For anyone with active positions in the stock market, I feel your pain along with you. With such precipitous drops over a period of only a few days, it definitely stings.
So if there were such large drops to the major stock indexes, will we see major drops to mortgage rates?
The short and quick answer is no. The stock market and mortgage rates are not generally tied to each other. However, major movement on stock indexes can influence bond yields, which directly influence fixed mortgage rates. There were distinct drops to bond yields this week, which could potentially lead to drops in fixed rates. If the yields remain at this level, or drop any further, then we’ll likely see some cuts to rate, however it’s unlikely that any reduction will be anything substantial. Certainly not enough to assuage the pain felt by anyone with market positions over this past week.
Will the decline in the stock market affect the Bank of Canada’s next interest rate announcement on October 24?
Again, the short answer here is no. Unless the markets continue to tumble, there will quite likely be 0.25% increase to prime rate on October 24th. A similar increase WILL NOT be applied to fixed rates. If the increase triggers bond yields to trend upwards, then this would then put upward pressure on fixed rates. This could potentially happen or the yields could remain status quo, which is I think the more likely of the two. Given that the rate increase is expected, it shouldn’t present any shock to bond yields, which is good news for fixed rates. This doesn’t mean that there isn’t long-term upward pressure on fixed rates. There is, and we can expect them to rise further through 2019.