Bank of Canada Mortgage Rate Announcement - June 2021
June 14, 2021 | Posted by:
The Bank of Canada (BoC) provided their pre-summer announcement last week. It was one of the first in awhile, where real estate industry professionals and financial services experts alike were less certain of the outcome. Mind you, the lack of certainty was based upon good news. For instance, at press, 64% of eligible Canadians have now had one-dose of the COVID vaccine. In addition, the Canadian dollar is on the rise. Better yet, talks are underway to reopen the U.S./Canada border for the first time in well over a year. But before our North Dakota and Minnesota neighbors can start shopping for Winnipeg vacation properties, we must look at what will happen with mortgage rates in light of the recent BoC announcement, if anything. Let’s review.
What Home Buyers Need to Know About the Pre-Summer 2021 Bank of Canada Announcement Regarding Lending Rates
Bank of Canada Overnight Rate Maintained at .25%
There you have it. The overnight rate will stick at .25%. Despite a slow and steady economic recovery and recent GDP growth of 5.6 percent, the employment rate remains significantly below its pre-pandemic level. Plus, economic growth is specific to certain regions, as provinces that experienced a larger second or third wave (compared to the first) of the pandemic had to shutter operations in many sectors. While Manitoba is seeing a large and sustainable drop in COVID case-counts (almost out of the woods!) it was just three weeks ago that we had our highest numbers since this whole thing began. So yes, while Canada is pretty much ready to put the health crisis in the rearview for good, stimulus is still required to ensure consumer spending persists. As the BoC states, they will hold current interest rate until inflation objective of 2 percent is sustainably achieved.
Continuance of the Quantitative Easing Program
So what about mortgage rates? The BoC did not make much of announcement regarding bond yield (which impacts fixed mortgage rates), and have stated that decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. Take that to mean “status quo” for now.
Look, fixed rates are bound to rise. However, the 5-year fixed rate is still extremely low by historical standards. Any increases this summer (if any) will be negligible when compared to anything over the last five to ten years. Plus, the Bank of Canada announced that they will continue with the quantitative easing program (QE). For the uninitiated, the program exists to keep fixed mortgage rates lower than they otherwise would be during a strengthening economic period. And since variable mortgage rates are closely tied to the BoC’s overnight rate, you can expect those to remain favorable for buyers too.