The Bank of Canada announces a new interest rate hike! The recent dollar gain of the Canadian dollar may not have been the worst thing for the Canadian economy or the best either. As the dollar hit a 30 year record high, closing just short of .94 cents USD, it has become bad news for home owners and also for the rapidly changing mortgage industry.



Is there justice left in our economy, when the Bank of Canada reacts pre-empt by raising interest rates in order to fight and minimize inflation? This is the same justice that provides us with a mortgage and gives us the accessibility for more people to become home owners. Let's look at some recent figures:

The interest rate hike should not come as a shock for Canadians, as a pattern of increase could be seen in the last 4 weeks, amounting up to a rate increase of 7.44 percent, for a 5-year closed mortgage that will take effect June 15, 2007 at all major banks.

The new posted interest rate of 7.44 percent is a rapid jump from 6.59 percent, which was as of last May 17, 2007. That's an interest rate jump of 0.85 percent, in only 30 days.

Interest rates could be seen rising since last month especially in the bond market where yields were being scared into rising ever since the central bank announced its plan to hike interest rates to fight inflation, and maybe even more than once this year.

The recent gain in the value of the Canadian dollar, just closing short of .94 cents USD has contributed more harm than good, some analysts say.

Bank of Canada Governor David Dodge says,

“The high-flying loonie may prompt the central bank to raise interest rates to reign in inflation.”

According to Dodge, the recent risk of increased inflation in the future, and the unusual rise in the Canadian dollar are the main reasons for this interest rate hike.

Most Banks have not waited yet for the future interest rate hikes and have already started to jump their rates to record 5 year highs.

According to the Canadian Real Estate Association this new interest rate hike has not entirely deterred Canadians from buying homes. A recent study shows that the average sale price in urban markets was $333,524 last month, 10.2 per cent increase from a year ago and the highest ever.

With the ever rising interest rates at 5 year highs, the housing market is still expected to survive and remain strong, according to the CREA. This will mean more mortgages and economic buying power will increase in stats over the long term, and we will see a more prominent and visible reaction to this in especially the Western Canadian markets.