68,000 job losses just cracked the panic pushing fixed rates up

The panic behind higher fixed rates just started to unwind

For weeks the story was oil. War in the Middle East kept energy prices high, the people setting rates got nervous about inflation, and they pushed up the cost lenders borrow at to fund a mortgage. That dragged fixed rates up through September. This week, that worry sprang a leak.

Canada shed 68,000 jobs in September. Enough to wipe out basically all the hiring gains of the year. A weak US jobs report landed on top of it. Suddenly the bets on rate hikes started to fade, and the cost behind fixed mortgages slid from a 52-week high a couple of weeks ago to about 3.51% today.

Last week I called the fixed-rate run-up a fear trade, not a fact trade. The fear is now cooling right in the data. The catch is that the Big 6 raised rates on the way up and haven't walked it back. So right now you'd be quoted a fixed rate set at the top of a panic that's already begun to fade.

Posted fixed rates are lagging behind a cost that's already turning

That gap is the whole story this week. Lenders move fixed rates up quickly and bring them down slowly, so there's usually a lag before the relief shows up on a rate sheet. The best insured 5-year fixed sits at 4.34% today, and the lender side leaned up this week even as the number behind it was falling.

Variable is a different animal. Prime sits about two points over the Bank of Canada's rate, which is at 2.25% and hasn't moved since last October. The soft jobs number makes a near-term hike less likely, which keeps variable steady. The best insured 5-year variable is 3.45%, nearly a full point under the best fixed.

So if you're weighing the two: fixed buys you a known payment you can forget about. Variable asks you to stomach some bumps for a shot at paying less over the full term. The gap between them is wide enough right now that it's a real decision, not a rounding error.

Alberta is the one province that kept hiring while the rest shed jobs

Here's a bit of good news if you're shopping in this province. While Quebec, BC and Ontario all lost jobs in September, Alberta added 23,000. Up 76,000 over the past year. The rest of the country went one way. Alberta went the other.

That matters in a quiet way. A steadier local job market means steadier household income, which is the thing lenders care most about when they size up what you qualify for. You're buying into the one corner of the country that's still adding paycheques, not shedding them.

None of this changes rates. Rates are set nationally off what it costs lenders to borrow for five years. But if you've been second-guessing whether now's a sane time to buy here, the local backdrop is on your side.

The next real test for fixed rates is a date, not a guess

Everything above hangs on one question: does the cost keep calming down, or does the fear come roaring back. Two dated events settle the near-term direction. A US inflation report lands this week, expected to tick up to around 3.7%. If it runs hot, the energy-inflation worry gets fresh ammunition.

The people setting rates expect the Bank to hold in late October, which would keep variable rates right where they are. If the cost behind fixed rates keeps easing between now and then, the pressure that pushed them up should keep draining away. And the posted rates may finally start catching up to the lower costs underneath them.

My honest read: the direction looks friendlier than it did a month ago, but a single hot inflation number could flip the mood overnight. That's exactly why a free hold on today's rate is worth having while the dust settles.

My take

I think the fixed-rate run-up overshot, and this week is the first hard evidence the cost agrees with me. A 68,000 job loss and a soft US print don't fit the story that high oil is about to spark runaway inflation. Paycheques aren't rising fast enough to feed that fire, and businesses have fat margins to absorb higher costs without passing them on. So where I land: the cost got scared ahead of the facts, and the facts are coming in cooler. I still think today's variable has the best shot at winning over a full term, as long as you can ride out some bumps. I could be wrong. A hot inflation number next week could reignite the whole thing. If it does, I'll say so. But the setup today leans friendlier than the headlines suggest.

Insider tip

If you're holding a pre-approval and your rate hold is more than 60 days old, ask us to re-price it this week. Most lenders let a held rate float down but not up, so a fresh hold at today's number costs you nothing. And with the cost behind fixed rates sliding, there may be a lower hold available than the one you're sitting on.

Go deeper: How a Mortgage Pre-Approval Can Protect You from Rising Rates