Over the past few months, major economists have back peddled on their rate hike predictions. Not long ago, the consensus of economists was projecting a July 19 increase. Now, those same analysts aren't looking for a rate bump until this fall...or later. A slew of factors justify a deferral of rate increases, including:
• A parade of weak economic data from the U.S.—our key trading partner
• Core inflation that remains manageable
• Global economic risks
• Debt-laden consumers that are only cautiously spending
• A U.S. housing market that's double-dipping
• U.S. unemployment that may be structurally and permanently elevated
• A Canadian dollar that is still acting as a brake on our economy.
For reasons like these, TD Bank became the first major bank last week to predict the Bank of Canada would stand pat on rates through 2011. Depending on how the next rounds of economic data look, other banks may follow suit. Then again, the rate picture can and does change. BMO says: "...it is too soon to dismiss the possibility (of rate hikes in 2011)." BoC chief Mark Carney recently said: "...The expectations, both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels." For now, here's what the Big 6 are projecting for rates through 2012:
Latest 5-Year Government Bond Yield Forecast
Government bond yields drive 5-year fixed mortgage rates.
Bank 2011 2012
BMO 2.93 3.80
NBC 3.46 3.88
RBC 3.30 4.05
Scotia 2.85 3.35
TD 2.70 3.65
Year-end Avg 3.05 3.75
Chg vs Today +0.89 +1.59
(CIBC's 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Bank estimates, if accurate, imply a 4.50% prime rate by December 31, 2012. Prime rate is currently 3.00% and the 10-year average of prime is 4.33%. Based on an 80-basis-point discount from prime, these forecasts suggest 5-year variable rates in the 3.70% range by year-end 2012. That's slightly higher than today's best 5-year fixed rates.
Fixed-Rate Mortgage Forecast
The banks predict that 5-year bond yields will rise to 3.75% in 18 months. That level would eclipse the 10-year average of 3.61%. Assuming a typical 125 basis point spread above yields, these forecasts imply that deeply-discounted 5-year fixed rates could hit about 5.00% by year-end 2012.
• A parade of weak economic data from the U.S.—our key trading partner
• Core inflation that remains manageable
• Global economic risks
• Debt-laden consumers that are only cautiously spending
• A U.S. housing market that's double-dipping
• U.S. unemployment that may be structurally and permanently elevated
• A Canadian dollar that is still acting as a brake on our economy.
For reasons like these, TD Bank became the first major bank last week to predict the Bank of Canada would stand pat on rates through 2011. Depending on how the next rounds of economic data look, other banks may follow suit. Then again, the rate picture can and does change. BMO says: "...it is too soon to dismiss the possibility (of rate hikes in 2011)." BoC chief Mark Carney recently said: "...The expectations, both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels." For now, here's what the Big 6 are projecting for rates through 2012:
Latest 5-Year Government Bond Yield Forecast
Government bond yields drive 5-year fixed mortgage rates.
Bank 2011 2012
BMO 2.93 3.80
NBC 3.46 3.88
RBC 3.30 4.05
Scotia 2.85 3.35
TD 2.70 3.65
Year-end Avg 3.05 3.75
Chg vs Today +0.89 +1.59
(CIBC's 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Bank estimates, if accurate, imply a 4.50% prime rate by December 31, 2012. Prime rate is currently 3.00% and the 10-year average of prime is 4.33%. Based on an 80-basis-point discount from prime, these forecasts suggest 5-year variable rates in the 3.70% range by year-end 2012. That's slightly higher than today's best 5-year fixed rates.
Fixed-Rate Mortgage Forecast
The banks predict that 5-year bond yields will rise to 3.75% in 18 months. That level would eclipse the 10-year average of 3.61%. Assuming a typical 125 basis point spread above yields, these forecasts imply that deeply-discounted 5-year fixed rates could hit about 5.00% by year-end 2012.
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