How Canadian Mortgage Rates Will Be Impacted by Lukewarm Employment Data

Last week Statistics Canada estimated that our economy gained 8,200 new jobs in December, belying the consensus forecast that it would lose 2,500 jobs instead.

The report details were mixed.

For example, our economy added 50,000 full-time jobs but shed 42,000 part-time jobs.

While that shift incrementally improved our overall employment mix, the part-time job losses were mostly suffered by the youngest working-age Canadians. Shrinking opportunities for that age 15-24 cohort are an ongoing concern.

Our unemployment rate increased from 6.5% in November to 6.8% in December, but only because 81,000 more Canadians decided to actively seek employment. That uptick in our participation rate is a positive signal for our economy, even though it initially caused our unemployment rate to temporarily increase.

Average annualized wage growth decreased from 3.6% in November to 3.4% in December. Despite that reduction in the growth rate, average wage growth is still outpacing inflation, which means that the average worker’s purchasing power continued to expand last month.    

The 8,000 newly created jobs in December marked a sharp slowdown from our surprisingly strong employment growth over the three previous months (+60,000 in September, +66,000 in October and +53,000 in November).

Simply put, our economy’s demand for labour decelerated last month while its supply of labour accelerated. That combination of factors will likely reassure the Bank of Canada (BoC) that there is enough slack in our employment market to keep labour costs contained.

The remaining momentum in our wage and job growth will also support the Bank’s recent assessment that its policy rate is “at about the right level” for the time being.

Last month’s employment data aren’t likely to alter the BoC’s plan to allow time for an “accumulation of evidence” to confirm how our economy is responding to trade uncertainty before making its next move.

The Latest on Mortgage Rates

Government of Canada bond yields were range bound last week.

Bond-market investors were unmoved by our latest employment data. The same was true in the US, where the mixed results in the December Non-Farm Payroll Report generated little response in Treasury yields.

Canadian fixed mortgage rates held steady last week. Bond yields aren’t currently pressuring them in either direction. But I continue to believe that fixed rates will retain an upward bias for as long as concerns about government spending and sticky inflation pressure (particularly in the US) remain.

The discounts offered on variable-rate mortgages were unchanged last week.

The BoC isn’t expected to move its policy rate over the near term. That said, the Bank’s recent communications have tilted to the dovish side of late. That supports my belief that its next move will be a cut.

Insider’s Tip for Borrowers

Pre-approvals are not promises to lend you money. In fact, despite their names, they often aren’t worth the paper they are written on from a credit standpoint.

Despite that, getting pre-approved is usually a good idea.

It locks in a rate that may come in handy later. If the person who is taking your application is knowledgeable, they can give you an estimate of your maximum mortgage amount based on your income.

This post provides a detailed understanding of how pre-approvals work, and it explains why they include some residual risk that can’t be eliminated.

My Take on Today’s Mortgage Options

My advice is repeated from last week.

Fixed rates are currently offered at about their long-term average levels, and three- and five-year fixed rates remain the most popular choices.

The premium that borrowers must pay to add additional years to their fixed-rate term has been increasing and will probably continue to do so. For as long as the spread between three- and five-year fixed rates remains minimal, I think the five-year fixed-rate term offers slightly better value.

I still expect today’s variable mortgage rates to produce the lowest borrowing cost over their full terms (despite my expectation that additional BoC rate cuts over the near term are not likely).

That said, anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and in some cases, higher payments) should my assessment prove incorrect.

Three Posts Every New Visitor to My Blog Should Read

This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages amidst trade-related economic uncertainty.

For myriad reasons, some of them unanticipated, many Canadians end up having to break their fixed-rate mortgages. This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. Forewarned is forearmed.

This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract. (They are not standard and can vary in important ways.)

David Larock is an independent full-time mortgage broker and industry insider who works with Canadian borrowers from coast to coast. David's posts appear on Mondays on this blog, Move Smartly, and on his blog, Integrated Mortgage Planners/blog.

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