Every year, banks, economists, and financial media publish mortgage rate forecasts. And every year, many of those forecasts turn out to be significantly wrong. Understanding the track record of rate predictions can save you from making expensive mortgage decisions based on overconfident forecasts.
The core problem with rate forecasts
Rate forecasts are economic projections — not predictions of the future. They’re based on models that assume certain conditions continue and that no major surprises occur. The problem: surprises happen constantly.
| Why Forecasts Fail | Example |
|---|---|
| Unpredictable shocks | COVID-19 pandemic (2020), Russia-Ukraine war (2022) |
| Policy surprises | BoC’s emergency rate cuts, sudden tariff announcements |
| Market regime changes | Zero interest rates for a decade, then fastest hikes in 40 years |
| Consensus herding | Forecasters cluster around similar views, missing turning points together |
| Anchoring to current conditions | When rates are low, forecasts stay low; when rates are high, forecasts stay high |
How rate forecasters have performed
2019: “Rates will stay stable or rise modestly”
| Forecaster Consensus (Late 2019) | What Actually Happened (2020) |
|---|---|
| BoC rate: stable at 1.75% or one modest hike | BoC cut to 0.25% in March 2020 (emergency COVID response) |
| Fixed rates: 2.5%–3.5% range | Fixed rates dropped to 1.5%–2.0% |
| Variable rates: prime − 0.5% to prime + 0% | Variable rates dropped to ~1.5% |
Accuracy: Off by a wide margin. No major forecaster predicted the pandemic or the emergency rate cuts.
2021: “Rates will stay low for years”
| Forecaster Consensus (Early 2021) | What Actually Happened (2022–2023) |
|---|---|
| BoC rate: 0.25% through 2022, maybe one hike in 2023 | BoC hiked from 0.25% to 5.00% in 16 months |
| Fixed rates: 2.0%–2.5% for the foreseeable future | Fixed rates surged above 6% |
| Variable rates: prime − 1% to prime − 0.5% | Variable rates exceeded 6.5% |
| Inflation: temporary, will return to 2% by mid-2022 | Inflation hit 8.1% in June 2022 |
Accuracy: Catastrophically wrong. This was the most significant forecasting failure in decades. The consensus badly underestimated inflation persistence and the resulting rate hiking cycle. Borrowers who locked in ultra-low variable rates based on “rates will stay low” suffered significant payment shock.
2023: “Rates have peaked, cuts coming soon”
| Forecaster Consensus (Late 2023) | What Actually Happened (2024) |
|---|---|
| BoC cuts to start by Q1–Q2 2024 | First cut came in June 2024 (later than many expected) |
| Fixed rates to fall to 4.0%–4.5% by end 2024 | Fixed rates declined to ~4.2%–4.8% (roughly in line) |
| BoC rate at 3.5%–4.0% by end 2024 | BoC rate ended 2024 at 3.25% (more cuts than some expected) |
Accuracy: Direction correct, timing partially off. Forecasters correctly identified that rates had peaked — but the timing and pace of cuts varied from expectations.
2025: “Continued rate cuts, normalization”
| Forecaster Consensus (Early 2025) | What Actually Happened |
|---|---|
| BoC rate: 2.25%–2.75% by end 2025 | Trade uncertainty complicated the path — cuts were slower than expected |
| Fixed rates: 3.5%–4.5% | Bond yield volatility kept fixed rates elevated |
| Smooth normalization | Tariff shocks created new uncertainty |
Accuracy: Direction approximately correct, magnitude affected by unforeseen trade policy. Another example of forecasters correctly identifying the trend but being unable to account for external shocks.
Bank forecast track record comparison
How the Big Five have performed
| Bank | Tendency | Strength | Weakness |
|---|---|---|---|
| RBC Economics | Moderate, anchored | Good at identifying medium-term trends | Can be slow to acknowledge turning points |
| TD Economics | Often more bearish (cautious) | Better at flagging downside risks | Sometimes too cautious on upside |
| BMO Economics | Pragmatic, data-focused | Updates views quickly when data changes | Less bold in making strong calls |
| Scotiabank Economics | Often contrarian | Willing to deviate from consensus | Contrarian calls don’t always pay off |
| CIBC Economics | Moderate | Strong on macro analysis | Forecasts can be vague on timing |
The aggregate pattern: Bank economists tend to forecast in a narrow band around the consensus view. They’re rarely wildly wrong individually but frequently miss major turning points collectively.
Market-based forecasts vs economist forecasts
Interest rate swap markets and overnight index swaps (OIS) provide market-based forecasts of where rates will go. How do they compare to economist forecasts?
