Mortgage rates go up again.
The steady increases in mortgage rates got another bump this morning with predictions of more to come. We’re now at a five year record high for rates:
A flurry of increases in the past month has sent Canadian mortgage rates to their highest level in more than five years, and consumers shouldn’t expect a return to the low interest rates they enjoyed in the first half of the decade.
Interest rate hikes by the Bank of Canada to curb inflation, coupled with a slowdown in China’s economy, are likely to snap the country out of the falling interest rate environment it has been in since 2001, said Benjamin Tal, senior economist at CIBC World Markets.
Canada’s chartered banks are already pricing in rate hikes the Bank of Canada is expected to make later this year. Royal Bank of Canada has raised the posted rate for a five-year, fixed mortgage to 7.44 per cent, the highest since April, 2002.
June 15th, 2007 at 5:36 am
pope, since you asked, my 2.00c:Loonie likely won't go near parity now.I suspect that we'll drop to around 85-88 by the end of the year.This'll also happen in synch with the unexpected bounce in the USD index (that started about 1 month ago, even though you'd never guess from all the buck-is-toast articles). USD index could reach 90 by year end. That's only medium term, though.Longterm the buck-is-indeed-toast and the loonie may reach parity. Just not in the next 6 months.
June 15th, 2007 at 5:11 am
Lots of people will try confuse the issue with blather about currency strength, controlling the markets, job losses, blah blah blah even though their mandate to control inflation is front & center. Yes, but the former affect the latter, so these factors are not totally moot in the BoC's opinion.
June 15th, 2007 at 1:52 am
craigpbbrett, be careful trying to bring facts into a real estate discussion about BOC rates.Lots of people will try confuse the issue with blather about currency strength, controlling the markets, job losses, blah blah blah even though their mandate to control inflation is front & center.
June 14th, 2007 at 9:16 pm
"I'm no expert, but the banks raising mortgage rates points to default risk more than anything else I think. The BOC raising rates is one thing they do to slow inflation, but they don't directly dictate what the big 5 banks do."The BOC does not have direct control over long term interest rates. They can try to influence the bond market (where long term rates are set) by making purchases or sales in the open market, but the policy tool most often used by the BOC to exert their influence is the short term rate, which they do control.Banks use the bond market to finance their fixed rate mortgages. That's why mortgage interest rates are set according to what's happening in the bond market.Under normal circumstances, bonds typically react to future expectations of inflation, interest rates, currency risk, and default risk. So, while the BOC doesn't dictate what the retail banks do with mortgage rates, if the central bank is raising rates to fight inflation, this activity will normally influence what the bond market does.
June 14th, 2007 at 9:04 pm
“Even men who were engaged in organizing debt-serf cultivations and debt-serf industrialism in the American cotton districts, in the old rubber plantations, and in the factories of India, China, and South Italy, appeared as generous supporters of and subscribers to the sacred cause of individual liberty†-H.G. Wells, The Shape of Things to Come
June 14th, 2007 at 8:33 pm
warren: Mortgage rate is generally tied to the corresponding bond rate, with a bit of spread to cover both default risk and bank profit, due to it being retail level. An increasing spread between bond and mortgage would suggest a rise in risk premium, although I think prime mortgages in Canada are explicitly backed by CMHC, and essentially risk free. Therefore the spread is mostly on bank profit, and mortgage just goes up and down with respective bonds.
June 14th, 2007 at 6:48 pm
Depends on what you mean by risk. Bond rates are up to match, so I don't think it is default risk, but rather inflation risk.I'm no expert, but the banks raising mortgage rates points to default risk more than anything else I think. The BOC raising rates is one thing they do to slow inflation, but they don't directly dictate what the big 5 banks do.
June 14th, 2007 at 6:43 pm
On the state side, long term interest rate is up, about .75% since the beginning of correction. Looks like liquidity is getting shut off soon.This credit bubble is truly global, and now spreading to Saskatchwan.
June 14th, 2007 at 4:39 pm
this rate up is really bad for first time buyers.but there is a hint I think the best some one can do.go for flex value rate always .75% less than prime rate.base is 6.00% now so that will be 5.25% is that good deal.and there is always 1.00% or 1.5% discount when you realize the banks about competition.I recomend if the buyer can save some bites for him self, finincial institutions mostly are rich and make millions or billions.try not to let them take your bite,buyers always have had hard time to pay mortgage,utilities,mintainance,and property tax,and income tax.when ever they feel some profit these crocodiles bite them sorry but can't change language for institutions,taxes,icbc,hydro and management they run a cycle.for i.e.government reduce tax for first time buyer thats around 5000.banks jump twice since thenmanagement looking at appreciation bring some projects.hydro always keep on increasing by 5% since 2000 every quater.icbc despite billions of profit never reduce to share the cake.banks uff there is posting up here.city wow.so there is always one of them standing on our head looking at our pocket.pocket info could be assessed from anywhere when we pay for our attitudes yrrrrrr being notice.
