The Bank of Canada says that it will raise interest rates again. The recent rise in the value of the Canadian dollar might not have been the best or the worst thing for the Canadian economy. When the dollar hit a 30-year high of just under.94 cents USD, it was bad news for home owners and for the mortgage industry, which is changing quickly.
Is there any justice left in our economy when the Bank of Canada acts ahead of time to fight inflation by raising interest rates? This is the same kind of justice that allows us to get a mortgage and makes it easier for more people to buy their own homes. Let's take a look at a few recent numbers:
The increase in interest rates shouldn't come as a surprise to Canadians, since they've been going up for the last four weeks. For a 5-year closed mortgage, the rate will go up by 7.44 percent on June 15, 2007, at all major banks.
The interest rate has gone up quickly from 6.59 percent on May 17, 2007 to 7.44 percent now. In just 30 days, the interest rate has gone up by 0.85%.
Since last month, interest rates have been going up, especially on the bond market. Yields have been going up because investors are scared that the central bank will raise interest rates to fight inflation, and maybe even more than once this year.
Some analysts say that the recent rise in the value of the Canadian dollar, which just missed.94 cents USD, has done more harm than good.
David Dodge, the head of the Bank of Canada, says,
"The high value of the Canadian dollar could lead the central bank to raise interest rates to slow down inflation."
Dodge says that the main reasons for this interest rate hike are the recent risk of higher inflation in the future and the strange rise of the Canadian dollar.
Most banks haven't waited for interest rates to go up in the future. Instead, they have already started to raise their rates to levels not seen in 5 years.
The Canadian Real Estate Association says that the new rise in interest rates hasn't stopped all Canadians from buying homes. A recent study shows that the average sale price in urban markets was $333,524 last month. This is a 10.2% increase from a year ago and the highest price ever.
The CREA says that even though interest rates are at their highest level in five years, the housing market is still expected to survive and stay strong. In the long run, this will lead to more mortgages and a stronger economy, with more money to spend. This will have a bigger effect on the Western Canadian markets, where people will be more vocal about it.
