- Your Ottawa Mortgage
Trend of progressively higher interest rates not over – analyst
by Ephraim Vecina 16 Jul 2018 MBN
Latest economic indicators – including data on employment, inflation, housing starts, and economic growth – are pointing at the possibility that the trend toward progressively higher interest rates is not yet ending, according to a recent analysis.
In a new piece for CBC News, long-time markets observer Don Pittis noted that those who are expecting the ongoing Canada-U.S. trade war to lower borrowing costs might be hoping in vain.
“Except for the nasty impact on those of us with large debts, rising interest rates are a good sign for the North American economy. They are one more signal that nearly a decade of low interest rates have done their job, pulling the economy out of recession and into sustained growth,” Pittis stated.
Taking into account the possibility of even higher rates should be something that both sellers and buyers should take to heart, he added.
“For anyone with a memory of mortgage rates that stretches back a decade or more, last week’s rise in the Bank of Canada key lending rate to 1.5% seems quite moderate,” Pittis wrote in his analysis. “But for those who bought into the Canadian real estate market way back when you could get a mortgage for less than 2% — just one year ago — renewing could turn out to be painful.”
“The Canadian economy is also cranking out jobs and Canadian inflation numbers are out later this week. Since rising interest payments count toward inflation while rising (or falling) house prices do not, a moderation in real estate values will offer no relief on consumer price statistics.”
Read more: 7 in 10 Canadians expect interest rate hikes over next 12 months
Moreover, “even if worse tariffs do kick in and begin to do long-term economic damage, they could start by creating a new wave of rising prices, forcing the bank to increase, not decrease, interest rates,” Pittis said.
The Bank of Canada has already strongly hinted that it will hike interest rates to stabilize the Canadian dollar, in the event that tariffs lead to new inflation.
“They could hinge on just how big of an inflation bulge happens, how important the tariffs are to the inflation process,” Poloz was quoted as saying. “If the economy is operating at capacity, it can cause a shift up in inflation expectations and that is something we would vigorously prevent.”
Interest rate hike may signal hard times ahead Investment in Canada continues to exhibit robust activity, demand