Government shutdown is great news ... for Canada

by MPA15 Oct 2013

While Americans may be at the end of their rope with the ongoing government shutdown, our neighbors to the North could see their mortgage rates fall as a result.

Indeed, Canadians could vote of thanks as Congressional antics in the U.S. are expected to lower fixed rates in the short term in Canada.

“Failure to increase the debt ceiling will result in default by the U.S. Government,” Dr. Ian Lee, director of the MBA program at Carleton University’s Sprott School of Business. “These events in conjunction with less than robust growth have placed downward pressure on the yield on three - five-year Canada bonds, which in turn suggests modest reductions in fixed mortgage rates.”

Following what has been a whirlwind number of weeks for mortgage rates in the Maple Leaf State, a panel of mortgage experts assembled by have come to a consensus for the next month: Mortgage rates will decline.

“The U.S. Fed surprised the market by not announcing a reduction in their bond buying last week as anticipated by many bond traders the world over,” Dan Eisner of True North Mortgage said. “This had the intended effect of lowering long term bond yields in the U.S., followed by a corollary effect in Canada. Although the effect was somewhat muted in Canada we will still see some lowering of long term mortgage rates in the upcoming weeks.”

Last month, the four panel members – which include Eisner, Ron Butler, President Kelvin Mangaroo and Dr. Ian Lee – almost unanimously agreed that rates would continue to climb. This month, however, there was no division.

“I adhere to the best quote I heard last week about Quantitative Easing: ‘it is not a matter of will it end, this is only a question of when it will end’, according to Butler. “The bond market has already priced in the fact that Quantitative Easing will end so I don't expect anything but a levelling off of fixed mortgage rates with the possibility of a tiny short term drop.”


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