Weekly Mortgage Digest: Why have lenders been hiking rates?

Anyone who’s been shopping for mortgage rates over the past week has likely noticed fixed rates trending upwards.

The latest wave of increases, however, seems to be stabilizing as Canadian bond yields, which influence fixed mortgage rates, have eased by about 15 basis points in recent days.

The latest round of hikes—which we wrote about last week—were driven by a combination of market volatility following the U.S. jobs report, a surge in oil prices, and banks seeking to protect their profit margins. But what exactly is going on, and what can today’s mortgage shoppers expect next?

U.S. jobs report shakes markets

Last week, the U.S. posted stronger-than-expected employment numbers, with 254,000 new jobs created compared to the 150,000 that markets had predicted.

The surprise raised concerns that the Federal Reserve may have overreacted with its recent 50-basis-point rate cut, casting doubt on the need for further aggressive cuts.

“A number of U.S. bank economists expressed the idea that the Fed would not cut aggressively in the New Year and that Treasuries had overreached,” Ron Butler said, referring to yields having pulled back too far. This skepticism led to a surge in Treasury yields, which in turn pulled up Canadian yields. The 5-year Government of Canada yield rose roughly 14 bps (0.14%) to 3.10%.

In his own blog post, Dave Larock of Integrated Mortgage Planners highlighted additional factors influencing the market, including last week’s “war-linked surge in oil prices,” which temporarily heightened inflation concerns and complicated the broader narrative of declining inflation trends.

“We’re on a bumpy path,” Larock explained, noting that despite central banks’ efforts to ease interest rate pressures globally, the recent spike in bond yields caught many off guard.

Larock added that bond yields tend to spike unexpectedly, forcing lenders to quickly adjust fixed mortgage rates to keep up. But those changes don’t always reflect actual shifts in borrowing costs. “A lot of the time, it’s more about protecting profit margins than following the bond market directly,” he explained.

In another blog post, rate expert Ryan Sims of TMG The Mortgage Group criticized the Big Banks for widening an already “insanely high” spread between bond yields and mortgage rates. “The banks chose profits over people,” Sims said, arguing that lenders could have absorbed some of the increase in bond yields but instead passed the costs onto borrowers to maximize shareholder returns.

Are higher rates here to stay?

The recent rate hikes have triggered a surge in rate hold requests, as many Canadian borrowers rushed to lock in their lower rate quotes before they expire, says Ron Butler of Butler Mortgage.

However, Butler told CMT this spike is likely to be temporary as bond yields stabilize, likely resuming their downward trajectory, and the Bank of Canada continues to lower its policy rate, which impacts variable-rate mortgage.

Butler’s advice to borrowers facing renewal is to consider variable rates. “The Canadian economy is in decline, and the BoC will keep cutting,” he says.

U.S. regulators impose record $3 billion in fines on TD Bank for compliance failures

TD Bank is facing sweeping penalties totalling just over $3 billion USD, announced last week by multiple U.S. regulators, including the OCC and the Department of Justice.

The fines stem from significant failures in TD’s anti-money laundering (AML) compliance, which exposed the bank to risks related to narcotics trafficking and other illicit activities.

As part of the settlement, TD agreed to pay over $1.8 billion USD to the DOJ to resolve criminal charges. Additionally, the bank faces operational restrictions and will undergo monitoring to overhaul its compliance framework.

Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, stressed the importance of strong anti-money laundering (AML) practices.

“Deficiencies in any institution’s anti-money laundering regime are a prudential risk,” he said in a statement. “In cases where such deficiencies arise, OSFI expects and can require the board and management of an institution to take the necessary corrective measures without delay, with particular emphasis on corporate governance, compliance, and resilience”.

MPC announces 2024-2025 board of directors

Mortgage Professionals Canada (MPC) has introduced its 2024-2025 board of directors, comprised of a blend of experienced leaders and regional representatives from across the country.

The executive team is led by Barbara Cook as Chair, with Maxime Stencer as Vice-Chair and Joe Jacobs as Past Chair. Ivy Budisavljevic will serve as Secretary, Bud Jorgenson as Treasurer, and Lauren van den Berg will continue in her role as President and CEO.

