MORTGAGE RATE FORECAST......BCREA
As the year ends, it's worth reflecting on how significantly the Canadian interest rate environment has changed in just twelve months. One year ago, the Canadian yield curve was its usual upward sloping shape, with markets expecting gradual rate increases by the Bank of Canada. Based partly on those expectations, Canadian mortgage rates were climbing. However, within 8 months the yield curve in Canada had inverted, bond yields tumbled, and Canadian mortgage rates were once again heading lower.
The Impact of Higher Interest Rates
Contrary to what most people seem to believe, it’s not automatic that higher mortgage rates are negative for housing activity. There are lots of historical examples where sales and prices rose along with interest rates. For example, between 1978 and 1980 mortgage rates were headed towards 18% yet sales activity and house prices continued to climb. The reason? As long as people perceive that the price increase will be bigger than the cost of borrowing they will continue to borrow. As soon as the price perception changes then the buying dries up