Canadian mortgage market: How will it play out in the coming months?

Recent weeks have seen a series of big developments in the market outlook

Canadian mortgage market: How will it play out in the coming months?

The Canadian mortgage market has been gripped by plenty of drama in recent weeks, with the Bank of Canada’s announcement of a pause on rate hikes on March 8 followed just days later by the turmoil that engulfed the US banking system – a development that saw fixed rates tumble as a result.

Five-year Government of Canada bond yields, the leading indicator of fixed rates, plummeted in light of the failure of Silicon Valley Bank – and still hovered below 3% at time of writing – with odds of at least one rate cut by the Canadian central bank also shooting upwards as the chaos unfolded.

Unless the crisis intensifies, the Bank is still unlikely to lower its benchmark rate in the near future, but events in the US will have strengthened its resolve to leave rates untouched for as long as possible, according to a leading economist.

Dominique Lapointe, Manulife Investment Management’s director, macro strategy, told Canadian Mortgage Professional last week that events in the US meant “the bar to raise rates again has been placed a little higher,” even if cuts were unlikely in the near term.

Prominent broker’s outlook for the months ahead

For Canadian mortgage brokers, the recent tumult has produced plenty of new calls from clients about what it might mean for borrowing rates north of the border. Christine Buemann (pictured top), co-owner and broker at The Collective Mortgage Group, told CMP that she had also been proactively informing clients and referral partners about the possible impact, describing that as a strong way to connect and open up broader conversations.

As for the potential effect of those events? “Given the current volatility, we are mentioning how it can influence the bond market and upcoming Bank of Canada announcements,” Buemann said. “However, we are waiting until the dust settles in order to have a clear understanding of the most predictable impacts to our economy and therefore their mortgage options.”

The Bank of Canada’s decision to hit pause on rate hikes marked the first time for nine announcements that it had not increased its benchmark rate, a development that could bring some much-needed stability back to the national housing market.

Buemann said that she had already been seeing more buyers in the wings with preapprovals getting ready to purchase.

“I think as soon as we see a consistent reflection of the bond yield changes in fixed rates and after a month or two of stabilized and increased house prices, the market will likely see an uptick in activity,” she said, “which will lead to more attention to the shift in prices and shift the trajectory back up.”

The outlook for the remainder of the year is likely to be regionally specific, Buemann added, with smaller, currently affordable markets set to remain stable with sales and business that’s predominantly insured, meaning more competitive pricing.

She expects activity to become more normalized by the third quarter of the year. “However, I am mindful that we are creating a new ‘normal’ moving forward and we need to be prepared for more risk-averse lending.”

Other notable features of the mortgage market at present, according to Buemann, include a sizeable number of new requests for construction financing, as well as spousal buyouts, relocations, and second mortgage requests.

A growing number of short-term rates and longer amortizations have also been evident of late, she said, as well as more investors who are looking to sell, “likely due to poorly planned cash flow with their adjustable-rate mortgages or trying to time the market.”

RBC expecting downturn to be a mild one

A new report by Royal Bank of Canada economists indicated that a recession in the Canadian economy was likely around the middle of the year, although it said downturns in both the US and Canada would probably to be “mild” compared with historical downturns.

Still, it didn’t rule out the prospect of a bumpy landing at some point in the future, indicating that stronger consumer spending could see inflation persist and compel the Bank of Canada into introducing further hikes to its policy rate.

What trends are you noticing in the Canadian mortgage market at present? Are you providing your clients with any specific advice in the wake of the recent US banking crisis? Let us know in the comments section below.