The bad news for some is good news for others, and Canadian mortgage holders are the unexpected beneficiaries of some of the darkness that hover over the Canadian economy.
Fixed mortgage rates have been falling steeply in recent weeks, as the cost of financing those loans has been cheaper. Banks and other lenders get the money they borrow in mortgages by borrowing themselves on the bond market, and the yield on five-year bonds has been falling since May 2018.
The Canadian Government's five-year Government bond produced just 1.45 per cent on Monday. That's the first time that the figure was below 1.5 per cent since summer 2017.
Last week, the product curve on long-term lending against short-term inversion, a rare event with an incredible tone for forecasting recessions. (For a longer explanation of what an inverse product curve means, read this.)
Bond yields get lower because investors believe that the prospects for the economy look less, so they expect interest rates to start moving lower.
In general, lower bond yields are not a good indication from an economic point of view, "said Janine White, vice-president of rate comparison website, Ratesupermarket.ca," but it's great for mortgage lenders. "
That's because cheaper financing costs allow the banks to cut their mortgage rates to try to attract lenders. CBS News in January reported that the Royal Bank had cut its five-year mailing rate to 3.74 per cent, a move that competitors were expected to match.
Since then the Royal Bank has cut that rate twice as much, first of 10 basis points on March 1 and then another 15 base points on March 13. The bank's fixed five-year rate is now 3.49 per cent, and other lenders really follow a suit.
TD Bank currently has a fixed five year fixed rate of 3.49 per cent. Smaller borrowers are even lower. Dominion Lending Centers offers 3.29 per cent custody for five years, while HSBC Canada currently has a special five-year 3.24 per cent.
Variable rates are also lower
And our story is similar at the side of the variable rate – though for different reasons.
Unlike fixed rate mortgages taking their queues from the bond market, variable rate mortgages tend to move in conjunction with whatever Canada Bank does.
And investors are betting that the central bank will soon move its rate down, not up. Investors in financial instruments, known as overnight index swaps, value no chance of getting higher this year, but for a one-to-five break by July, and up to 44 per cent opportunity by September.
White says that the variable rate mortgage market is pricing in some of the negative economic indicators late, including lower inflation and an anemic CMC number which showed that the Canadian economy has fallen to 2018.
"They'll probably break to try to ignite economic growth," said White, from her expectations for a central Canadian bank.
One of the biggest changes that occurred in our quarterly forecast in March was to remove any further increase in interest rates from our forecasts.– TD Chief economist Bank Beata Caranci, in a note
And economists predict the same.
"One of the biggest changes that took place in our quarterly forecast in March was to remove any further increase in interest rates from our forecast," chief economics TD Bank t Beata Caranci he said in a note on Monday. "We hit the stop button."
Various rates have not given the best to go up, they have moved back and have fallen in some cases. Rates below three per cent are now common, both in the large banks and in alternative lenders.
The spring is always a key time in the mortgage markets. That is because the largest proportion of home purchases takes place in those months, so lenders are trying to compete as much as possible at rates to take as little as possible of that business.
Bearing in mind, the sharp trend towards cheaper borrowing could keep around for a while, White said.
"Are we still being led for an increase in interest rates in the next few years? Yes," he said. "[But] for the remainder of 2019 the prediction is that the variable rate will be stable and may have a chance of coming down. "