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Latest in Mortgage News: BoC Sees Early Signs of Housing Overheating, but Will Keep Rates Low for Now

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Fixed rates may be heading higher, but variable-rate holders can rest assured their rates won’t be going up just yet, at least according to Bank of Canada Governor Tiff Macklem.

During a speech on Canada’s labour market, Macklem said monetary policy will need to continue to provide stimulus for a “considerable period” because a complete economic recovery is “still a long way off.”

“We have committed to keeping our policy interest rate at the effective lower bound until economic slack is absorbed so that our inflation target is sustainably achieved,” he said, repeating a line often used during the Bank’s policy meetings. “And we have backed up this commitment with our program of large-scale government bond purchases.”

In statements released at past rate decision meetings, the Bank has repeated that it currently sees its policy rate at its “effective lower bound,” currently at 0.25%, and that it doesn’t foresee raising rates until 2023.

As for the Bank of Canada’s bond-buying program, which has helped keep fixed rates lower over the past year, watch for the BoC to further reduce its commitments in the coming months, says CIBC.

“The Bank has been pointing to its aversion to owning half or more of the outstanding stock of bonds due to the potential impacts on market functioning, and it would be on that path if it failed to slow its purchase plans,” noted Avery Shenfeld of CIBC Capital Markets. “Thus, come April, don’t be surprised to see a further reduction in bond purchases.”

BoC Keeping an Eye on Housing Market

Macklem also commented on growing signs of overheating in the country’s housing markets, but noted that while the Bank is watching the situation closely, the situation isn’t yet critical.

“We are starting to see some early signs of excess exuberance, but we’re a long way from where we were, say, in 2016, 2017 when things were really hot,” he said during the Q&A.

“What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we’ve seen recently go on indefinitely, and they’re basing their decision on those kinds of assumptions.”

…as Fixed Rates Continue to Rise

Earlier this week, we reported that a handful of lenders had started raising interest rates in response to surging bond yields. That handful is now a crowd.

Most lenders have been increasing their rates over the course of the week, and many brokers have been forced to follow their lead. On Friday, TD Bank became the first Big 6 bank to raise its 5-year fixed rates.

Canada’s 5-year bond yield shot up even higher on Thursday, closing at a near-12-month high of 0.95%, signalling yet more rate increases on the horizon.




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