Rising Rates....?

(May 25, 2012 )

A Globe and Mail article recently reported the following article which I thought you would find of interest as it relates to the increasing speculation of rising rates and cooling of house prices...

An influential international body is urging Canada’s central bank to raise interest rates in the fall, and continue doing so through 2013 to cool housing prices and contain inflation.

The Paris-based Organization for Economic Co-operation and Development’s prescription for monetary policy will stoke the already hot debate about whether the Bank of Canada’s interest rate stance is inflating a housing bubble.

Governor Mark Carney and other officials say the days of ultra-cheap money are coming to an end, although they so far have declined to be more specific. The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25%.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. But the OECD’s recommendation comes with a risk.