June 14th, 2007 at 4:35 pm
"is it possible that the interest rate hikes have more to do with risk coming home to roost as opposed to the "fighting inflation" scenario? "Depends on what you mean by risk. Bond rates are up to match, so I don't think it is default risk, but rather inflation risk. I think we will see default risk expressed as inability to borrow rather than risk premiums.
June 14th, 2007 at 4:33 pm
" Do you know anyone that can't afford an extra $400 a year? "Well, maybe people who recently bought a GV SFH benchmark can't.You are missing the point. This is at the margin. Another $400? And another $400. And another $400. You could keep saying that as rates rise to 18%.It will hurt given our 65% of pre-tax income or whatever our affordability is (by far the worst in North America).
June 14th, 2007 at 4:02 pm
is it possible that the interest rate hikes have more to do with risk coming home to roost as opposed to the "fighting inflation" scenario?
June 14th, 2007 at 3:23 pm
Yes indeed it’s a puny increase. However let’s not forget it took approximately 15 rate cuts before the economy got jump started. And when there is finally an admission that inflation is underreported it will take many consecutive increases to tame the runaway inflation.At the early stages of the fight against inflation, the small rate hikes will actually add to inflation as interest costs are merely “inputs†and while the economy hums along the cost will be passed on to the consumers. The next stage:RE has crashed, (and not just because of the economy), inflation is still high, interest rates are still on the rise, and unemployment is rising.Pastrick, Muir, and et al, will say that nobody saw this economic shock coming.
June 14th, 2007 at 3:09 pm
The BOC's main responsibility is to keep inflation near the mid-point of its 1-3% range. Everything else, including the value of the dollar, is secondary.Inflation is now sitting above this point and at a four-year record, so the likelihood is that rates will move higher.
June 14th, 2007 at 3:05 pm
Right. This one only adds up to about $400 per year. And the one before that? Or how about the predicted future rate increases – you see where this is going?I agree that the 'death of a thousand cuts' isn't likely to kill this market quickly – there's too little sense in it to be swayed to little bits of reality seeping in.Overshoot on the down is likely as thats the way this market seems to work. Just make sure you don't have to sell at that point, and I sure wouldn't be buying anything as an 'investment' in this town right now.
June 14th, 2007 at 2:36 pm
As freako points out this is a tiny rate increase, no need to get excited. Do you know anyone that can't afford an extra $400 a year?
June 14th, 2007 at 2:24 pm
Looks like some good info which is nearly lost on a website that was made by a 12 year old on a commodore 64. Hey, that was bleeding edge web design circa 1996. For some great fun check out wayback machine. They have some stuff "captured" from around then. The McDonalds Corporate webpage looked no better.
June 14th, 2007 at 2:22 pm
Any one care to make a prediction about the US/CAD exchange rate over the next 6 months? If you want to know what the market thinks, check the futures, or crank your own using interest rate parity. Turns out htat the market doesn't think too hard, the forward rate is tied to a narrow range by arbitrage. If you know better, go ahead and make your zillions using derivatis.What interest rate parity really means is that the bonds of a given duration (say 5 years), include expectations about rate changes. If they didn't, you could just short a bond in once currency (the lower interest one), and buy the other one.
June 14th, 2007 at 2:16 pm
I ran the GV detached benchmark again with the new rates. Didn't jot it down, but added $30 something dollars, or about $400 a year. Not a lot, but still a fair chunk of change given the already very very tight situation.
June 14th, 2007 at 2:00 pm
Oh I know who Hudson is now. I read "Road to Serfdom" in Harpers about 6 months back. Pretty good article but very America-centric if I remember correctly.
June 14th, 2007 at 1:56 pm
Nah, then we'd be neighbours with Chipman.Was there something in particular you had in mind on that web site VRC?Looks like some good info which is nearly lost on a website that was made by a 12 year old on a commodore 64.
June 14th, 2007 at 1:45 pm
make sure you put "quotes" around your link like this: [a href="http://thelink"--the description--[/a]more info <a HREF="http://vancouvercondo.info/2007/01/comment-tips.html" REL="nofollow">here.Its not a very straight-forward system, but thats what blogger uses so for now its what we're stuck with. Anyone think I should switch this site over to wordpress?
June 14th, 2007 at 12:27 pm
Your most reverend Excellency pope, for some reason the “link description†shows up a the date?
June 14th, 2007 at 12:19 pm
Sorry, too many quick drinks at lunch. But I did walk back.
June 14th, 2007 at 12:09 pm
Debated this earlier(offline-remember the offline world?). Would the rise in rates offset any reduction in prices caused by the rise in rates. My thoughts:the reduction in rates post 911 at first caused a corresponding(balanced?) increase in home prices. Then prices kept rising despite rate increases. So I would conclude the elasticity will allow prices to overshoot(significantly) on the downside. Just as they overshot on the way up.
June 14th, 2007 at 10:25 am
At current labour market and exchange rate, Vancouver probably has one of the highest wages for unskilled, non-union workers in North America, behind Alberta of course. Just unbelievable.
June 14th, 2007 at 9:29 am
Thanks to Reductimat for the tip. The soaring loonie throws in an extra challenge for rate setting, Any one care to make a prediction about the US/CAD exchange rate over the next 6 months?