Mortgage rates are already rising ahead of another hike by the Bank of Canada

  10/18/2022 |   SHARE
Posted in Mortgage Interest Rates by Anabela Serra | Back to Main Blog Page

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While homeowners with variable-rate mortgages brace for another expected hike next week from the Bank of Canada, fixed-rates are rising too, according to rate insiders.

Rate comparison site Ratesdotca says commercial banks are continuing to raise fixed rates in response to surging bond yields.

Scotiabank announced last week that it was raising its five-year fixed-rate by 25 basis points to 5.69 per cent for 25-year amortization, and 5.79 per cent for a 30-year, according to Ratesdotca.

TD also announced a 20-basis point increase in fixed-rate mortgages, bringing the five-year fixed to 5.59 per cent.

Mortgage rate analyst Robert McLister says “borrowers are undergoing a rate shock, that of which we’ve never witnessed before.”

In 1981, Canada’s policy rate rose by 3.7 times, but McLister calculates the rise this time will be “17x by next year if implied rates in the bond market are right.”

“Rates have never mounted such a disproportionate comeback in such a limited time,” he wrote in his weekly newsletter.

McLister said default rates could potentially triple for non-institutional subprime borrowers, who will be hit the hardest. According Ratesdotca, non-bank lenders are also raising fixed rates, by 20 to 30 basis points on average.

Meanwhile, economists are going over the latest bit of data in efforts to predict how big a hike we can expect from the Bank of Canada next week.

TD senior economist James Orlando said the Bank should be encouraged by its business and consumer outlook surveys, released Monday, which suggest rate hikes earlier this year have had an impact.

“Given the decline in future sales, we can see that businesses are seeing a fairly quick drop in overall demand. This is passing through to expectations for future inflation, which have declined across all time horizons,” he wrote in a note.

TD and RBC economists expect a 50 basis-point hike on Oct. 26, which would bring the Bank’s policy rate to 3.75 per cent.

For every 50 basis-point hike, a homeowner with a variable rate mortgage can expect to pay about $28 more a month for every $100,000 of mortgage, said Victor Tran, a mortgage and real estate expect for Ratesdotca.

“If the BoC hikes the overnight rate by 50 basis points, which it’s expected to do, many investors and those renewing mortgages in 2022 and 2023 will be hit hard,” he said.

“Rate hikes are already cooling the housing market and another overnight rate hike has the potential to spark a sell-off of investment properties.”

But the Bank of Canada could potentially hike even higher, and economists say it hinges on an important piece of data still to come — tomorrow’s CPI report.

A strong reading on inflation, says BMO rates and macro strategist Benjamin Reitzes, “will lean to a 75 bp hike, while consensus or lower would point to a 50 bp hike.”

Source: Yahoo Finance

Interest Rates, Mortgage Consumers, Mortgage Rates Canada, Mortgage Rates Forecast

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