Market-based forecasts
| Advantage | Limitation |
|---|---|
| Real money at stake — traders bet with capital | Still can’t predict shocks |
| Updated continuously — reflects new information instantly | Short-term accuracy higher than long-term |
| Consensus of thousands — aggregates diverse views | Can be distorted by positioning and liquidity |
| No institutional bias — not affiliated with a single bank | Risk premiums embedded in prices can mislead |
Head-to-head comparison
| Metric | Market-Based (OIS/Swaps) | Bank Economists |
|---|---|---|
| 1–3 month accuracy | Good | Good (both capture near-term trends) |
| 6–12 month accuracy | Moderate — better than economists on average | Moderate — often anchored to current conditions |
| 12+ month accuracy | Poor — uncertainty too high | Poor — same fundamental limitation |
| At turning points | Slightly better — adjusts faster | Worse — slower to abandon consensus |
What this means for your mortgage decisions
Stop making binary bets
The most common mistake: choosing fixed or variable based entirely on a rate forecast.
| Approach | Problem |
|---|---|
| “Experts say rates will drop, so I’m going variable” | Experts have been spectacularly wrong before |
| “I think rates will rise, so I’m locking in fixed” | You might lock in at the peak |
| “I’ll wait for rates to drop before buying” | Rates may not drop, or home prices may rise faster |
Better decision-making framework
Instead of relying on forecasts, base your mortgage decision on factors you can control:
| Decision Factor | How to Evaluate | More Important Than Forecast? |
|---|---|---|
| Cash flow buffer | Can you absorb a 2% rate increase? | Yes — stress test yourself |
| Risk tolerance | Does rate uncertainty keep you awake? | Yes — peace of mind has value |
| Term flexibility | How likely is a move, refinance, or penalty? | Yes — early breakage costs matter |
| Fixed vs variable spread | Is the variable discount attractive today? | Yes — current pricing matters more than future predictions |
| Time horizon | How long will you hold this mortgage? | Yes — short-term bets are riskier |
Scenario planning beats point forecasts
Instead of relying on one forecast, plan for multiple scenarios:
| Scenario | BoC Rate | Fixed Rate | Variable Rate | Your Action |
|---|---|---|---|---|
| Rates fall significantly | 1.5%–2.5% | 3.0%–4.0% | 3.0%–4.0% | Variable wins — lower total cost |
| Rates fall moderately | 2.5%–3.5% | 3.5%–4.5% | 3.5%–4.5% | Variable likely wins — modest advantage |
| Rates stay flat | 3.0%–3.5% | 4.0%–5.0% | 4.0%–5.0% | Close to a toss-up — depends on spread |
| Rates rise | 4.0%–5.0% | 5.0%–6.0% | 5.5%–6.5% | Fixed wins — locked-in protection |
| Stagflation / shock | 5.0%+ | 6.0%+ | 7.0%+ | Fixed wins significantly |
Ask yourself: “Which scenario can I NOT afford?” — and structure your mortgage to survive that scenario.
How to read rate forecasts critically
Red flags in rate predictions
| Red Flag | Why It’s a Problem |
|---|---|
| Single point estimate (“rates will be 3.25% next year”) | False precision — all forecasts should have a range |
| High confidence (“we’re certain rates will fall”) | Certainty about economic outcomes is a sign of overconfidence |
| No discussion of risks | Every forecast should acknowledge what could go wrong |
| Anchored to recent past | “Rates were X last year, so they’ll be X ± a bit” — misses structural changes |
| Forecast disguised as advice | “You should go variable because rates will fall” — conflates prediction with prescription |
Questions to ask about any forecast
- What assumptions is this based on? (GDP growth, inflation path, BoC policy)
- What could make this wrong? (trade shocks, inflation surprises, global events)
- What is the range of outcomes? (a single number is useless without a range)
- How has this forecaster performed historically? (check their track record)
- Does this align with market pricing? (if the forecast differs from bond market pricing, who’s more likely right?)
Historical accuracy summary
| Forecast Period | Consensus Direction | Correct? | Magnitude Correct? | Timing Correct? |
|---|---|---|---|---|
| 2019 → 2020 | Stable or modest rise | No — rates collapsed | No — emergency cuts | No |
| 2021 → 2022 | Rates low for years | No — rates surged | No — dramatically wrong | No |
| 2023 → 2024 | Rates have peaked, cuts ahead | Yes | Approximately | Partially (timing off by months) |
| 2025 → 2026 | Continued normalization | Partially | Mixed — trade disruptions altered the path | Partially |
The pattern: forecasters get the general direction right about 50–60% of the time but consistently miss magnitude and timing. Their accuracy improves only for short horizons (1–3 months) where the current trajectory is already clear.
The bottom line
- Rate forecasts are unreliable — especially beyond 6 months
- Bank economists cluster around consensus — and miss turning points together
- Market-based forecasts are slightly better — but still fail at major transitions
- Don’t make binary bets — plan for a range of outcomes, not a single forecast
- Focus on what you can control — cash flow, risk tolerance, and mortgage structure matter more than any prediction
- Stress test yourself — if you can’t handle the worst realistic scenario, restructure