With Canadian and American mortgage rates being closely linked, there is little surprise to be seen on the faces of Royal Bank of Canada and Scotiabank officials as the remarks of U.S. Federal Reserve Chairman Ben Bernanke spurred rates for a five-year closed mortgage to a level of 4.26 percent as detailed in the Epoch Times.
The Times' contributor Richard Kensington divulged "the Federal Open Markets Committee laid clear a path for higher interest rates in the U.S., which caused the 10-year treasury bond yield to hit 2.54 percent," causing a similar reaction in Canadian bond markets.
Special discounted rates to rise
The Southern Daily Press recently reported that "the Royal Bank of Canada and Scotiabank both announced increases to several mortgage packages, particularly those considered as 'special discounted rates.' Scotiabank's special discounted rates on two-year, four-year, seven-year and 10-year fixed-rate mortgages for residential properties all increased by 0.10 percent effective Sunday, June 22."
Beginning Monday, June 24, the Royal Bank's special discounted rates on four-year, five-year and seven-year mortgages each climbed to 3.29, 3.39 and 3.79 percent. These data suggest an economy becoming more confident in the housing market. The effects of these changes remain to be seen, but rising interest rates are signs that Canadian banking officials believe that projected economic growth will keep pace with increased rates.
Improving outlook in housing prices, purchasing
The good news is recent data from the National Balance Sheet Accounts shows that the household debt ratio continues to be on a downward slope, resting at a level of 161.8 percent. The decreasing value helps protect homeowners against increasing insurance rates and weakening values for Canadian homes.
Increased mortgage rates also follows news of higher volumes of home sales in the month of May. Reuters Canada confirmed reports from the Canadian Real Estate Association (CREA) that purchasing rates increased 3.6 percent in May compared to the previous month, a rise not seen in nearly two and a half years.
Also, the price of homes has gone up, reaching 2.3 percent for the month of May.
It should come as little surprise that mortgage rates will rise, especially during the spring and summer homebuying season. The effects of U.S. Fed developments are unavoidable but should not be a cause for concern for Canadian homebuyers.
CREA reports also suggested that improvements in the housing markets are mirroring positive growth in Canadian employment, which should come as a pleasant surprise for those looking to take advantage of an improving outlook in the Canadian home mortgage market.