Variable-Rate Mortgage Forecast

Analysts still expect the Bank of Canada to remain on the sidelines until 2nd quarter 2011. On average, major economists now predict a 200 basis point increase in the overnight rate over the next 24 months. Their outlooks, if accurate, imply a 5.00% prime rate by December 31, 2012. Prime rate is currently 3.00% and the 10-year average of prime is 4.48%.

Based on a 75-basis-point discount from prime, these forecasts suggest 5-year variable rates in the 4.25% range by year-end 2012.

Fixed-Rate Mortgage Forecast

Banks foresee 5-year bond yields climbing 121 basis points in the same 24-month timeframe. That would put the 5-year yield at 3.75% by the end of next year. The 10-year average of the five-year yield is 3.71%.

Assuming a typical 120 basis point spread above yields, these forecasts suggest deep-discounted 5-year fixed rates could rise to roughly 4.95% by year-end 2012