This is almost starting to sound like a broken record, but fixed mortgage rates are rising again.  Many mortgage lenders announced fixed rate increases as recently as this morning. I would expect others to follow suit within the next few days.  

The lowest 5 year fixed rates have now increased by well over 1% since the spring.  This leads to one question:  

Exactly when is this madness going to stop?  

Eventually, we’ll catch a break. But we’re not quite there yet. While it’s possible that we could see another 0.25% rate hike from the Bank of Canada on October 25th, the probability is low. But this could change should we get another disappointing inflation surprise when Statistics Canada releases the next CPI inflation report the week before on October 17th. If inflation comes in higher than expected for the second straight month, then odds of a rate increase from the Bank of Canada is increased.  

 

When can we Expect Rate Cuts? 

The topic of rate cuts is highly speculative. The recent surge in bond yields indicates that the market isn’t anticipating rate reductions anytime soon. The Bank of Canada has made it clear that they are not expecting to drop their rate until they reach their inflation target of 2%, which is not expected to happen until at least mid-2025.   

Conversely, the big six banks hold a more optimistic view. Their forecasts suggest cuts ranging from 0.50% to 1.50% by the end of 2024, with additional rate reductions in 2025. While some banks have yet to adjust their predictions after the disappointing inflation surprise last month, the updated forecasts have not resulted in any notable changes to the timeline. This is a good sign. 

While the bond market is less than confident at this moment, it’s upward trend could reverse at any time. All we need is some promising news on inflation. I would then expect a positive reaction from the market. In other words, bond yields would drop, resulting in lower fixed mortgage rates. This will eventually happen. We just don’t know when.  

 

Conclusion  

The pace of the mortgage rate increases over the past two years has been significant. Nonetheless, it’s a given that rates will eventually start to fall. Once the Bank of Canada is assured of inflation stability, their attention will shift towards the economy’s health, possibly leading to a sequence of significant rate cuts.   

Predicting the exact timing of these cuts is challenging, but let’s hope the big bank economists are correct and that we start to see them in the 2nd quarter of 2024.  As soon as it becomes evident that cuts are on the horizon, bond yields will drop, bringing fixed mortgage rates down with them. And that’s when we’ll all be breaking out our party hats.