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Developers have been buying down mortgage rates to move unsold inventory for years. As I reported in the Financial Post last week, Concord, Ontario-based CountryWide Homes has been trying to lure buyers with a 2.34% three-year fixed since July.

Similar builder tactics are taking root nationwide. At first glance, this looks like a bad dream to your average mortgage broker. 2.34% is 240 bps lower than any nationally advertised conventional rate. It's hard to compete with that.

Or is it?

Ever since mortgage rates leapfrogged into the 6s in 2023, refinance demand has been building. Much of that demand was never satisfied because borrowing costs were too high or qualifications were too tough.

Now, as if by financial magic, conditions are changing. Thanks to anticipated BoC cuts—count 'em, 75 bps worth by year-end—plus cooler inflation and a bump in unemployment rates, yields are discovering gravity. In fact, our go-to fixed-rate gauge, the 4-year swap, has already dipped a cool 169 bps from its peak.

“This is very reminiscent, so far, of 1987”
—Ed Yardeni (via Bloomberg)

Recession jitters, market turmoil in Japan and liquidity concerns slammed bond yields this morning. Despite a hefty intraday turnaround, the sentiment damage is done. Now markets wait for the next shoe to drop.

It's possible yields catch a bounce off this doji formation on the U.S. 5-year yield chart below. If not, brace for a market fireworks.

In the week ended August 2, the U.S. 10-year yield plunged 41 bps. That's a 9.8% drop in percentage terms, as measured against the yield the week before.

How often does the 10-year Treasury yield belly flop 9.8%+ and 41 bps in a single week?

How about only three other times since 1962?!

This statistic should have eyebrows hitting hairlines. In MLN's latest Mortgage Minute, we break down why this seismic shift matters for Canadian mortgagors.
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What we're staring at above is Canada's 5-year yield, which cascaded 72 bps in just 29 days. It's the first time we've closed under 3% since May 2023.

Yield drops like this are as common as a one-handed economist, and multiple factors are fueling the tailspin: