Sticker shock is a symptom of the times as oil prices trigger another wave of fixed-rate hikes
Borrowers getting a mortgage this month best prepare for more sticker shock. We’re about to see another wave of fixed-rate hikes.Some market pundits are predicting that crude oil breaks its record, which topped US$147 a barrel in 2008. That would be just about the worst outcome for inflation, short of perhaps nuclear war or a giant asteroid colliding with Earth.This inflationary threat is, in part, leading investors to sell bonds, thus boosting five-year yields.
If we’re lucky, a 1994 replay is all we’ll see. A 1981 replay – a runup of 1,000 bps in 10 months – would be a touch less pleasant. Although in truth, there’s little chance we’ll see even half that. One wild card, however, is foreign supply chain disruptions. They’re another major inflation catalyst that’s out of the Bank of Canada’s control, and they could partly offset the rate sensitivity factor.The question is, what are you going to lock in at? A five-year fixed near 5 per cent?
The way this is all playing out, the Bank of Canada may have no choice but to break housing’s back by taking its key rate at least 13 times higher than it was on March 1. In other words, to 3.25 per cent or above.
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