The housing market remains weak, but mortgage originations are surging, thanks to a flurry of refinancing activity, National Bank Financial Inc. (NBF) reports.
According to the latest data from the Bank of Canada, there was $300 billion worth of new mortgages written in the second and third quarters — the highest total since 2021, when rates were still at rock-bottom levels in the midst of the pandemic.
“Over the last six months, mortgage origination has surged to near-record levels but that’s not being driven by a rejuvenated housing market. In fact, the volume of home sales is still only two-thirds of what it was in 2021, when mortgage origination peaked,” NBF said in a research note.
Indeed, this year’s surge in mortgage activity represents an echo of the pandemic, it noted — as the issuance of five-year, fixed-rate mortgages hit record levels in September and October 2020.
“Those are coming due and as this reverberation continues, origination will remain high in coming months,” NBF said.
Yet, this time around, homeowners aren’t locking in five-year, fixed-rate mortgages, it noted.
Instead, more borrowers are opting for variable rates. NBF reported that there have been more variable-rate mortgages issued this year than there were in the previous two years combined.
And, those that are choosing fixed-rate loans are taking shorter terms, it said — likely reflecting the fact that short-term rates are currently lower; and, some borrowers are hoping that rates will fall further, allowing them to potentially refinance at even lower rates.
However, NBF suggested that currently looks unlikely.
“We don’t see much downside for mortgage rates,” it said, noting that the Bank of Canada has “indicated its easing cycle is over, implying the next rate change could be a hike.”
Yet, it will likely, “take time for these hopes [for lower rates] to break,” NBF said.
In the meantime, shorter-term fixed-rate mortgages will likely remain more popular, it said.
And, when the market starts to anticipate monetary tightening, “fixed mortgage rates will rise making variable even more attractive,” NBF said.