(EXCERPT FROM THE OFFICIAL BCREA MORTGAGE RATE REPORT.
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Early in the fall the Federal government made sweeping changes to mortgage qualification rules, the most prominent being the requirement that all insured Homebuyers qualify at the posted 5-year fixed rate. The change in qualification rules for homebuyers means that the posted 5-year rate has become much more binding and will now have a more immediate and impactful effect on mortgage demand than in the past.
In addition to a shake-up of mortgage rules, a shocking Presidential election in the United States could signal
a major shift in the path of long-term interest rates. The bond market response to the election thus far suggests that markets believe in Trump’s campaign promises. Yields on five and ten-year government bonds in the US and Canada jumped close to 50 basis points since the election, marking the first time that the five-year bond yield has eclipsed 1 per cent in the past 12 months.
While there are clear downside risks to the Canadian economy over the next year, with the uncertainty introduced by the incoming Trump administration front
and centre, we expect the Canadian economy to post stronger growth in 2017.
With long-term interest rates rising, the Bank of Canada is likely content to keep the short-end of the yield curve relatively flat and will therefore hold rates at 0.5 per cent until 2018. That said, the stark unpredictability of the incoming Trump administration on everything from trade to taxes to the ultimate impact on long-term interest rates means that risk in the economy is tilted to the downside. Therefore, there remains the potential for a rate-cut by the Bank of Canada, should economic conditions and the outlook for inflation deteriorate.
Please contact me if you have any questions or comments about this article. I can also direct you to a trusted Mortgage Professional who can give you their opinion of the 2017 mortgage industry in Canada.