As we settle into 2020, the housing market in Ontario continues to strengthen driven by a combination of a stable economy, and historically low mortgage rates. The strength in the housing market can be seen across the province – in GTA where housing prices are showing accelerating month over month increases, and areas like Waterloo Region where 10%+ pricing gains from last year are resulting in new all-time highs for real estate.

As we look ahead into 2020, there are some interesting and dynamic economic trends that, overall, point towards a stable mortgage interest rate market that will likely see standard fixed rates moving up by 0.25% into the low to mid 3% range and variable rates down by 0.25%.

The broader Canadian economy continues to face challenges including a weak oil market and weakness in some areas of manufacturing. For these reasons, economic indicators are pointing towards at least a 0.25% decrease in the Central Bank of Canada rate, which directly affects variable rate mortgages. If the Canadian economic environment weakens throughout the year, an increased need for economic stimulus could mean a 0.50% + rate drop by the Central Bank of Canada.

With this said, the same economic indicators in the USA are pointing to a stronger US economy in 2020. In describing US/ Canadian economic relations, it is said that ‘when the US sneezes, Canada catches a cold’. The opposite also holds true – when the US economy is strengthening, this typically stimulates the Canadian economy.

The key to understand for mortgage rates in 2020 is that fixed rate mortgages at current levels have already priced in a Central Bank of Canada rate drop of .50% – .75%. In other words, fixed rates are priced ahead, in anticipation of what the Central Bank of Canada will do.

Because of the unexpected stimulus coming from the US economy, the need for a Central Bank rate drop beyond 0.25% does not look necessary as of early 2020. This is not what the fixed mortgage rate market anticipated, so this is why we will likely see an 0.25% increase in fixed rates into the low to mid 3% range on average, and perhaps the high 2% range for the most heavily discounted 5 year fixed rates.

If there is a change in this forecast, it will likely relate to a slowdown in the US economy resulting from a worsening economic trade war with China, or other unfavourable global trade conditions. A US slowdown could put Canadian Central Bank rates back on track for a 0.50% to 0.75% decrease. On the other hand, if the Canadian economy grows stronger than expected – we may see no change from the Central Bank and therefore no change in variable rates.  No change in variable rates, as opposed to a .25% drop would mean even higher fixed rates perhaps into the mid to high 3% range.

For the time being though we should expect to see a stable and growing housing market throughout 2020, along with 0.25% higher fixed rate mortgages and 0.25% lower variable rate mortgages – or in other words a relatively stable mortgage rate market in 2020.