Royal Bank and TD Canada Trust announced Monday March 29, 2010 they are increasing several mortgage rates by up to 6/10ths of a percentage point.

The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at both banks. That’s the posted rate, which is routinely discounted by the big banks.

RBC’s new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD’s rises the same amount to 4.55 per cent.

Both banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.

The posted four-year rate at both banks jumps 4/10ths of a percentage point to 5.34 per cent.

Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October.

Variable mortgage rates, which rise in tandem with the Bank of Canada’s key overnight lending rate, are unchanged. But they are likely to be heading up soon too.

Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June.

The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.

Fixed-rate mortgage rates tend to move higher when long-term bond yields rise.

Housing starts will strengthen this year and next, and that increase in supply should keep a lid on further house-price increases, Canada’s national housing agency predicted Tuesday.

Starts subsided to 149,081 units last year, with activity picking up in the second half. This year, housing starts are expected to be between 152,000 and 189,300 units. And next year, that will climb to a 156,400-to-205,600 unit range.

As inventories build and pent-up demand eases after a flurry of sales in recent months, price pressure will also cool. CMHC expects average house prices to remain at current levels for the rest of this year and then rise modestly in 2011 due to “an improved balance between demand and supply.”

Average home prices were$328,537 in January, up 19.6 per cent from one year ago, according to the Canadian Real Estate Association.

Canada’s existing home market has shifted from a buyers’ market, at the beginning of last year, to a sellers’ market. The lack of new listings for existing homes means demand has spilled over into the new home market. And that helps explain the forecast for higher housing starts activity this year.

The outlook comes as low borrowing costs spurred a flurry of buying activity in the past few months, pushing prices higher and sparking debate over housing bubbles. The federal government last month introduced new mortgage rules aimed at stopping people from taking on too much debt, and curbing speculators.

“Canadian housing markets will benefit from improving economic conditions and low mortgage rates,” said Bob Dugan, CMHC’s chief economist.

“As well, measures recently announced by the Government of Canada to support the long-term stability of Canada’s housing market will help moderate housing activity as some potential buyers will have to save a larger down payment or consider a less expensive home.”

Expectations of rising interest rates will also dampen demand.

Globe and Mail Update Published on Tuesday, Mar. 02, 2010 9:04AM EST Last updated on Tuesday, Mar. 02, 2010 12:54PM EST

Economists are debating the timing, and extent, of the central bank’s first rate moves, and some now suggest they will start earlier than they had initially forecast.

The Bank of Canada is on heightened alert for inflation and a stronger recovery than it had bargained for.

 The central bank continues to hold interest rates at historic lows but is signalling to markets that inflation is running slightly higher and the economy, driven by “vigorous domestic spending” and a gradual recovery in exports, is expanding somewhat faster than it had projected, a juggling act for Governor Mark Carney.

 Mr. Carney and his fellow policy makers at the Bank of Canada are now under more pressure in terms of how they time the first interest-rate hike after a lengthy run at near zero, economists say, and the next reading of inflation, due March 19, could be crucial to their thinking.

 The economy grew in the fourth quarter at a 5-per-cent annualized pace, according to fresh data from Statistics Canada this week, while the Bank of Canada’s favoured measure of consumer prices – so-called core inflation, which strips out volatile items such as fuel – is at 2 per cent. The central bank targets 2-per-cent overall inflation; the core reading helps guide monetary policy, and it was initially not projected to reach that level until the second half of next year.

 The Bank of Canada kept its benchmark overnight rate at 0.25 per cent yesterday, and promised again to hold it there through the end of June depending on the outlook for inflation. A second month of faster-than-expected price gains would increase the stakes as Mr. Carney approaches the point where he will lay out how the central bank plans to begin returning rates to pre-crisis levels. He has already sent a message of sorts, warning late last year that Canadians should not take on more debt than they can handle when borrowing costs rise.

 Economists are debating the timing, and extent, of the central bank’s first rate moves, and some now suggest they will start earlier than they had initially forecast.

 Exactly when Mr. Carney will lift interest rates from the current record-low level, and how sharply, are still matters of intense debate among economists, not to mention within the central bank. But after Mr. Carney acknowledged just how rapidly inflation and the economy are picking up steam, Toronto-Dominion Bank, the biggest of the few remaining financial institutions insisting policy makers wouldn’t raise rates until late this year, changed its forecast for the first hike from October to July.

 Eric Lascelles, chief economics and rates strategist at TD Securities, said that while the global picture is “greatly in flux” as economies around the world are gingerly weaned off of stimulus, the central bank’s statement yesterday signalled a “change in tone.”

 “If you’re a central bank worried about rapid household debt-buildup, which the central bank has been, then you’re getting itchy,” added Michael Gregory, senior economist with BMO Nesbitt Burns.

 Still, some economists say the January gain in inflation was a function of the huge price drops around the world in January of 2009, so it’s questionable whether inflation in February from a year earlier will turn out to have been as pronounced.

 Also, Mr. Carney’s statement attributed the surprisingly high inflation rate in January to “transitory factors” as well as faster-than-anticipated growth. That could refer to higher auto prices – which may not be sustainable in future months if negative publicity plaguing Toyota Motor Corp. ripples through the industry – or home prices, which are expected to cool over the next year as builders increase supply and amid stricter mortgage rules that come into effect next month.

 So far, central bankers haven’t officially revised their view that the economy won’t be running at full tilt until 2011, saying Tuesday that influences on inflation include “slowing wage growth, and overall excess supply.” Mr. Carney and his deputies also repeated that “persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags.”

OTTAWA — From Wednesday’s Globe and Mail Published on Wednesday, Mar. 03, 2010 12:00AM EST Last updated on Thursday, Mar. 04, 2010 3:22AM EST