2022. Messy.

Did Lytton burn because of the air temperature? After all, it was 49 degrees that day. A scorcher. And a record.

Or was it sparks from a train? (The authorities say not.) Or careless human behaviour? Mischief? Spontaneous combustion? Whatever – people died, homes and businesses lost, a tragedy.

This week in Glasgow the prime minister said Lytton incinerated because of climate change so this justifies a hard cap on emissions from the oil and gas sector. What that means is vague, fuzzy and a burr under Jason Kenney’s saddle. When the Libs drop the Throne Speech, then the budget, we can expert ‘climate emergency’ to be overworked words, and come with financial penalties.

Whether you agree this is required or not, 2022 is shaping up to be a landmark year. The T2 gang has an ambitious program of spending on both the climate and social justice. The spring budget will contain a suite of tax increases. Meanwhile the economy is being swept along with a surge in the US GDP, a big labour shortage, strikes and wage demands, romping energy costs and – above all – inflation caused by all this plus shortages and a busted supply chain.

So many people got this wrong. They include not only the august, omniscient steerage section but central bankers. Unseen was unbridled consumer spending, the great resignation, an energy crisis, endless real estate lust and structurally higher prices. Inflation is not transitory any more. It’s real, growing and will be fed by leaders such as ours through taxes and climate-driven inefficiencies.

So here’s the result. The third round of mortgage increases in as many weeks. Yesterday the TD led things off again, pushing costs up across all its home loans. The benchmark five-year fixed rises another quarter point to 2.84%, which has been paced by RBC. Loans at 3% are coming, and more subsequently.

Bond yields are up again, of course. The Canada five-year is above 1.5%, which represents a doubling over the past few months. Things took a sharp turn north last week when the Bank of Canada abruptly ended its quantitative easing/bond-buying program and revised the timetable for official rate bumps.

As we yakked about here on Monday, the financial markets are front-running the CB. Traders are betting that Canada’s hot inflation and silly housing market, along with surging energy costs and profligate government spending will send rates higher, faster than in other lands. That will help raise the value of the dollar and, yes, make all that stuff we import from China (like, ah, everything) more expensive. Yep, extra inflation.

What’s the current thinking? Should you take a variable-rate mortgage or a fixed one? Is it wise to lock in now or wait for this storm to blow through?

Economists’ estimates vary somewhat, but it seems most expect at least four rate hikes in 2022, adding a full 1% to the prime (now at 2.45%) and making home loans (including VRMs) considerably more costly. It doesn’t stop there. The next year will bring up to four more increases, taking the bank rate from a virus low of 0.25% to at least 2.25%. You can see the impact on mortgages now – and the Bank of Canada has not even started. So it seems safe to assume five-year real estate loans will be at 4% or greater by the time people who bought during the pandemic renew.

“I think there is a risk of getting into the market at today’s rates,” says CIBC’s chief economist, Benny Tal. “We are still dealing with emergency interest rates. Let’s remember that these are not normal interest rates and eventually they will rise.

“If you’re in the market now and you’re thinking about buying this huge house with a huge mortgage, let’s think about it for a second. Can you afford this mortgage if rates will be 10, 150, 200 basis points higher? If not, buy a smaller house or rent.”

Well, that’s interesting. The spokesguy for one of the country’s major mortgage-providers telling you it might be better to lease than to buy. Tal is using words like “victim” to describe people borrowing today at low rates that only have one direction in which to travel. It reminds of the “teaser rates” so much in evidence prior to the US housing crash of 2005. People were sucked into loans that turned into unrepayable behemoths when the cost of money eventually romped higher. The consequences were devastating, leading to a 32% plunge in prices nationally. Some areas saw a 70% plop.

So will swelling rates mean deflating prices here?

Nah, says Tal. It will be more like just pain and grief for the over-leveraged. If inflation keeps jumping and the economy expanding, real estate values could hold even as the cost of owning augments. As he told BNN (which you should never watch):

“I think that when it comes to affordability, really the speed at which interest rates will be rising is key. Again, the market is pricing in six hikes in 2022. That’s very, very aggressive, and we know that there is a significant difference between what the market is thinking and what actually will happen, but clearly we have to think about higher interest rates down the road.”

So what does this have to do with Lytton? Or Glasgow?

Lots. Next year it all happens together. Rates. Taxes. Inflation. Plus a a top-down green regime. Jason Kenney’s head will explode. The days of cheap gas and cheap money will be gone. How best to prepare? Stay tuned.

About the picture: “This is our 2 year old mutt Nala,” writes Spencer from AB. “She is half Bernese Mountain Dog and half Maremma. She is the ultimate guardian to our acreage in Northern Alberta. She always looks out for and protects the other animals we have around. This aspect of her reminds me of you and your blog. Always looking out for the greater good of society. Thank you for any input and all that you do.”