The Canada Mortgage and Housing Corporation (CMHC) has issued a warning (November 17, 2016) of a possible 30% drop in home values in Canada. The headline read:
“CMHC says sudden rise in interest rates could cause home prices to drop 30 per cent”
I honestly don't understand the motivation behind issuing such a prediction and what their end game is. Why create concern, fear, anxiety and get people all stirred up?
If you get past the headline you will go on to read that:
“ A spokesman for the agency stressed that the scenario is an "extreme case" and would be unprecedented.”
This would be the “extreme case” and “unprecedented”, so why the alarmist headline to begin with? I call this attention grabbing and manipulative journalism.
Towards the end of the article it states:
“ None of the scenarios should be considered a prediction or forecast, the agency added.”
Notwithstanding that the headline makes it seem like home prices dropping by 30% is a certainty, it is a known fact that most people do not read entire articles so readers will not get the full picture unless they do.
The reality is interest rates are rising and it's important to keep a close eye on them particularly if you have a mortgage and you want certainty as to what your monthly payments will be. Interest rates have started to go up in the past couple of weeks as a sell-off in the U.S. bond market has driven bond yields higher, making it more expensive for banks to access capital. Also, given that Trump's economic policies are perceived and predicted to create growth in the U.S. economy, increasing interest rates will dampen the economy thereby warding off the sceptre of inflation, which is the federal reserve's primary objective.
Bottom line, if you have a mortgage, especially an open variable mortgage, then your payments will fluctuate with the ups and downs of interest rates. If you want certainty then consider locking in. Most financial institutions will give a couple of days notice if they intend to increase their mortgage rates. Usually the news is released on a Monday or Tuesday with the new rates taking effect on the Thursday. It's simply a matter of going into your financial institution before Thursday and signing new mortgage documents if locking in is what you wish to do.