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Almost every interest-rate pundit expects lower mortgage rates next year, this one included. But when market participants all agree, that’s when you’ve got to be suspicious.

As the renowned investment guru Peter Lynch stated: “Beware of market gurus and crowd followers. The market has a cruel way of punishing hubris.”

What economists think they know is that Canada’s policy rate – which is almost twice as high as the Bank of Canada’s long-term forecast – will ultimately smack consumers hard enough to beat inflation back to the central bank’s 2-per-cent target. It just takes a while for heavy debt loads to break enough consumers’ backs, alleviate excess demand and slow price growth.

Lowest fixed and variable mortgage rates in Canada for September 7 2023

What they can’t possibly know is how long that will take.

The bond market implies that by the end of next year, the Bank of Canada’s key rate will be at least 25 basis points lower, according to forward rate data provided by CanDeal DNA. After this, markets imply a 150-basis-point decline over the next couple of years, for whatever that’s worth. (A basis point is one-hundredth of a percentage point.)

But here’s just a sampling of things that could put rocket boosters on inflation … and mortgage rates:

  1. Surging oil prices. Crude is already making 10-month highs.
  2. A pandemic rerun. This creates havoc in supply chains.
  3. Russian escalation. Worst case: Russian President Vladimir Putin going nuclear in Ukraine.
  4. Trade wars. They fuel more onshoring at higher labour costs.
  5. Housing strength. Housing spending is a fat slice of the economic pie.
  6. Real wars. A major global conflict (for example, after a Chinese invasion of Taiwan) could blow up spending.
  7. Currency depreciation. A plunging loonie would import inflation.
  8. Global food crises. This could drive up consumer price index expectations.
  9. Chinese/Indian expansions. This could push up global prices.
  10. Natural disasters. For example, a devastating earthquake in Vancouver.

Some of these triggers are quite a long shot, but expect the unexpected. In early 1978, smarty-pants bankers widely forecast a “sluggish economy” and predicted rates in the 9-per-cent range for a few years. (It’s fun reading old news stories, by the way.) The next thing you know, the prime rate doubles in 26 months.

Core inflation is going sideways and, “The longer the underlying trend remains too high, the harder it can be to bring inflation down,” Bank of Canada Governor Tiff Macklem said in a speech on Thursday. When people see inflation going the wrong way, they buy more products and services sooner, which pushes inflation even higher. Businesses react to higher costs – and expectations of higher costs – and also jack their prices.

Mr. Macklem is about to be tested on this theory, with headline inflation expected to move higher before year-end – starting with this month’s report.

All this is to say, keep optimistic. Rate hike cycles can take a couple of years to work their magic on inflation, and we’re only 18 months into this one. Meanwhile, our gross domestic product is in the dumpster, and unemployment should climb even higher within the next few reports. These are both necessary evils and signs the Bank of Canada is winning the inflation battle.

But also keep realistic. The central bank has won some battles, but hasn’t won the war yet. If your financial belt is tight, do some contingency planning. Figure out where you might draw liquidity from in a worst-case scenario: a second mortgage, line of credit, asset sale, grandma, and so on. That way, if rates go the wrong way and your payments go northbound, you won’t be hitting the panic button.

Rates were sourced from the Canadian Mortgage Rate Survey on Sept. 7, 2023. We include only providers who advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20 per cent down payment or switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1-million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.

Robert McLister is an interest rate analyst, mortgage strategist and editor of

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