Bank of Canada increases Bank Rate to 4.50% and banks follow. Prime now 6.25%

[albertGQ]

http://www.cbc.ca/money/story/2007/0...ml#skip300x250

[calf]

I'm sure glad I pre-qualified a mortgage & locked into an interest rate 2 weeks ago.

[albertGQ]

Originally Posted by calf

I'm sure glad I pre-qualified a mortgage & locked into an interest rate 2 weeks ago.

What rate did you get?

[Canada 02]

this and the possibility of further rate hikes by the BoC as well as easing by the FOMC later this year should be the fuel needed to drive the loonie to parity

[Claeren]

Hopefully by next year we will see prime in the 7%-8% range! See some sanity come back to the housing market...

[McG]

Originally Posted by Claeren

Hopefully by next year we will see prime in the 7%-8% range! See some sanity come back to the housing market...

I sure hope that prime doesn't hit 7 to 8%. That will cripple the economy.

and we will for sure go from the boom to the bust.

No offense claeren, but there is no factual reason to increase interest rates like this...inflation across canada is not rampant and there is no reason to decrease the money supply.

[jolinar of malkshor]

Originally Posted by McG

I sure hope that prime doesn't hit 7 to 8%. That will cripple the economy.

and we will for sure go from the boom to the bust.

No offense claeren, but there is no factual reason to increase interest rates like this...inflation across canada is not rampant and there is no reason to decrease the money supply.

So you know more than the Bank of Canada?

[Bobblehead]

Originally Posted by jolinar of malkshor

So you know more than the Bank of Canada?

Or is it the 7%-8% that McG is taking exception to?

This 1/4% rise was expected as the inflation rate has been steadily creeping up for a couple of years (link)

The BoC aims for 2% inflation, and the past year it has been over that with inflationary pressure still in place.

[Sylvanfan]

I notice that mortgage rates are a touch higher right now. In Edmonton and area house prices decreased for the first time in a long time in June. Lots of people trying to sell, higher rates, and fewer qualified buyers. But in the end I don't think it will cause a "crash", more like a correction. If you think house prices will go back to what they were 2 years ago I think you'll wait a long time. Things like unlimited CMHC mortgages and 40 year mortgages have a much more profound effect than interest rates. But I could see them moving back 4-5% over the course of the year. Right now the loonie is valued too high for an export based economy that never has been close to operating at peak efficiency.

[McG]

Originally Posted by jolinar of malkshor

So you know more than the Bank of Canada?

sorry, what?

Prime is 6.25%. increasing prime to 7 to 8 % makes no historical nor factual sense given either what we have today nor what we is expected in the next few years.

The BoC's goals are for "soft" adjustments, not economy jarring 1.75% increases in the next 5 to 17 months.

It isn't knowing more than the BoC, it's based upon what the BoC has already indicated in line with economic expectations. you may also have noticed that we will be having an election within the next few years; the electorate tends to re-elect when they are fiscally happy. Inflation is guiding the BoC's actions, assisted by Ministry of Finance recommendations in Ottawa.

I think there will be alot of workplace pain with a significant increase like this. If you have to increase prices to cover higher interest rates, you either lay off people or raise prices. Across the economy, one move can be deflationary, the other can be inflationary. The BoC has indicated that neither is desirable.

oh yah. and to quote the late Joe Sports, "it's my opinion, not yours".

Or do you have a different understanding of Economics? I'd be interested to hear your take on why you know more than the BoC.

[Claeren]

^ Maybe my interests are different than yours??

While core inflation has been relativily under control across Canada there are two things that have not:
1) Inflation in Calgary/Alberta has not been under control
2) Housing prices have inflated at 30%-50%/year

(There is a third - American Governmental Borrowing - but it will drive interest rates up as opposed to being a reason our rates have been low, related but not the same.)

A rise in prime rates would reduce local inflation and housing inflation so that i could buy a house (with my super secure government services job) and would bring all sorts of things back into perspective for the spoiled people of Calgary.

I couldn't care less that thousands of engineers and oil field workers could lose their jobs or a few of their ~3 houses - just like they don't care that i currently cannot afford a home with my job.

It is a dog eat dog world - and i PERSONALLY (and my family as well, none of whom work in cycle-sensitive jobs) can do a whole lot more eating with high interest rates then with low interest rates.


