The U.S. Federal Reserve kept its policy rate steady last week for the third time in a row, while Canada reported weaker-than-expected job numbers for April. These developments have important implications for mortgage rates in Ottawa and across Ontario, where the housing market has been competitive in recent years.
U.S. Rate Decisions and Their Effect on Canada
Even though the U.S. economy is slowing, the Fed’s decision to hold rates signals a cautious approach. Investors expect further rate cuts later this year.
Normally, when the Fed holds or cuts rates, it can affect Canadian mortgage rates. A wider gap between the Bank of Canada’s (BoC) rate and the Fed’s rate can weaken the Loonie. A weaker Canadian dollar makes imports more expensive, which can push up inflation and raise fixed mortgage rates. It also makes it less likely the BoC will lower its policy rate, which affects variable mortgage rates.
However, the Loonie has stayed surprisingly strong, thanks to trade uncertainty in the U.S. This has helped offset some inflation pressures and the potential for higher mortgage rates.
Canada’s Job Market Shows Weakness
Canada added 7,400 jobs in April, but most of that was temporary election-related hiring. Without it, the country would have lost 30,000 jobs. The unemployment rate rose to 6.9%, the highest in eight years.
Sectors most affected by trade uncertainty, like manufacturing and wholesale/retail, saw large job losses. These weak employment figures have increased expectations for a BoC rate cut at its June 4 meeting, with markets now pricing in a 60% chance of a reduction.
What This Means for Ottawa Mortgages
- Fixed-Rate Mortgages: Fixed rates are linked to bond yields, which respond to U.S. and global economic trends. Lenders have already started raising fixed rates, and they may continue to climb if inflation worries persist or the Fed cuts rates.
- Variable-Rate Mortgages: Weak Canadian jobs data could signal a BoC rate cut, which would make variable-rate mortgages more attractive in the short term. The strong Loonie may delay this, but discounts could appear if the BoC moves to ease rates.
- Housing Market Outlook: Ottawa’s housing market could see mixed reactions. Some buyers may move quickly to lock in lower rates, while others might wait for more clarity on interest rates and economic conditions.
What Buyers Should Do
If you’re looking to buy or refinance in Ottawa, now is a good time to review your options. Acting sooner could help you lock in favourable rates. Understanding how these economic trends affect your specific mortgage situation is key.
For personalized guidance, reach out to discuss strategies tailored to your needs—whether it’s a fixed or variable mortgage, buying your first home, or refinancing an existing mortgage.
