Current scenario
At present, just like the rest of the world, Canadian economy is undergoing a recession with massive job cuts due to the ongoing pandemic. The unemployment rate is at a high of 13 percent even when we are not taking into account many Canadians who are not looking out for work opportunities. All this has a direct impact on mortgage rates. If you are looking to buy a home or refinance one, you must know what the experts are predicting.
What the experts have to say
The benchmark 30-year fixed-rate mortgage fell in the week August 20-26 to 3.14 per cent from 3.24 per cent, according to Bankrate’s weekly survey of large lenders, a record low. This uncertainty has been brought about by the coronavirus pandemic and it is also uncertain how the rate will behave same time in mid-2021. Experts believe that the low mortgage rates will be a continuing trend and some even believe that the key rate may even fall to as low as 2.5 per cent. Others believe that they may rise back to somewhere above 3.5 per cent. What needs to be seen is how the US economy will behave in the time ahead. Here are some key takeaways and predictions for you to absorb:
Mortgage rates to remain low
Homebuyers can expect mortgage rates to remain low and experts believe the rate will be most likely in sync with the health of the economy. Chief economist at Point Loma Nazarene University in San Diego, Lynn Reaser, says, “Mortgage rates are likely to move up one-quarter to one-half a percentage point by mid-2021, taking them to 3.5 percent to 3.75 percent, particularly if a vaccine becomes available, allowing the economic recovery to pick up speed.” But she also warns, ““Rates could fall below 3 percent should the economy be locked down with widespread new contanimations next spring or a new virus.”
Meanwhile, William Emmons, lead economist at the Center for Household Financial Stability at Federal Reserve Bank of St. Louis forsees the divide between the 10-year Treasury and the 30-year mortgage to narrow down in the coming year. He also feels there may be a cut of 100 babis points from mortgage rates and says, "I guess that would put the mortgage rate down around 2 percent."
Affect of Federal Reserves on rates: Bankrate’s chief financial analyst, Greg McBride, predicts rates will fall, and says, “The recovery will be slow, and spreads between mortgage rates and Treasuries will narrow meaningfully. The best rates will typically be in the mid- to high 2s.”
So homeowners are in a good position currently but if the prices of homes were to go up substantially it negates all the good news that low rates have delivered. But for now most experts are routing for low rates to stay. This may drive up home sales when the virus is dealt with.
Mortgage rate forecasts are at best well-informed and educated guesses. Just like weather updates, they stand truer for the near future than the distant future. They must be taken with a pinch of salt.