The regional directors for the 2024-2025 term include:

Atlantic Canada: Clinton Wilkins
Quebec: John Fucale
Ontario: Leigh Graham, Sushanta Sen, Kuljit Singh
Manitoba: Chad Wilson
Alberta: Bhavna Bhasin
British Columbia/Yukon: Erica Ma, Russ Morrison

“MPC extends its thanks to all the nominees and participants in this year’s elections,” the association said. “The board members will serve a three-year term, guiding the association and supporting its efforts within the mortgage industry.”

Canadians optimistic about real estate values, Bloomberg-Nanos survey shows

Canadians are more than three times as likely to believe real estate values will increase rather than decrease, according to the latest Bloomberg Nanos Canadian Confidence Index (BNCCI).

The survey found that 45.5% of Canadians expect real estate values to increase, while only 13.2% believe prices will drop. The remaining 36.3% predict prices will stay the same, and 5% are uncertain. This optimistic outlook helped lift the BNCCI to 55.71, up from 53.76 four weeks ago, just shy of the year’s peak of 55.75.

The Expectations Index, which reflects sentiment about the economy and real estate, also rose to 55.82, highlighting stronger consumer confidence.

“Canadian consumer confidence continues to track in positive territory, largely driven by positive views on the future value of real estate,” said Nik Nanos, Chief Data Scientist.

Despite ongoing economic challenges, confidence in real estate remains a key driver of optimism, with Canadians demonstrating resilience in their outlook for the housing market.

Canadian mortgage arrears inch up in July

Canada’s national mortgage arrears rate rose slightly to 0.20% in July, with 9,881 mortgages now three or more months overdue, according to the Canadian Bankers Association (CBA). This marks a minor increase from 0.19% in June and continues an upward trend from the pandemic low of 0.14% in 2022.

Despite the slight rise, Canada’s arrears rate remains low compared to international levels, still well below the 0.27% peak in June 2020 during the pandemic.

Saskatchewan continues to report the highest arrears rate at 0.57%, unchanged from recent months. Meanwhile, Ontario and British Columbia maintain the lowest rates at 0.16%, reflecting continued stability in these markets.

With over 5 million mortgages tracked nationally, the slight increase reflects the challenges posed by higher interest rates and household debt, but overall mortgage performance remains strong by global standards.

Mortgage snippets

Inflation falls to three-year low of 1.6%: Canada’s Consumer Price Index (CPI) rose 1.6% year-over-year in September, down from 2.0% in August—marking the slowest increase since February 2021.The decline was largely driven by a 10.7% drop in gasoline prices, compared to a 5.1% decrease the previous month.
The Bank of Canada’s preferred measures of core inflation—CPI-median and CPI-trim—held steady at 2.3% and 2.4%, respectively. Rent prices rose 8.2% year-over-year (down from 8.9% in August), while mortgage interest costs increased at a slower pace of 16.7%, down from 18.8%.
Building permits dropped 7% in August: The total value of building permits in Canada fell 7% in August to a seasonally adjusted $11.5 billion, following a surge in July and two prior months of declines, according to Statistics Canada.
Residential permits slipped 5.2% to $7.1 billion, largely due to a $538.2 million drop in multi-unit permits, though single-family permits rose modestly by $151 million. Alberta and Ontario led single-family permit growth, contributing increases of $102.8 million and $75.3 million, respectively. Across the country, permits were issued for 18,500 new multi-unit dwellings and 4,700 single-family homes, bringing the 12-month total to 268,200 units since August 2023.
BC poll shows concern over rising housing costs: A new survey from British Columbia shows that that four in 10 homeowners spend more than 35% of their after-tax income on mortgage payments, a benchmark often used by lenders to assess affordability. The situation is even more difficult for renters, with 60% spending more than 35% of their income on rent, and three-quarters saying they rent because they can’t afford to buy a home.
The poll highlights deep concerns about the province’s economic direction, with 80% of renters doubting they’ll be able to buy a home within the next three years. Voters also expressed frustration with BC’s economic performance, as 66% hold a negative outlook, and 40% believe Alberta is outperforming BC economically.

EconoScope: Key economic releases on tap for next week

Date	Time (ET)	Release	Previous Reading
Wed. Oct. 16	8:15 a.m.	Housing starts	217,405 units (-2% YoY)
Thurs. Oct. 17	8:30 a.m.	Retail sales (Sept.)	+2.1% YoY
Fri. Oct. 18	8:30 a.m.	Housing starts (Sept.)	1.356M units (+9.6% YoY)
Fri. Oct. 18	8:30 a.m.	Building permits (Sept.)	1,475,000 (-6.5% YoY)