"Record low interest rates that sent Canadians into a binge of borrowing and home-buying are reverting to more normal levels. Still cheap by historical standards, loans are not nearly as cheap as just a few months ago.
The general consensus has always been that interest rates could not stay so low indefinitely. But the correction has been much quicker than expected. As the economist Rudiger Dornbusch once said, “in economics, things take longer to happen than you think they will, and then they happen faster than you thought that they could.”
Interest rates set by the bond market have soared so quickly that they have already reached heights that some economists didn’t expect to see until the year’s end.
For homebuyers the era of record-low mortgage prices is coming to an end. Mortgage rates, which are determined by a bank’s funding costs in the bond market, have started to climb from the historic lows seen in the past two years, where offers of 2.99 per cent prevailed. The five-year fixed-rate mortgage market, which is based on a 5-year bond yield plus a margin built in by the lenders, is the first to show signs of upward pressure."
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