Fixed rates will rise…likely this week
Bond yields soared this week. They have been steadily rising actually for 6-8 weeks, but this week saw the biggest two-day rise in eight months.
The spread the banks enjoyed last month at 2.00% (difference between five year advertised rate, and the five year bond) is now at 1.39%. This is starting to get very close to what normal spreads were during the good old days (1.10% to 1.20%). Many lenders are nervous to jump rates at the risk of losing market share, but soon they will have no choice as it appears the bond yields are continuing to move higher.
June 1st, 2009 at 11:28 am
Hi Greg,
I have a question regarding interest rates. I’ve always had a bit of trouble understanding the relationship between interest rates, the performance of the market, and inflation.
On one hand real estate is touted as a good hedge against inflation. But, it seems that interest rates obviously impact the market. Given that the predictions are that we’re in for some real inflation (I think stagflation has been talked about) and that interest rates are set to rise, what do you expect will happen to the Calgary real estate market with regard to these factors? Perhaps a little bit of commentary on what happened to real estate in the 70’s and 80’s? Thanks- I would really appreciating reading your insights on this topic.
June 1st, 2009 at 12:04 pm
Chuck this seems like a big question that would be better handled in a post with some research on my part, rather then in a reply. Thanks for the inspiration and I will tackle this topic this week.
– Greg
June 11th, 2009 at 12:28 pm
Greg,
I have been saving for down payment towards buying a home. I was planning to start looking in august as i thought i would be to make a down payment in september/october. Thinking of getting pre-approved in august. but since the rates have risen. do you expect rates to rise further in june/july ?
June 11th, 2009 at 4:46 pm
Short term interest rates are not expected to rise for some time. As for fixed rates however the prognosis is not the same. The Bond Markets seem to really be on a tear. The markets are pricing in certain inflation risk on bonds which is causing a larger then expected spike in yields.
I would not want to ever predict with certainty what rates will do in a specific month, but I would say that there is a stronger chance they would rise again by July then the chance that they will stay flat or drop.
I would lock in now, with the understanding that generally you have a 90 day rate hold. Be careful which lender you go with however so that you get the best “look back policy” on rates.