The return of rates to pre-pandemic levels might take a while longer
Taking current economic drivers into account, Canada’s fixed five-year rates might hover at an average of 2.1% for the remainder of this year, along with a 1.5% average variable rate available through 2022, according to the British Columbia Real Estate Association.
The group said that the emergence of more infectious COVID-19 strains is a major source of the uncertainty spurring near-term volatility.
“It is perhaps more likely in the short-term that five-year fixed rates will decline further, at least until we are past this most recent uptick in COVID-19 cases,” BCREA said. “Once normal macroeconomic drivers again take precedence in determining mortgage rates, whenever that might be, we expect fixed rates to gradually rise back to pre-pandemic levels while variable rates follow the Bank of Canada’s timetable.”
Read more: Largest banks’ ability to hike mortgage rates might be limited – observers
Citing data from the central bank, BCREA projected that the prime rate will sit at around 2.45% through the rest of 2021, and will remain at this level before rising to 2.7% by the end of 2022. The five-year qualifying rate of 5.25% will likely remain unchanged up to the end of next year, while the five-year average discounted rate will likely grow from 2.1% at the end of 2021 to 2.5% by Q4 2022.
“We expect the Bank of Canada will proceed with caution, especially given the fourth wave of COVID-19,” BCREA said. “The unexpected contraction of GDP in the second quarter pushes out the closing of the output gap by one or two quarters. That likely means a new timeline for the Bank of Canada to raise its policy rate with the earlier increase coming in mid-2023.”
