New research by one of the big banks shows fixed rate mortgages are back on top as the preferred way to finance a home purchase. The data shows 95% of borrowers went for a fixed rate in June.

Some market watchers see that as counterintuitive, working on the premiss that interest rates are at or near their peak and a downturn will be coming. The big question in that thinking is: when?

Right now, the mainstream thinking says there will likely be an interest rate cut in the first quarter of 2024, probably in March.

The new data also shows the classic 5-year term for a fixed rate mortgage has distinctly fallen from favour. Just 13% of borrowers went for that option. A majority, 55%, have opted for 3 or 4-year terms.

So not quite as counterintuitive as it might appear at first glance.

At the same time the Bank of Canada and, just a few days ago, the U.S. Federal Reserve have made it clear that more interest rate hikes are on the table. Both central banks have said increases will be made, if they are needed, to bring inflation back down to the 2.0% target both Banks are aiming at.

High interest rates are generally deemed to be slowing both economies and reining-in inflation. None the less, there are factors that fall outside the control of central bank interest rate policies – like the price of oil – that could change that. Those uncertainties have market watchers, on both sides of the border, forecasting another rate increase before the end of this year.

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