Now that the page has finally been turned on 2020, we wanted to take a look back at how mortgage rates fared over the course of what was a tumultuous year.
It’s safe to say that COVID-19 stole the show in terms of the year’s biggest newsmaker. On the mortgage front, one of the biggest themes of the year ended up being the downward trend in interest rates to historic lows. Not to mention a resilient housing market that not only held its ground in the face of a global pandemic, but one that continued to produce record-high house prices.
Here’s an overview of some of the year’s top stories, rate movements and mortgage-related stocks.
Top Mortgage Stories of 2020
COVID-19 and Mortgage Deferrals
The COVID-19 pandemic was indisputably the largest event of 2020, and one with far-reaching effects. One of the key reasons Canada’s housing and mortgage markets held up so well is thanks to the Herculean and unprecedented response from the country’s mortgage lenders, including the mortgage deferral options offered by most of them.
At the height of the program, nearly 800,000 mortgages were in deferral. By December, the far majority of those mortgage holders have successfully transitioned back to making their regular payments. It’s clear that without this coordinated mortgage payment relief, far more homeowners would likely have defaulted on their payments, leading to more severe personal and economic consequences.
Bank of Canada’s COVID Response
The Bank of Canada’s role in keeping the country’s financial system liquid and maintaining confidence throughout the year can’t go unrecognized. The Bank’s Governing Council dropped the key lending rate from 1.75% in February to just 0.25% by the end of March. Over the course of the year the Bank bought up tens of billions of dollars in government bonds. By the end of October, the Bank had acquired $156 billion worth of bonds, according to Governor Tiff Macklem—or about 32% of the bond market. At the current pace, the central bank is expected to control more than half of the country’s bond market by the end of next year, according to estimates by CIBC’s Ian Pollick.
Mortgage Rates Reach Historic Lows
One very important impact for homebuyers was the steady downward decline in mortgage rates over the course of the year. Not only did mortgage rates end the year lower from where they started the year, they reached all-time lows, with rates for most terms falling below 2.00%. And in December, HSBC unveiled the lowest mortgage rate in Canadian history, a 5-year high-ratio insured variable rate of 0.99%.
Unstoppable Real Estate Market
Despite a plunge in home sales and a dip in home prices in the early days of the pandemic, the real estate market quickly regained its footing and by the fall was once again posting fresh price highs.
As of November, the Canadian Real Estate Association reported an average sale price of $603,000 (up 13.8% from 2020), or $481,000 (+19%) after removing the high-priced markets of Toronto and Vancouver. With housing supply ending the year at a record low, prices are expected to maintain upward momentum, albeit at a more moderate pace, according to forecasts.
This Year’s Top Deals & Lender Moves
The foundation for Canadian interest rates is the overnight rate. It ended the year down significantly from where it began at the start of the year. Meanwhile, the most important benchmark for fixed-rate pricing—the 5-year government bond—ended the year down 130 basis points.
|BoC Overnight Rate||0.25%||-150 bps|
|Prime Rate||2.45%||-150 bps|
|Avg. 5-yr Discounted Fixed Rate1||1.52%||-109 bps|
|Avg. Discount Variable Rate1||1.17%||-160 bps|
|5-yr Posted Rate||4.79%||-40 bps|
|5-yr Government Bond Yield||0.39%||-130 bps|
And finally, here’s a look at the performance of Canada’s big banks along with the public companies that make the majority of their revenue in the mortgage business.
1 Discounted mortgage rates reflect the average advertised rates of Canada’s top super brokers, as of December 31.