Last week provided a stark reminder of how difficult it is to forecast mortgage rates. For months, Government of Canada (GoC) bond yields had been declining, thanks to cooling inflation and weaker economic data. But recent global events caused a sudden turnaround. In this update, we’ll break down why bond yields and mortgage rates are shifting, and what it means for your mortgage options today.

Inflation Hits Target Amid Global Shifts

In August, Canada’s Consumer Price Index (CPI) returned to the Bank of Canada’s 2% target. Shortly after, the U.S. Federal Reserve announced a 0.50% rate cut, with more cuts anticipated. This seemed to set the stage for continued declines in mortgage rates.

However, in late September, oil prices surged due to escalating geopolitical tensions in the Middle East. A barrel of WTI crude oil rose by 10%, which is concerning for inflation. Higher oil prices can lead to increased overall costs, both directly and indirectly, impacting everything from energy bills to the cost of goods.

U.S. Employment Surges Beyond Expectations

The latest U.S. non-farm payroll report revealed that 245,000 new jobs were added in September, well above the forecast of 150,000. With such strong job creation, the U.S. economy may not need additional support from the Federal Reserve, which changes the outlook for interest rates.

Last week, this mix of higher oil prices and a robust U.S. job market led to a notable increase in bond yields. The 10-year U.S. Treasury yield surged by 0.22%, which, in turn, influenced GoC bond yields and led to a spike in Canadian fixed mortgage rates.

What’s Next for Mortgage Rates?

1. Variable Rates: Still Hopeful for Cuts
   Despite recent events, many experts believe that the Bank of Canada (BoC) will continue to cut rates in the long term. While last week’s developments reduce the odds of an immediate 0.50% cut, the current forecast suggests that the BoC could lower rates from 4.25% to around 2.5% to 3% by late 2025. This would bring variable rates down by about 1.25% from today’s levels.

2. Fixed Rates: Likely to Rise Near-Term
   The recent rise in bond yields has already prompted some lenders to adjust their fixed-rate offers, pulling back on promotional rates. If oil prices remain elevated and the U.S. economy continues to grow, fixed rates could climb higher. For borrowers who prefer rate stability, locking in a fixed rate now may be a wise choice.

3. Watch for More Changes
   The next Bank of Canada announcement on October 23 could provide further insight. If global events continue to drive inflation and economic uncertainty, the BoC may take a more cautious approach to rate cuts. This could mean slower reductions in variable rates and additional short-term increases in fixed rates.

The Bottom Line: What Should Homebuyers and Homeowners Do?

• For Homebuyers: If you’re actively looking for a home, now is a great time to reach out for a custom budget. Fixed rates may be on the rise, so securing your financing options soon could save you from potential rate hikes.

• For Homeowners: Curious about how these trends affect your home’s value? Request a free market report to see where your property stands in today’s market. With buyer activity increasing, your home’s value could be on the upswing.

Ready to Make the Most of Today’s Market?

Understanding mortgage rates can be tricky, especially with the current global volatility. Whether you’re considering buying a home or simply want to know the current value of your property, I’m here to help you navigate the market.

Contact me today, and let’s explore your options together.

Your Friend in the Mortgage Business,
Adam Walker
226-567-4274 ext. 1
[email protected]

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