Since the start of the COVID-19 pandemic in Canada, Canadian mortgage rates are at an all-time low. Many homebuyers are now faced with the age old question: to buy or not to buy? For many Canadians, especially first-time homebuyers, this may seem like the perfect time to invest in a home. But should potential home buyers lock in rates right now? Is there a possibility that they can go even lower?

The answer is yes, but not by much. This is the answer from several financial analysts, citing the Bank of Canada’s policy, competition among lenders, and seasonal factors. The pandemic’s impact on the economy was also taken into consideration.

How has the pandemic affected the Canadian mortgage?

What some people might not be aware of is that the Bank of Canada key lending rate directly affects variable-rate mortgages, lines of credit, student loans, and more. However, bond rates affect fixed mortgage rates. On three separate occasions in March 2020, Canada’s central bank made the decision to slash the key lending interest rate by 0.5%, bringing them down to a total of 0.25%. In August, the Government of Canada’s five-year bond yields fell to 0.41%. This was a significant 1.23% drop compared to 1.64% in December 2019.

By June, most major banks and mortgage brokers were offering five-year fixed rate loans at less than 2%. These rates were set based on how both of the previous measures affected them. According to Toronto-based personal finance website RateHub, rates as low as 1.64% per year can be found, if you know where to look.

How do mortgage rates compare historically?

According to James Laird, co-founder of RateHub, mortgage rates today are much lower than before. During the oil crisis in 2017, mortgage rates reached the then-all-time low at 2.09%. “It seems absurd because we are way lower than the previous record,” Laird said. “Lenders compete with each other and sometimes that causes the margin in lending to shrink, which causes lower mortgage rates.”

With lenders trying to snag the buyers rushing to take advantage of the cheapest loans ever, the competition has led to a competitive mortgage market. In most markets across Canada, the lack of supply has also accelerated house prices.

How is the housing market looking in the months to come?

The Canada Mortgage and Housing Corp., Canada’s largest public mortgage insurance provider, predicts that house prices could fall by double-digits as early as next year.

As the pandemic continues to affect jobs and the economy, other analysts also predict price deceleration. This price deceleration is more likely to affect condos and houses. However, analysts say that borrowing costs likely won’t increase appreciably until after a solid economic recovery is well under way. As for when that happens, it depends on the strength and outcome of a potential second wave, as well as when a vaccine becomes widely available.

How will mortgage rates be affected in the months to come?

“As we enter the winter days, I think the economic activity will slow down and that usually leads to lower interest rates,” says Benjamin Tal, deputy chief economist at the Canadian Imperial Bank of Commerce. “If you look at the Bank of Canada buying in the bond market, they are starting to focus more on the 2 to 5-year rate and they are actually selling 10 and 30 year [bonds]. […] They are putting some downward pressure on the long end of the curve.” According to Tal, this is enough to suggest that there may be moderate pressure to lower interest rates.

With several cuts already during 2020, the Bank of Canada has stated several times that 0.25% is as low as they want to go. As of this blog post, they have since confirmed that they will not be further reducing interest rates. Still, the pandemic has unquestionably made its mark on the housing market.

How has the pandemic affected the housing market?

According to Robert Hogue, senior economist at RBC Royal Bank, the pandemic has seen housing demand shift to low-rise and single-detached homes. Demand is also affected by the lack of immigrants to Canada this year, which usually stands at about 300,000 annually. With a lack of tourism, more Airbnb units are also back on the market as long-term rentals. Still, Hogue says that the housing market has been much more vibrant than the bank had expected.

“When you look at how tight markets are across Canada, […] it’s hard to imagine that prices will start declining in very short order,” Hogue said. “There is probably momentum that will carry for a number of months.”

As for the potential of mortgage rates to go even lower, Hogue thinks it could be possible. “They’re incredibly low,” he said. “I never thought I’d see this in my lifetime, but here we are. We’re getting pretty close to zero, but what I’ve learned over the last decade is ‘never say never’.”

How can Mortgage Design Group help?

With so many changes to the mortgage landscape, it can be confusing to go it alone. However, with mortgage rates at a historic low, now is the best time to look into investing in a home. When it comes to navigating the complicated world of mortgages, you’re not alone. With an experienced team of mortgage brokers, we make sure that you’re getting the best terms for YOUR financial goals.

We believe our role is as curators and educators. We narrow down all the products on the market to find you the best ones on offer so you don’t have to. We also ensure that everyone understands all there is to know about the many options offered by the many lenders in Canada. Want to find out more? Talk to us today to meet with one of our brokers and let us know how we can help!

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