Do you think interest rates will rise by 2014?

[moahunter]

I just read that the US Federal Reserve said they aren't expecting interest rate rises until 2014.

http://www.montrealgazette.com/busin...192/story.html

I keep hearing from people to "lock in" for 5 years now or similar, or that "rates have never been lower, and will only go up, so now is the time to buy".

But it seems to me, if Canada was to raise interest rates with the US rates stable, the Canadian dollar will go even higher, making manufacturing out East even harder to be competitive. Perhaps some other steps need to be looked at if their is a "housing bubble" (e.g. getting rid of 30 year mortgages)?

Its a big decision for people to make. I estimate a 1% rise in my mortgage interest, if I was to lock for 5 years instead of current floating, would cost me about $4,000 per year.

What do you think will happen to interest rates by 2014? Vote and list your thoughts, I think interest rates in Canada will stay the same.

[Bill]

Prime - from 3% today to 5%

5 year Mortgage rate - approx 6-7%

[bolo]

I don't think it'll move much at all. Why else do you think the banks have offered such crazy low (4, 5 and 10 year) fixed rates? Cause they are generous?

[moahunter]

^what I find interesting, is a lot people don't really think it through when they buy a house. They think "hey, its just 1% or so more, so why not have the security"? Sure there's a logic in that, it gives security for the householder and the bank. But you are paying thousands of dollars a year for that security. The rate at which the equity is building on my floating mortgage at the moment, is amazing.

[KC]

Originally Posted by moahunter

^what I find interesting, is a lot people don't really think it through when they buy a house. They think "hey, its just 1% or so more, so why not have the security"? Sure there's a logic in that, it gives security for the householder and the bank. But you are paying thousands of dollars a year for that security. The rate at which the equity is building on my floating mortgage at the moment, is amazing.

"at the moment" - how true. It's debtors paradise right now. "Debt is good".
Just keep a very close eye out for rate increases. Sooner or later the time will come to lock in. Or figure out, well in advance, a way to hedge your position - 1/2 floating 1/2 fixed.

As for interest rates - I can't predict the future so I have no idea about 2014. The US says it will maintain its rates until then. (Scary isn't it!)

Conservative people (savers, investors, etc.) though are getting ripped off while borrowers are being rewarded for their behaviour - by government interference. At some point you'd think that interest rates would have to rise toward some sort of historical, "free-market", trend line.

[jagators63]

alberta's ecomony is getting better that push up interest rate to perhaps 1.5 %. so wait and see in 2014

[Chmilz]

I'm less concerned with the interest rate than I am with the sub-prime mortgage lenders popping up en masse in Canada. Where's the government on this?

[Komrade]

When I bought a house I locked in for 5 years. From what im reading here the better option is to go year to year?

[northern_crocus]

Lock it! Fixed is better when rates have nowhere to go but up!

Well, of course, you know your own contract better than anyone and what you can afford when rates return to the longer historical median rate of about 8%
There really are people who think a 1% higher interest rate only adds 1% onto their monthly payment!! Seriously.

Only my opinion - Banks have entered into cheap mortgage wars lately to gain market share of a dwindling market. After all, mortgage holders often buy their insurance and other bank products from same bank.

I do agree with your assertion that US monetary policy affects Canadian policy. A lot. However, there are other global financials (i.e., the bond market) that affects Canadian bank's mortgage market.

Now that CMHC has almost hit their $600 billion ceiling and is (almost) under the scrutiny of the OSFI, and can no longer bundle (taxpayer funded CMHC insured) mortgages to sell; well, they will no longer be able to market cheap mortgages.
http://business.financialpost.com/20...upervise-cmhc/
Interest rates could rise by a percent just on that one move by the government to get out of insuring subprime lending.

You probably know all of the above - and, only you also know your own risk aversion.

Cheers!

[moahunter]

This is interesting, it matches what most people have voted, which is that rates will rise, although the probability of it happening has just reduced:

Rate Projections
The probability of higher borrowing costs by the central bank’s September meeting fell to about 66 percent after the GDP report, representing a 22 basis points of tightening, or less than a full quarter-percentage point, according to Bloomberg calculations based on overnight index swaps. Odds were 75 percent at the end of last week, with 27 basis points priced in.

http://www.bloomberg.com/news/2012-0...rate-view.html

[KC]

Hussman is always an interesting read.

Here's his latest weekly commentary



Release the Kraken

http://www.hussmanfunds.com/wmc/wmc120430.htm

"As of last week, market conditions remained within the most negative 1% of historical return/risk profiles we've observed over time. "



.

[moahunter]

Feeling better and better about the $4,000 per annum I am saving with my variable mortgage:

The Bank of Canada has estimated that the growth in economic capacity rises by 2% a year, so any economic growth below that rate means a wider output gap.

And a wider output gap - the difference between potential and actual output - would make the Bank of Canada (BoC) less likely to raise interest rates because it reduces the chances of a pickup in inflation.

http://www.canoe.ca/Canoe/Money/News.../19807441.html

[moahunter]

Criticism today that the Bank of Canada didn't drop interest rates:

http://www.theglobeandmail.com/repor...rticle4422480/

Various pundets saying we won't see increases for some time, given economy weakness.

[moahunter]

Included in here, is a statement that unless inflation returns, US interest rates will stay down for 3 years:

http://www.theglobeandmail.com/repor...rticle4542040/

Assuming that happens, there is no way Canadian interest rates can rise (given how high our dollar already is).