. they will go up, but slowly… no need to panic… yes, this is boring news.. but boring is good…
Was reading this survey about First Time Home Buyers that TD Canada Trust did recently...
Thought the most interesting stat was that 3/4 of the people surveyed were opting for a Fixed Rate mortgage. And in the same paragraph, the TD rep acknowledged that Variable Rate mortgages performed better… Does any of this sound familiar?
Here’s some more good news.. well, actually it’s bad news for the Stock Market and investor confidence but it’s good news for interest rates… The 5 year Canada Bond has dropped significantly… We were at 2.33% at one point today… meaning 5 year fixed mortgage rates should really be hovering around 3.80%… but instead we are seeing best rates at around 4.29%… WHY? Pure profit taking by the Banks…
But don’t fret…this uncertainty means there is less chance for rates to increase and less chance they will increase significantly…. And for those in a Variable rate, rates of 3.80% and 4.29% are still too high…. Variable rate mortgage clients are enjoying 2.00% or better… Enjoy the summer!