US hikes interest rates

Up Up and Away

Steve Saretsky -

5 Year Fixed Mortgages Set to Rise as the US Hikes Interest Rates

As expected, Janet Yellen of the US Federal Reserve hiked rates today. A 25 basis point hike means the cost to borrow money continues to go up. That’s two rate hikes in the past three months, with several more expected in 2017. So what does this have to do with Vancouver real estate?

Well, first off expect fixed rate mortgages here in Canada to continue their upwards climb. US Rate hikes are pushing US bond yields higher which ultimately influence the Canadian 5 year bond yields (which are tied to fixed mortgage rates). A little confusing I know. For more clarification visit this post. 

“The quarter-point increase in the U.S. Federal [Reserve] interest rate typically results in the same increase for fixed-rate mortgages here in Canada, which we should expect to see in the coming weeks,” said James Laird, co-founder of rate comparison website

When Canadian 5 year bond yields shoot higher, so too do fixed term mortgages. The two have a very intimate relationship.

Canadian 5 year fixed mortgages
5 year Canadian bond yields and 5 year fixed mortgage rates

Yep 5 year Canadian bond yields are rising, it’s upwards movement over the past year is significant.

5 year Canadian bond yields
5 Year Canadian Bond Yields Soar over past year

Acquiring a fixed term mortgage here in Vancouver is about to get more expensive which, if history tells us anything, should ease real estate prices. Just don’t expect that happen anytime soon.

Vancouver real estate negotiations are not pricing in rising mortgage costs just yet. (I tried to use this as a bargaining chip yesterday with a selling agent. No success. I’m not sure he was aware of the implications of rising rates.)

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The Saretsky Report. December 2022