Last week Statistics Canada estimated that our economy lost 18,000 jobs in April, well below the consensus forecast that 10,000 new jobs would be added.
Our economy has now shed jobs in three of the first four months, for a cumulative loss of 112,000 over that period.
The effects of ongoing trade uncertainty and surging energy costs have made businesses understandably cautious about hiring. That increased slack in our labour market portends a weaker economy ahead and reduces the likelihood that businesses will be able to pass on energy-related cost increases without affecting their sales.
Our economy’s increasing supply of excess labour also reduces the likelihood that employees will be able to push for higher wages to offset price rises that occur (which they were able to do post-COVID, when we had excess demand for labour).
Last week’s employment data bolster my view that higher energy prices are unlikely to engender the kind of cost-push inflation that will compel the Bank of Canada to hike its policy rate in response.
The bond futures market, which has been particularly volatile of late, had been betting on between two and three BoC rate hikes after its policy rate meeting on April 29. Bond-market investors scaled their bets back to one hike on Friday in response to our latest employment data.
The Latest on Mortgage Rates
Government of Canada bond yields fell last week. Reports of a possible truce and renewed hopes that the Strait of Hormuz would reopen helped assuage inflation fears.
Bond yields had spiked the week prior as the market reacted to the run up in oil prices. When those prices dropped last week, that associated bond-yield premium was unwound in kind.
The peace talks between the US and Iran reportedly stalled this weekend. If that causes oil prices to climb sharply again, expect our bond yields to follow.
Fixed mortgage rates were largely unchanged last week. Some lenders adjusted at their margins, but the best available rates mostly held steady.
Five-year variable-rate discounts were also unchanged.
Bond-market bets on the number of BoC rate hikes have varied from three to none over a short period.
My view is the same.
I expect the BoC to remain on hold for the time being and for its next eventual move to be a cut. That assessment is primarily based on the view that the factors contributing to disinflation in our economy will outlast the US/Iran war’s inflationary impacts.
My Take on Today’s Mortgage Options
My advice is unchanged from last week. Fixed rates are likely to remain volatile.
Three- and five-year fixed rates remain the most popular choices. If the spread between those two options is minimal, I think five-year fixed rates offer better value.
Most of the borrowers I am working with right now are opting for the stability of fixed rates, and I fully appreciate their appeal.
That said, the relative saving offered by today’s variable rates has increased now that spiking bond yields are putting significant near-term pressure on fixed mortgage rates.
I expect that variable mortgage rates will produce the lowest borrowing cost over their full five-year terms, although the potential that they will take borrowers on a bumpy ride has increased since the start of the US/Iran war.
BoC Governor Macklem has confirmed that the Bank will look through the oil-price spike over the near term. But if the war drags on and the inflationary impact from higher oil prices becomes broader and more entrenched, there will come a time when the Bank must tighten.
For now, my assessment is still that we won’t get to that point. But so much depends on how long the US/Iran war will last and if/when the Strait of Hormuz will re-open.
Important note: Anyone choosing a variable rate should do so only if they are comfortable with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and in some cases, higher payments).
Insider’s Tip for Borrowers
Borrowers often ask me about the impact that a credit check will have on their scores. This post demystifies how credit scores are calculated and highlights the factors that matter most.
(Spoiler alert: while a periodic credit check does technically drop your score, the impact is both minor and temporary.)
Three Posts Every New Visitor to My Blog Should Read
1. Should Canadians Choose a Fixed or Variable Mortgage Rate During a Trade War?
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages amidst trade-related economic uncertainty.
2. What Every Canadian Borrower Needs to Know About Fixed-Rate Mortgage Penalties
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.
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.