BC’s debt-ridden households are running out of time to avoid higher financing costs that are expected in approximately a year’s time.
A year might seem to be a long time away, but a few hurried weeks and months later, 365 days will have come and gone and the seemingly inevitable rise in interest rates will have “surprisingly” arrived to take a bigger chunk of the meagre bank accounts for the average B.C. household.
The rise is likely to start once the US Federal Reserve ends its securities purchase programs in early 2014, according to RBC’s latest financial market outlook, which was released last week. The Fed’s purchase of $40 billion per month in mortgage-backed securities and $45 billion per month of longer-term U.S. treasuries has helped keep long-term rates near record lows.
The move has led to near record lows for 30-year mortgage rates in the U.S., helping to boost the struggling U.S. housing market by enticing potential buyers back into the market with cheap, long-term financing. That’s helped to cull the inventory of foreclosed and unsold homes and sparked a run-up in new home construction and the jobs associated with it.
Most members on the Federal Open Market Committee chaired by Ben Bernanke haven’t shown much concern about the potential for runaway inflation. Eleven of the 12 members voted to continue the Fed’s asset purchasing program last week.
According to their latest forecast, the Fed is confident it can keep inflation at or below 2% over the next few years. Analysts have debated whether the Fed’s actions (and similar ones by other central banks around the world) will result in a 1980s-style spike in interest rates, which would cripple households already laden with record levels of debt.
But whether or not that worst-case scenario comes to pass, interest rates will eventually start rising, a sign that the economy’s doing better than muddling along. A sluggish economy has done little to improve the quality of life in B.C. (and might help explain why Calgary is now apparently the best place to live in Canada). •
