If you believe one of the more recent blog posts, by Garth Turner, you can soon expect to see the days of the 3% mortgage, on the ‘endangered-list.’ By now many of you are aware rates are rising. And, depending on who you talk with, or who you follow, those rates are expected to keep rising. Or are they? As many people who say rates are climbing, also say we are facing deflation. Sadly Garth Turner in his own blog will warn on deflation on one day then warn of rates rising? Anyway, I digress.
Turner says Alberta, in particular, is suddenly banking on the fact that investors will continue chomping at the bit to swallow-up provincial bonds offering a slightly higher yield, and better premium, than the feds right now.
The evidence? Well, Turner points out Alberta’s recent $600-million bond issue as a pretty clear-cut example of how competition between the provincial & federal bond markets will push interest rates higher. And if you believe those rising rates will toe-the-line when it comes to mortgage rates – that means mortgage rates will be steadily creeping-up too since (as Turner mentions) current mortgage rates are set in the bond market.
I think he is right here. When supply in the bond market is and will continue to be high this will push prices down, and yields up, which automatically push up mortgage rates.
Right now, we’re supposed to be heading into a time of economic recovery. And as we wade through those ‘choppy waters’ it’s interesting how often we look back and are able to see so clearly. Perhaps we’re in the calm before the inflationary interest rate storm. And if we are, none of us should be looking back saying “wow, I never saw that coming.”
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