Canada's Housing Bubble

March 30, 2010 Kim Covert Financial Post

Follows on heels of Scotiabank, CIBC, National Bank announcement today and three major banks Monday

Ottawa - With a late-day announcement on Tuesday, Bank of Montreal became the last of Canada's major banks to raise its mortgage rates this week.

BMO hiked its five-year fixed-rate closed-term mortgage by 60 basis points to 5.85 per cent, matching increases announced earlier in the day by Canadian Imperial Bank of Commerce, Bank of Nova Scotia, National Bank and Desjardins Group.

Bank of Montreal, Scotiabank, CIBC, National Bank and Desjardins Group announced Tuesday that they are raising some of their mortgage rates, following announcements the previous day from three other Canadian banks that their home-lending charges were increasing.

Royal Bank of Canada, Toronto-Dominion Bank and Laurentian Bank announced on Monday that their benchmark five-year rates would also increase to 5.85 per cent.

"The era of historically low mortgage rates is coming to an end," said Sal Guatieri, senior economist, BMO Capital Markets.

As with the other banks, BMO is also raising its three-year fixed-rated, closed-term mortgage, in this case by 20 basis points to 4.35 per cent, and its four-year, fixed-rate closed-term rate will increase by 40 basis points to 5.34 per cent.

BMO said in a release it will still offer its lowest five-year fixed-rate mortgage at 3.75 per cent. Canadians who want a fixed-rate mortgage should lock in now "as pressure builds for rates to rise," the bank said.

Scotiabank is raising its four-year closed-term mortgage by 40 basis points to 5.34 per cent, which is also in line with the other banks, but a 20 basis point increase to its three-year closed-term mortgage brings that rate to 4.5 per cent, higher than the other banks, though lower than the 4.7 per cent posted by TD.

Desjardins Group said it would increase its four-year rate to 5.35 per cent, up 41 basis points, while its three-year rate increases 40 basis points to 4.55 per cent. It also lowered its six-month closed rate and its one-year closed rate by five basis points to 3.45 per cent.

All of the increases announced on Tuesday take effect on Wednesday, while the rate hikes announced Monday took effect on Tuesday.

National Bank, which lowered its five- and four-year fixed rates earlier this month, was the only bank to announce a change to a variable-rate mortgage, with its five-year variable-rate, closed-term mortgage now at 5.85 per cent.

Anticipation over the Bank of Canada raising its overnight lending rate, possibly ahead of schedule, is pushing up bond yields, said Benjamin Tal, senior economist with CIBC World Markets on Monday. Rising yields put pressure on fixed-rate mortgages.

The central bank has said it will maintain its key rate at a record low 0.25 per cent until mid-2010 unless inflation becomes a concern.

RBC and TD also hiked four-year term closed mortgage rates by 40 basis points to 5.34 per cent.

RBC's three-year product rose by 20 basis points to 4.35 per cent, while the equivalent at TD gained 40 basis points to 4.7 per cent.