The U.S. Federal Reserve held its policy rate steady last week for the third consecutive time, and Canada reported a weaker than expected jobs report for April. These developments have significant implications for mortgage rates in Calgary, where the housing market has been rocky in recent years.

The Fed’s Latest Rate Decision and Its Impact on Canada

While the U.S. economy shows signs of slowing down, the Fed’s decision to hold rates steady for now signals its intention to maintain a more cautious approach. The Fed and market investors project further rate cuts throughout the year.

Typically, when the Fed makes such moves, it can have a negative impact on Canadian mortgage rates. Why? When the gap between the Bank of Canada’s (BoC) interest rate and the Fed’s policy rate is wide, like it is right now, it tends to weaken our dollar. A weaker Loonie can push up inflation in Canada because imported goods become more expensive. In turn, inflation puts upward pressure on Canadian bond yields, which are the basis for fixed mortgage rates in Canada. Additionally, a higher inflation makes it less likely for the BoC to lower its policy rate, which directly affects variable mortgage rates.

However, our dollar has been surprisingly resilient. Despite the widening gap between U.S. and Canadian rates, the Loonie has appreciated against the Greenback since President Trump’s inauguration. This is partly due to reduced investor appetite for U.S. assets amid trade uncertainty, which has led to a slight decline in the strength of the U.S. dollar. This unexpected strength in the Loonie is helping to offset some of the inflationary pressures and the potential for higher mortgage rates in Canada.

Canadian Employment Data Shows Signs of Strain

On the Canadian front, the April jobs report released by Statistics Canada revealed a mixed picture. While the economy added 7,400 new jobs last month, much of the growth was temporary, driven by election-related hiring. Without this bump, Canada would have lost 30,000 jobs in April. Additionally, Canada’s unemployment rate rose to 6.9%, the highest it has been in eight years, with 1.55 million working-aged Canadians unemployed.

The labor market’s softness is particularly pronounced in sectors most vulnerable to trade uncertainty. The manufacturing sector saw the largest loss, shedding 31,000 jobs, while the wholesale and retail sectors lost 27,000 jobs. These declines are a direct consequence of the U.S.-Canada trade tensions and tariffs that have disrupted Canadian businesses.

In response to these weaker-than-expected employment figures, investors have increased the likelihood of a rate cut by the Bank of Canada in its next meeting on June 4. As of last Friday, markets were pricing in a 60% chance of a BoC rate cut, up from 50% earlier in the week. This would be a key development for Canadian mortgage holders and potential buyers in Calgary.

Mortgage Rates in Calgary: What to Expect

So, how do these U.S. and Canadian developments affect Calgary mortgage rates?

1. Fixed Mortgage Rates: The relationship between bond yields and fixed mortgage rates means that lenders are closely watching U.S. economic trends, especially U.S. inflation and the Fed’s next move. Despite some recent range-bound movement in Government of Canada bond yields, certain lenders have started increasing their fixed mortgage rates. Given that fixed-rate mortgages are heavily influenced by global bond yields, it’s likely that fixed mortgage rates will continue to rise, particularly if the Fed cuts rates and global inflation concerns persist.

2. Variable Mortgage Rates: While the Fed’s rate decision and Canada’s weak jobs data could signal potential rate cuts from the Bank of Canada, the Loonie’s strength against the Greenback provides a bit of cushion. This could result in the BoC holding its rates steady for longer. However, if the BoC does decide to cut rates, as some experts predict, variable-rate mortgages could see discounts, making them more attractive to borrowers looking to lock in a lower monthly payment in the short term.

3. The Outlook for Calgary’s Housing Market: Calgary’s housing market, which has seen fluctuating demand in recent years, could be influenced by these economic developments. With more uncertainty in the Canadian job market and the potential for lower borrowing costs, some homebuyers might rush to lock in lower rates while they’re still available. On the other hand, the broader economic uncertainty may cause others to delay their purchase decisions, waiting for more clarity on interest rates and the overall economic picture.

That all said, we are in for an interesting few months in the mortgage market. Calgary homeowners and potential buyers need to keep a close eye on these developments as they could have a direct impact on borrowing costs.

If you’re in the market for a new mortgage or considering refinancing, it might be wise to act sooner rather than later if you’re looking to lock in a favourable rate. If you’re considering a variable-rate mortgage, there could be some attractive offers in the short term, especially if the Bank of Canada decides to cut rates in June.

As always, the key to making an informed decision is understanding how these broader economic trends impact your specific situation. For the most accurate advice, reach out to me directly to discuss options specifically tailored to your needs.