Will Canada’s real estate market correction hit pause with an influx of cheap credit? CMHC data shows that 5-year conventional mortgage rates fell in February. Not huge, but the second consecutive month since the most aggressive climb in a generation. With credit costs plummeting even faster in March, it could provide a boost for the Spring market.
5-Year Conventional Mortgage Rates
Conventional mortgages are uninsured, meaning borrowers have at least 20% equity. Historically, it’s the most popular loan product when it comes to mortgage borrowing. It’s also influenced by a key indicator—the Government of Canada (GoC) 5-year bond yield.
Since credit markets are competitive, capital for a 5-year fixed rate mortgage competes with the GoC 5-year bond yield. Recently, yields have been falling and are expected to bring fixed-term mortgage rates lower as well.
Note, this is different from variable rate loans, which are influenced by short-term loans. In Canada, the Bank of Canada (BoC) overnight rate determines those, and we’ll discuss where that’s heading on another day.
Canada’s 5-Year Mortgage Rates Are Falling
Canadian mortgage rates aren’t exactly tumbling, but they are coming down. An average conventional mortgage with a 5-term fell 0.05 points to 5.81% in February. It’s not a huge pullback, but notable for being the second consecutive drop since rate hikes began. It was also the largest monthly drop since July 2021, but more importantly showed a change of direction during a steep climb.
Canadian 5-Year Conventional Mortgage
The interest rate for an uninsured mortgage with a 5-year fixed term.
Source: CMHC; Better Dwelling.
Mortgage Rates Are Still Significantly Higher Than Last Year
Even with the pullback, conventional mortgages with a 5-year term made one of the most aggressive climbs ever. Annual growth came in at 2.23 points in February, sliding from the peak, but still printing one of the largest climbs since the early 90s. Back then, interest rates were also significantly higher to begin with, meaning the shift wasn’t quite as violent. Borrowers weren’t nearly as indebted either.
Canadian 5-Year Conventional Mortgage 12-Month Change
The 12-month change for an uninsured 5-year fixed rate mortgage in percentage points.
Source: CMHC; Better Dwelling.
March data won’t be compiled for another month, but it’s likely to kick off a sharper drop. February preceded the banking liquidity crisis, which sent bond yields plunging. The GoC 5-year yield was no exception, falling over a half-point from the start of the month. While there’s some stabilization in the bond market now that the bank liquidity panic has passed, it’ll be harder to climb without a panic.
Guess what properties still not affordable 🙂
Your website is quite informative but the main event is that the Canadian money supply growth rate has been declining re: in deflation mode (NEGATIVE) since Aug. 2022.
The meaning of negative money supply is that the credit markets are extremely tight since the summer of 2022. Furthermore, given that the money supply is negative the banks do not have the elasticity to provide mortgages ad infinitum. Therefore, whether interest rates decline somewhat from current levels, it won’t be enough for potential buyers with minimum down payments to buy a home as esily as 2020-2021. Add to the mix the coming recession and the recipe for real estate is for prices to decline further.
The period from 1980 until 2021 marked the secular decline in market interest rates (bond yields) and the rise in bond prices.
It looks very likely that market interest rates are now immersed potential in a multi-year advance, hence, the multi-year decline in bond prices (already started) and eventually the rise in bank interest rates and mortgage rates.
This article seriously undermines the credibility of this website.
“5-term fell 0.05 points to 5.81%”, that means they went from 5.86 to 5.81. This is a rounding error, worth dollars on a million dollar mortgage. And yet the author predicts a flood of cheap money. “an influx of cheap credit?” This is a classical FOMO mongering.
Those people think they can play with rates and it is going to solve all issues. They do not even try to really start working because they believe in pink pony of the market that is doing magical tricks via rates and other trickery. What about creating and implementing massive construction plans? Toronto for example is full of blocks of very old dilapidated houses who house little people, take a lot of space and look ugly. Whoever think that housing problem can be solved with more private housing or by laws allowing to turn private houses into rooming houses is definitely not doing right thinking. These whole areas should be gradually turned into modern high rise with everything within walking distance and broad roads blocks of modern building with enough space in each apartment to rise families with kids. Owners of the houses that has to go would get their own new apartments in these buildings. Constructing houses further and further from Toronto is also not going to solve the problem. How far it is going to go?
“Note that reads “civil,” which means don’t act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you’re adults – act like it.”
And why then my comments are consistently removed? There is nothing of what you have mentioned in my comments. Most probably my not liberal views make you uncomfortable.
Hi Nobody, your comments weren’t removed. If you’ve never had a comment approved, use an email not verified with WordPress, and/or use a fake name—WordPress’ filter requires manual verification of the content. Typically it’s only a few hours, but we just saw this and circled bank to help explain if you did’t figure it out.
Hope that was helpful!
BD Support