Spectre of U.S. Fed rate increase plunges mortgage markets into unease

U.S. president-elect Donald Trump’s campaign promise of $1 trillion in new spending without raising taxes has raised fears of inflation, and bond (as well as mortgage) markets are anxious that this might lead Federal Reserve Chair Janet Yellen to impose an interest rate hike.
In a November 16 piece for The Globe and Mail, long-time markets observer Don Pittis warned that while the housing sector is slower to react to such an increase than the bond markets, both will certainly feel the impact of a Fed hike.
“Slowing house prices and falling bond prices have the same trigger,” Pittis wrote. “[Everything] else being equal, rising interest rates would eventually have the same effect on houses that it has already had on bonds. Higher rates make existing assets fall in value.”
“In both cases there will be large effects on the wider economy as asset values disappear,” he added. “If that happens in the property market, Canadians will not like the feeling. “
This is because a significant proportion of Canadians are not in the business of buying homes and then leaving them empty for profit purposes down the line, Pittis argued.
“For most Canadians, houses are not principally investment assets. They are a place to live and raise families,” the analyst explained. “Housing markets are fractured, dependent on human values and decisions that don't fit into bond tables.”
“The president-elect may not care how Canadians feel. But the global bond industry with its traditional headquarters in the U.S. has enormous clout in Washington.”

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