Mortgage rates are going up again in Canada as the cost of borrowing rises in the bond market because of solid job gains and inflationary pressures in the economy.

CIBC, Royal Bank and Bank of Montreal announced Friday they are raising rates by up to a quarter point on long-term mortgages, reflecting rising costs in the bond market, where banks finance their mortgage lending.

Effective Saturday, a five-year rate at all three banks rises by a quarter point to 6.4 per cent, while rates rise by varying amounts on one-year to 10-year terms.

With the Canadian and U.S. economies rebounding, a strengthening employment market has led economists to predict the U.S. Federal Reserve Board will begin raising rates this summer for the first time in more than four years.

As inflationary pressures build, investors are demanding higher interest rates to lend their money, which forces up the cost of raising funds in the bond market.

Earlier this week Canada Mortgage and Housing Corp. said it expects the country’s builders to start 4.5 per cent fewer homes this year than last.

The government agency’s chief economist, Bob Dugan, issued the forecast:

“The decrease . . . will reflect rising mortgage rates as monetary policy moves from an expansionary to a more neutral stance bringing starts in line with the rate of household formation,” Dugan said in a statement in Ottawa.

This year, builders will start 208,500 homes, CMHC forecasts. Last year they started 218,400. a 15-year high.

Sales of existing homes will likely fall from last year’s record of 439,500 units to 438,400 this year and 419,600 in 2005, the agency said in its Housing Outlook report.

Home resale prices will rise 7.7 per cent this year to $222,100 and another 4.2 per cent next year, CMHC said.

© The Vancouver Sun 2004