Interest rates are unexpectedly dropping on five-year mortgages — and the global banking crisis is partly the cause. Canadian homebuyers are about to get an unexpected break on their mortgages — in part, because of the global banking crisis.

Following the collapse of Silicon Valley Bank and Signature Bank, government bond yields have tanked, and as a result, mortgage lenders are slashing rates on five-year fixed mortgages, which are pegged to five-year bonds, by as much as 0.4 of a percentage point. And there may be more rate declines to come.

“It doesn’t hurt to lock in a preapproval rate right now,” said Robert Kavcic, chief economist at BMO Capital Markets, “especially if you’re finally looking for some relief on interest rates.”

Several mortgage lenders and brokerages have started slashing fixed rate mortgages by as much as 40 basis points, according to Victor Tran, a mortgage and real estate expert at Ratesdotca.

“And we are expecting more lenders to adjust rates this week,” Tran added. “If you are looking for a home, now is the time to get a pre-approval.”

Currently, fixed rates for five-year insured mortgages are at 4.49 per cent, according to numbers from Ratesdotca. Meanwhile for three-year insured they’re at 4.59 per cent for five-year uninsured they’re at 4.79 per cent and for three-year uninsured they’re at 4.89 per cent.

This can provide some long-awaited relief for buyers shopping for these kinds of mortgages, says said Ron Butler, mortgage broker of Butler Mortgages.

“For most of last year, a five-year fixed rate was somewhere between 5.09 per cent and 6.09 per cent,” Butler said. “Today we can find you a five-year fixed rate for just under 5 per cent.”

The fall in bond yields and subsequent lower fixed rates “is a reflection of the fact that most people and most of the economists and analysts in North America believe that the Bank of Canada has stopped raising interest rates,” Butler said. “And it would appear that soon the U.S. Federal Reserve will stop raising rates.”

While it’s unlikely fixed rates will drop as low as 2 per cent or even 3 per cent, Butler said they might be a better choice than variable rates moving forward.

“It is the greatest likelihood that for the next year or more that fixed rates will be a better value for Canadians than variable rates, which was not true for most of the last 35 years.”

The Federal Reserve likely will approve a quarter-percentage-point interest rate increase this week, according to market pricing and many Wall Street experts.

Even with turmoil in the banking industry and uncertainty ahead, the Federal Reserve likely will approve a quarter-percentage-point interest rate increase next week, according to market pricing and many Wall Street experts.

Rate expectations have been on a rapidly swinging pendulum over the past two weeks, varying from a half-point hike to holding the line and even at one point some talk that the Fed could cut rates.

However, a consensus has emerged that Fed Chairman Jerome Powell and his fellow central bankers will want to signal that while they are attuned to the financial sector upheaval, it’s important to continue the fight to bring down inflation.

That likely will take the form of a 0.25 percentage point, or 25 basis point, increase, accompanied by assurances that there’s no preset path ahead. The outlook could change depending on market behavior in the coming days, but the indication is for the Fed to hike.

“They have to do something, otherwise they lose credibility,” said Doug Roberts, founder and chief investment strategist at Channel Capital Research. “They want to do 25, and the 25 sends a message. But it’s really going to depend on the comments afterwards, what Powell says in public. … I don’t think he’s going to do the 180-degree shift everybody’s talking about.”

Markets largely agree that the Fed is going to hike.

As of Friday afternoon, there was about a 75% chance of a quarter-point increase, according to CME Group data using Fed funds futures contracts as a guide. The other 25% was in the no-hike camp, anticipating that the policymakers might take a step back from the aggressive tightening campaign that began just over a year ago.

Goldman Sachs is one of the most high-profile forecasters seeing no change in rates, as it expects central bankers in general “to adopt a more cautious short-term stance in order to avoid worsening market fears of further banking stress.”

TRREB data shows home prices didn’t just climb in February, but made a 5-digit jump. Prospective buyers with their buyer-feet ice cold in the snow, stood puzzling and puzzling—asking, how can it be so?

Greater Toronto real estate prices are once again climbing, and wasting no time. The TRREB benchmark home rose 1.1% (+$12,400) to $1,091,300 in February. A typical home is still down 17.7%  (-$234,700) compared to the same month last year. 
No, that wasn’t a typo. Monthly price growth suddenly changed course, with prices rising 5-digits. It was the first increase since rate hikes began in March 2022, and the largest since a month prior. A single month increase of this size is unusual during any period. But it’s especially difficult to grasp when the narrative is that buyers need more leverage.

It’s impossible to nail down what caused the shift without asking every buyer. Even then, what a buyer says can differ greatly from their reasons. We know. Your neighbor bought a half-dozen pre-sale condos to help with supply, not speculation. That aside, two major factors are contributing—mortgage rates and the Bank of Canada (BoC). 

Fixed-term mortgage rates were falling at the end of last year, and the start of this year. That was the read by many agents as a sign that the bottom is near, and many assume falling rates mean higher prices.

Toronto-area real estate buyers who sat out the fall market are suddenly back and ready to compete.

As seen in the Globe and Mail, February 22, 2023: Spirited bidding is common for properties around the $1-million mark, which is typically the entry point for a single-family home. In that range, agents are regularly reporting sales with 10 to 20 offers. To drum up that many bids, agents are listing with an eye-catching asking price, then setting a date for reviewing offers.

In Scarborough, the three-bedroom detached house at 17 Sandyhook Square was listed with an asking price of $899,000 and sold for $1.038-million with 16 offers.At 58 Antique Dr. in Richmond Hill, Ont., a three-bedroom detached house was listed with an asking price of $1,299,900 and sold for $1,487,500 with 10 offers.

Tyler DeClute, a real estate agent with DeClute Real Estate Union Realty, says most of the competition is taking place in the segment between $999,000 and $1.3-million. But even with multiple bids, the action is not approaching the frenzy at this time last year.

A surge of temporary residents is boosting demand for homes in supply-starved market

A record-setting influx of temporary residents is putting additional strain on the Canadian housing market, just as the construction industry is pulling back on new builds.

By the end of 2022 there were roughly 1.95 million people from abroad with temporary work or study permits in the country, an increase of about 560,000 (40 per cent) over the previous year, according to recently published figures from Immigration, Refugees and Citizenship Canada.

The International Mobility Program accounted for slightly more than one million of those permits – a new high, up more than 300,000 in a year. The program covers a broad group of people, including the spouses of skilled workers and company transfers from foreign offices.

There were slightly more than 800,000 study permit holders at the end of last year, also a record high. Another 120,000 people held permits under the Temporary Foreign Worker (TFW) Program, the most since at least 2000.

“The decision to cease the operations of FairSquare was not an easy one,” Desjardins spokesperson Chantal Corbeil said in an e-mail.

“We have [made] efforts to promote FairSquare activities, but the rapid deterioration of the housing market and its business model do not allow us to continue operations,” she said.

The country’s real estate market has slowed significantly since the Bank of Canada made a series of interest-rate increases, which raised borrowing costs. The volume of home resales has plunged and January’s activity was the lowest since the Great Recession. Prices have fallen for 11 straight months and the typical home price is now 15-per-cent below peak values in February of last year.

FairSquare’s demise is reminiscent of what happened to Purplebricks and its British-based owner. Purplebricks exited Canada after it failed to gain traction with its ambitious international expansion plan. The online brokerage competes with traditional brokerages on price by offering a flat-fee as opposed to commissions typically paid to real estate agents.