Besides which 7% is not really a high interest rate historially speaking - we have just been 'spoiled' by unreasonably low interest rates lately. 5%-8% would be a normal range... it is a far cry from the 12%+ rates of 25 years ago...


Claeren.

[llama64]

Aww great, and just when I thought I'd gotten a handle on my student loan payments... Any increase is bad news for people who are trying to meet payments on a month to month basis. But seeing as I will be in the housing market in about 2 years, any slowdown would be nice.

I doubt we will see the Eighties return, but I do think Calgary and Alberta in general is in for a bit of a re-adjustment.

[Bill Bumface]

Originally Posted by calf

I'm sure glad I pre-qualified a mortgage & locked into an interest rate 2 weeks ago.

Except your rate will be higher than those floating even after the increase.

[jolinar of malkshor]

Originally Posted by McG

sorry, what?

Prime is 6.25%. increasing prime to 7 to 8 % makes no historical nor factual sense given either what we have today nor what we is expected in the next few years.

The BoC's goals are for "soft" adjustments, not economy jarring 1.75% increases in the next 5 to 17 months.

It isn't knowing more than the BoC, it's based upon what the BoC has already indicated in line with economic expectations. you may also have noticed that we will be having an election within the next few years; the electorate tends to re-elect when they are fiscally happy. Inflation is guiding the BoC's actions, assisted by Ministry of Finance recommendations in Ottawa.

I think there will be alot of workplace pain with a significant increase like this. If you have to increase prices to cover higher interest rates, you either lay off people or raise prices. Across the economy, one move can be deflationary, the other can be inflationary. The BoC has indicated that neither is desirable.

oh yah. and to quote the late Joe Sports, "it's my opinion, not yours".

Or do you have a different understanding of Economics? I'd be interested to hear your take on why you know more than the BoC.

First off, I never said I know more than the Bank of Canada, so not sure where you are getting that from????

Obviously increasing rates will affect the inflation rate one way or the other as you have stated. I am no economist and all I am saying is that I am sure there have been many economists that work for th Bank of Canada that have made a judgment call on increasing the rates and predict that it will reduce inflation. In calgary and Alberta it most certainly will.

[photon]

Originally Posted by Claeren

^ Maybe my interests are different than yours??

While core inflation has been relativily under control across Canada there are two things that have not:
1) Inflation in Calgary/Alberta has not been under control
2) Housing prices have inflated at 30%-50%/year

(There is a third - American Governmental Borrowing - but it will drive interest rates up as opposed to being a reason our rates have been low, related but not the same.)

A rise in prime rates would reduce local inflation and housing inflation so that i could buy a house (with my super secure government services job) and would bring all sorts of things back into perspective for the spoiled people of Calgary.

I couldn't care less that thousands of engineers and oil field workers could lose their jobs or a few of their ~3 houses - just like they don't care that i currently cannot afford a home with my job.

It is a dog eat dog world - and i PERSONALLY (and my family as well, none of whom work in cycle-sensitive jobs) can do a whole lot more eating with high interest rates then with low interest rates.


Besides which 7% is not really a high interest rate historially speaking - we have just been 'spoiled' by unreasonably low interest rates lately. 5%-8% would be a normal range... it is a far cry from the 12%+ rates of 25 years ago...

And maybe the BoC's interests are different than yours... The BoC has to worry about the whole country, not just Alberta, and not just a single person in Calgary. Sure 7% interest would cool the Alberta economy significantly but it would be very bad for the rest of the country like McG said, and in the long run would probably make things worse for you.

Inflation in Alberta is below 5% while salaries in Alberta are increasing around 5%.

Inflation in Alberta is high but the Alberta economy is driving Canada right now. And a lot of that inflation is the housing prices. Wages are also going up much faster in Alberta than elsewhere, so while prices go up, affordability is still somewhat reasonable (from a big picture point of view anyway) at around the 40% level.

To put that in perspective, affordability in Vancouver is at 69%.. 69 cents of every dollar of income going towards housing costs. Calgary is still more affordable than Toronto, Vancouver, Montreal,

You aren't going to see 30%-50% increase in housing prices in Calgary in the coming years I don't think, the increased # of listings and lower # of sales will see to that; it's still strong demand but not crazy.

You aren't going to see a big decrease in housing prices though either. A good 15% for at least the next few years is probably a reasonable expectation.

