How The Vaccination Race Is Affecting Mortgage Rates
posted in Mortgage News
With Canadian mortgage rates at an all-time low, questions are being asked as to just how long they’ll remain that way, and what factors will affect it the most. Undoubtedly at the moment, the COVID-19 vaccination race and their earlier than anticipated arrival, paints a reasonably optimistic economic forecast. The ongoing lockdown continues to hamper the economy, making vaccination rates vital, and the race to achieve herd immunity, an ever more desperate one.
Currently, the federal government is promising a vaccine by September for every Canadian citizen wanting one, and hitting this target could prove crucial for mortgage rates and the economy in general.
The vaccination race and variable mortgage rates:
Priced on lender prime rates that move in line with the Bank of Canada’s policy rate, variable mortgage rates are currently at 0.25%, after the bank dramatically cut its policy rate in March 2020 – at the beginning of the pandemic - by 1.50%. Then, in July of 2020, the bank took the unusual step of confirming that it wouldn’t raise its policy rate until an unconfirmed date in 2023, and has repeated this guidance frequently, since.
The current state of fixed mortgage rates:
Priced on Government of Canada bond yields, while not directly tied to the Bank of Canada’s policy rate, they do respond to changes in the banks outlook, and under normal times, fixed mortgage rates are only influenced by the BoC indirectly. However, with the current times being far from normal, the Bank was reducing rates and offering unprecedented forward guidance, while also using quantitative easing (QE) programs to buy at least $4 billion worth of government debt each week. Those QE purchases are now focused on the government bonds most important to households and businesses, and have included large quantities of the five-year GoC bond, which five-year fixed mortgages are priced on.
Helping to suppress GoC bond yields, at least for the time being, it has also helped to suppress our fixed mortgage rates.
Once the BoC feels that an economic recovery is on the horizon, it will begin to taper its QE purchases, and it’s anticipated that when this happens, government bond yields and fixed mortgage rates, will rise responsively.
It seems likely that any changes in the outlook of the BoC will have an impact on fixed mortgage rates, before they impact variable rates.
The continuing vaccination race:
If forecasts made by the Bank of Canada are underpinned by the governments scheduled vaccination timeline, then keeping a close eye on actual vaccination rates in accordance with the schedule, should provide us with useful insights into the country’s economic momentum and how it’s lining up against the banks projections. With two vaccines having now been approved and in the throes of being distributed, other vaccines are in hot pursuit. Canadian homebuyers are advised to seek advice and guidance from a mortgage broker who will be keeping a close eye on the ongoing pandemic and vaccination race.