Good odds mortgage rates will jump 0.6% in 2022

Odds are high that we'll see a jump of about 60 basis points in the average residential mortgage rate later this year. The Canadian economy and inflation have grown strong for the past 12 months. This strong economic output has translated into higher bond yields across maturities. And, as the data shows, higher bond yields eventually translate into higher mortgage rates.

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Historically, we've seen average insured Canadian mortgage rates closely follow the 2-year Canadian bond yields with a lag of up to 2 months. These are the average rates for insured mortgages that are issued, rather than the rates of overall outstanding insured mortgages. Between 14' and mid-16', we watched as these two rates ebbed and flowed lower. Then we watched as the 2 year ripped higher in 17' and mortgage rates followed. From the end of 2018 (well before the pandemic began) until the beginning of 21' rates were grinding lower again.

Since February 2021, the 2-year bond yield has been on the rise, moving from a historical low of 0.16% to 1.26% as of the end of January 2022. Insured mortgage rates, however, have not not yet followed. The lag in the data is now over 8 months, so we are likely to see insured mortgage rates follow strongly and land around 2.8% if bond yields stabilize where they are now. This would bump the average insured mortgage rate up by about 0.6% from where it was in November 2021.

The pattern is pretty much the same with uninsured mortgage rates. There's a longer than usual lag in the data, but it would make sense to see uninsured rates jump up to at least 2.6% later this year.