Fixed rates are going up, following bond yields. Interest rate forecast from BCREA

More and more banks, including RBC, BMO and National Bank of Canada, have been increasing their fixed interest rates during the previous week, following bond yields growth.

BMO raised its insured 5-year fixed rate by 0.20% to 2.19%. The uninsured 5-year fixed went up by 0.10% and reached 2.39%. In addition to it, the bank raised its special-offer 3-year fixed rate by 0.10%.

Meanwhile, RBC offset its previous rate declines seen in September by raising its 5-year fixed rates by 0.25% to 2.44%.

In case of the National Bank of Canada, a 5-year fixed rate was raised by 0.05% to 2.29%.

Moreover, other lenders also decided to increase their rates, including Desjardins, Simplii Financial, Investors Group and Canada Life, and numerous brokers and brokerages. The majority of hikes were quite modest ranging from 0.05% to 0.15%.

The rate gains are following growing bond yields, which usually affect fixed mortgage rates. In addition to it, we have above-target inflation, labour shortages and tight supply-demand imbalances at the national real estate market.

On Tuesday, the Government of Canada 5-year bond yield exceeded 1.24% and kept rising above 1.27% by Wednesday morning, marking the largest number since February 2020.

No one can tell for sure where the rates will go next. They may go down just like earlier this year after an increase, but they also can continue to grow.

Recently, the British Columbia Real Estate Associate (BCREA) released its own rate forecast.

“In our opinion, fixed rates will gradually go up back to pre-pandemic levels, while variable rates will follow the central bank’s decisions,” – the report says. “It means a fixed 5-year rate of 2.1% will remain unchanged for the rest of this year, while a 1.5% variable rate will be available through 2022.”

BREA expects average discounted 5-year fixed rates to reach 2.25% by the first half of the next year and 2.50% by the end of 2022.

It believes a prime rate will go up by 0.25% to 2.70% in the fourth quarter of 2022, and the 5-year qualifying rate will remain flat at 5.25% during the next year.

“We expect the BoC to keep acting with caution, especially with the fourth wave of COVID-19 and an unexpected decline of GDP in Q2,’ – said BREA’s chief economist Brendon Ogmundson. “It could make the central bank start raising its key lending rate earlier – in the middle of 2023.”


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