Canadian Mortgage Rate Update: Oil, Inflation, and the End of Affordable January
Mortgage Market Update
Canadian Mortgage Rate Update: Oil, Inflation, and the End of Affordable January
If you've been sitting on the fence about locking in a mortgage rate, the latest news out of the Canadian bond market is a strong nudge to get off it.
Oil–bond correlation
0.74
since late Feb conflict
BoC cut odds (Apr 29)
7%
OIS market pricing
Home values since Jan
+3.9%
per CREA data
Oil is calling the shots on rates right now
The correlation between Canada's 5-year government bond yield and WTI crude oil prices has hit 0.74 since the Iran-U.S. conflict began in late February, meaning oil and mortgage rates have been moving almost in lockstep. With WTI crossing $100/barrel this week and peace talks stalled, bond traders are bracing for higher inflation and more hawkish messaging from both the Bank of Canada and the U.S. Federal Reserve at their back-to-back meetings on April 29.
The OIS market currently puts the odds of a Bank of Canada rate cut this week at just 7%, with the overwhelming expectation being no change. Rate cuts that many borrowers were counting on this year are being pushed further out.
Affordability hit a five-year peak in January, and has been sliding since
Average mortgage rates have risen 24 basis points and home values (per CREA) have climbed roughly 3.9% since then, eroding those gains quickly. National Bank Economics is projecting a 5% drop in real estate transaction volumes for the year, citing sour buyer sentiment around condos, tariff risk, and war-driven inflation.
What terms are borrowers choosing?
The 3-year fixed is currently the runaway favourite, driven by slightly lower rates and hope that borrowing costs will eventually fall back to pre-COVID levels. However, analysts caution that a rate that looks cheap up front often signals that the bond market is pricing in trouble ahead. In the insured space, variable-rate mortgages are looking more competitive thanks to generous discounts off prime.
Bottom line
The window of best affordability has likely passed for now. If you're renewing or purchasing, talk to your mortgage professional about locking in sooner rather than later, and don't assume that the cheapest-looking rate is always the smartest choice.
Sources: MortgageLogic.news, National Bank Economics, Goldman Sachs, LSEG
Rob Skoko
MAXIMUM Mortgage Solutions
Have questions about your mortgage or renewal? I'm here to help you navigate the market and find the right strategy for your situation.
Book a free consultation ›