[Claeren]

Originally Posted by photon

And maybe the BoC's interests are different than yours... The BoC has to worry about the whole country, not just Alberta, and not just a single person in Calgary. Sure 7% interest would cool the Alberta economy significantly but it would be very bad for the rest of the country like McG said, and in the long run would probably make things worse for you.

Inflation in Alberta is below 5% while salaries in Alberta are increasing around 5%.

Inflation in Alberta is high but the Alberta economy is driving Canada right now. And a lot of that inflation is the housing prices. Wages are also going up much faster in Alberta than elsewhere, so while prices go up, affordability is still somewhat reasonable (from a big picture point of view anyway) at around the 40% level.

To put that in perspective, affordability in Vancouver is at 69%.. 69 cents of every dollar of income going towards housing costs. Calgary is still more affordable than Toronto, Vancouver, Montreal,

You aren't going to see 30%-50% increase in housing prices in Calgary in the coming years I don't think, the increased # of listings and lower # of sales will see to that; it's still strong demand but not crazy.

You aren't going to see a big decrease in housing prices though either. A good 15% for at least the next few years is probably a reasonable expectation.

I agree to a point and am not hoping for some crash.

At the same time though i think a lot of income stats in Calgary are getting pushed up by the extreme high income on one end and not so much by the entire populations well being.

Far better off making $40k a year when a condo cost $120k than making $50k when a similar condo costs $340k. And most of Calgary makes $50k or less.


Just because we have had a number of reasons for cheap money supply over the past few years does not mean it will stay that way. Fighting inflation is a pro-active use of interest rate manipulation but there are a number of reactive movements that have to be accounted for as well.




Claeren.

[Finner]

There is supposed to be another rate hike of .5% in september anyways. Hopefully though the BoC thought right. If they did you will see an inverse yield curve for bonds develop within the next few months.

They are cooling the economy but by no means stifling its growth. I wouldn't say i exactly love this rate hike as i work for a bank, and my bonus is partly dependent on how well the bank does, but it is welcome if it lowers my living costs even a little.

[MacDougalbry]

Originally Posted by hulkrogan

Except your rate will be higher than those floating even after the increase.

That is conventional wisdom, but 2 yrs. ago when I locked in my rate for 7 years @ 4.8%, I was "in the money" versus the floating rate by the end of the first year.

[photon]

Originally Posted by Claeren

I agree to a point and am not hoping for some crash.

At the same time though i think a lot of income stats in Calgary are getting pushed up by the extreme high income on one end and not so much by the entire populations well being.

Far better off making $40k a year when a condo cost $120k than making $50k when a similar condo costs $340k. And most of Calgary makes $50k or less.

Just because we have had a number of reasons for cheap money supply over the past few years does not mean it will stay that way. Fighting inflation is a pro-active use of interest rate manipulation but there are a number of reactive movements that have to be accounted for as well.

Claeren.

For affordability at least they usually use the median income to remove the effects of really high or low incomes. Consumer confidence is also high. So I don't see the indication that overall the population is worse off now than before the boom.

And I don't agree at all most of Calgary makes $50k or less.. the median household income in Calgary in 2000 was $65,000 from the 2001 census, and the average houshold income for Alberta last I saw was $76,000. The last census numbers for income aren't out yet but should be soon, I would expect the median to be above the 2000 numbers.

The average standard condo price in Calgary for Q1 2007 was $260,411, which meant a qualifying income of $58,000 was required.

I agree that $40k income with a $120k condo is better than $50k income with $340k condo. A 40k income with a $0k would be even better . You mention that we have it good with interest rates right now, and I agree. I would also say that Calgarians have been spoiled with very low real estate prices recently as well, well below comperable markets elsewhere.

I think these prices are here to stay. The increase of interest rates hopefully will do good to cool off the economy, it does need it, especially here in Alberta. But not so much to damage the economy; Alberta is driving Canada right now.

It's unfortunate, but in many cases people will simply have to move away from Calgary if they can't afford to buy or rent here.

[soulchoice]

I dont mind a crash or slowdown to occur at all in all honesty. I recently sold some land out by Chestermere and would never buy in this market right now for investment purposes, so will wait and most certainly swoop in on foreclosures, should something drastic occur. Highly unlikely it will crash though, more of a cool off, as some people have mentioned.