As homeowners with adjustable-rate mortgages brace for another hike expected next week from the Bank of Canada, fixed rates are also rising, according to rate experts.
Rate Comparison Site Ratesdotca says commercial banks continue to raise fixed rates in response to rising bond yields.
Scotiabank announced last week that it would raise its five-year fixed rate by 25 basis points to 5.69 percent for 25-year amortization and 5.79 percent for 30-year amortization, according to Ratesdotca.
TD also announced a 20 basis point increase in fixed-rate mortgages, raising the five-year fixed rate to 5.59 percent.
Mortgage rate analyst Robert McLister says “borrowers are experiencing a rate shock that we’ve never seen before.”
In 1981, Canada’s policy rate rose 3.7 times, but McLister estimates the increase this time will be “17x next year if bond market implied rates are correct.”
“Never have rates recovered so disproportionately in such a limited amount of time,” he wrote in his weekly bulletin.
McLister said default rates could potentially triple for non-institutional subprime borrowers, who will be hit the hardest. According to Ratesdotca, non-bank lenders are also raising fixed rates, by an average of 20 to 30 basis points.
Meanwhile, economists are reviewing the latest data in an effort to predict how big of a hike we can expect from the Bank of Canada next week.
TD Senior Economist James Orlando said the Bank should be encouraged by its business and consumer outlook surveyspublished on Monday, which suggests that rate hikes earlier this year have had an impact.
“Given the decline in future sales, we can see that businesses are seeing a fairly rapid drop in overall demand. This is feeding through to future inflation expectations, which have declined across all time horizons,” he wrote in a note.
TD and RBC economists expect a 50 basis point hike on Oct. 26, which would take the Bank’s policy rate to 3.75 percent.
For every 50 basis point increase, a homeowner with an adjustable-rate mortgage can expect to pay about $28 more a month for every $100,000 of mortgage, said Victor Tran, mortgage and real estate specialist at Ratesdotca.
“If the BoC raises the overnight rate by 50 basis points, which it is expected to do, many investors and those renewing mortgages in 2022 and 2023 will be hit hard,” he said.
“Rate hikes are already cooling down the housing market and another overnight rate hike has the potential to spark a sell-off in investment properties.”
But the Bank of Canada could potentially go even higher, and economists say that hinges on one big piece of data yet to come: tomorrow’s CPI report.
A strong reading on inflation, says BMO rates and macro strategist Benjamin Reitzes, “will be tipped to a 75bps rise, while consensus or less would point to a 50bps rise.”
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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional information from The Canadian Press, Thomson Reuters and Bloomberg.
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