Raise rates now: OECD

"The risks are that people put too many eggs in one basket," Peter Jarrett, a senior economist with the Organization for Economic Co-operation and Development said Tuesday.  ""We feel that at least in the hottest real estate markets, particularly Toronto, that … people should think twice about continuing to leverage up in order to buy more house than maybe they really need."
OECD is now calling for the Bank of Canada to raise its overnight interest rate to 2.25 per cent from the current 1 per cent by the end of 2013.
“If rates go up something like we are suggesting then mortgage rates will be in more like the five per cent range," Jarrett said.
The call for higher rates echoes those from within Canada, with many economists fearful the continuation of the current interest rate environment will only encourage the kind of spike in home prices Toronto is now grappling with.
That hike – more than 8 per cent in the last year – is considered out of step with relatively stagnant income growth. The concern is a number of Canadians are nonetheless taking on mortgage debt they simply won’t be able to handle when rates eventually increase.
Jarrett wants to see that rate adjust sooner rather than later as a way of stopping consumers in their tracks.
That could accrue to the benefit of investors in two ways, say industry veterans. They point to the number of Canadians who would then be encouraged to stay in the rental market as well as any resulting price correction that would lower the threshold of adding to their own inventory of investment properties.
Still, any major jump in interest rates could affect the ability of investors to qualify for borrowing. It’s one reason why many investors want to see a continuation of today’s low interest rates well into 2013.

 

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