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If you’re riding out a floating-rate mortgage, you’re likely wondering when the prime rate will drop.

The 22-year high in Canada’s prime rate has caused financial hardship for many – including 50-per-cent-plus payment increases on most adjustable-rate mortgages.

Compared with a year ago, most families with adjustable-rate mortgages are forking out over $700 a month more.

What’s keeping rates high?

If you listen to analysts, most say some version of the same thing: We need a slower economy and lower inflation to see lower interest rates from the Bank of Canada.

But if you had to boil it all down to just one thing that could ensure much lower rates, it’s a significant rise in unemployment.

Surging unemployment decreases competition for workers and reins in wages and consumer spending. That takes pressure off things such as raw materials and supply chains, and keeps wage increases from driving up prices excessively.

In short, when demand is low, businesses can’t get away with charging more. As a result, inflation expectations ease, and eventually, inflation falls back to the central bank’s 2-per-cent target.

Okay, but when?

Central banks have been waiting months for fissures to appear in the labour market. So far, there’s just been hairline fractures.

The inverse relationship between unemployment and mortgage rates, underscored by economist A.W. Phillips in his seminal 1958 paper about the Phillips curve (which plots the trade-off between unemployment and inflation) is imperfect. Monetary policy, technological change, globalization and productivity can all temporarily decouple unemployment and interest rates.

But right now, that’s not the concern. At the moment, our unbalanced labour market is one of the Bank of Canada’s greatest worries.

“The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated,” it said March 8.

The bank predicts labour market pressures will ease, and eventually, they will. It will make sure of that because it’s holding the gun, and it’s got unlimited rate hikes for ammunition.

So far, however, unemployment remains stuck near all-time lows. Hence, anyone rooting for lower rates must root for a lot of people to lose their jobs, and that’s not cool.

StatsCan’s next employment report is on Thursday, April 6. A Reuters poll shows a consensus forecast of 5.1 per cent unemployment, up just a tenth of a percentage point – and barely above last year’s record low of 4.9 per cent.

How high might unemployment need to climb to see a meaningful, lasting drop in interest rates?

“Between 6 and 6.5 per cent should do the trick,” Benjamin Tal, deputy chief economist of CIBC World Markets, said in an e-mail interview Thursday.

How fast can it rise 1.5 percentage points? Well, in past cases in which unemployment lifted off more than 0.5 percentage points, it’s usually happened in less than six months.

Once the Bank of Canada senses it will occur and inflation is moving in the right direction, it generally cuts interest rates. Since unemployment is a lagging indicator, those cuts usually happen before unemployment lifts off. This time, the central bank may wait slightly longer, given inflation’s momentum.

That said, if you believe leading recession indicators and the bond market’s implied rate forecasts, unemployment will likely begin its march higher by the end of summer or before.

Borrowers needing mortgage rates to fall are hoping it does. And if this includes you, don’t take your eye off of unemployment. The Bank of Canada definitely won’t.

Fixed rates dip again

Fixed mortgage rates at Canada’s leading national lenders slid again this week.

Three-, four- and five-year fixed rates dropped five basis points on default-insured mortgages. That means you can now find rates around 4.39 per cent to 4.49 per cent for an insured five-year term.

The news could be better for the more than three in four mortgagors with an uninsured loan. Most of the big deposit-taking institutions that dominate uninsured financing refuse to drop rates significantly. They cite things such as funding cost pressures, hedging cost volatility and heightened housing risk. (Toss in oligopoly pricing power while we’re at it.)

HSBC leads with 4.79 per cent on an uninsured five-year fixed, but your typical Big Six bank is around 5.19 per cent, give or take 10 bps. That’s about $5,000 more interest on an average five-year mortgage to deal with a major bank.

Also keeping uninsured rates elevated is the fact that major banks fund many of their competitors. And competitors price partly off big bank rates, which currently average an inflated 5.54 per cent on an advertised basis for a five-year fixed.

The good news is that bank contacts tell me that discretionary rates – unadvertised rates for well-qualified borrowers – are coming down. It just takes patience, like waiting for your garden to grow.

Rates are as of March 30, 2023, from providers that advertise rates online and lend in at least nine provinces. Insured rates apply to anyone buying with less than a 20 per cent down payment, or borrowers 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 You can follow him on Twitter at @RobMcLister.