Interest Rate vs Economy
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Well, we can't have our pie and eat it too! The interest rate hike was made based on surveys from both side of the border detecting identical pattern of rising confidence. A hopeful sign for the still fragile recovery. A stronger economy will offset the effects of higher mortgage rates and keep Canadian house prices stable over the next two years, according to the Royal Bank of Canada. If the economy stays weak, the interest rate will stay low, & country with huge debt like US would be able to pay their interest easier. So, do u want to see the economy improve or remain weak??
As far as I'm concern, even though the rate has gone up, it is still extremely historically low! It has been 20 PLUS % in 81, 13% in the early 90's to today's lows OF 4%. I remember when I bought my investment property in 2008 during the economic crisis. I asked the experienced mortgage brokers about locking the rate or stay IN A variable when the 4% 5 yr fixed was available. They told me to lock because they firmly believe the rate couldn't possibly go below 4%. Guess what, it has been below 4% for over 2 years. For those who has rates below 4%, ENJOY! Today's 4.04% is not going to kill the housing market in my opinion, and neither will 5% or 6%. Canadians in the past 2 years have learned lessons from the Global economic crisis. My clients these days are a lot more cautious & only spend on what they can afford.
Will the interest rate keeps going up? Well, the RBC report said the economic recovery will gather strength in 2011, continuing to boost employment and family incomes. On the downside, interest rates are expected to rise. One interesting point in the report is that one Economist suggested higher interest rates could drive prices down as much as 25% over the next 3 yrs while the Canadian Real Estate Association Economist suggested even though mortgage rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity. It raised its sales forecast for the next 2 years as it suggested that a stronger economic recovery & continued low interest rates would keep the market balanced.
Despite who said what. The fact is January market starts stronger than expected. In the last 12 months, detached house in Richmond went up 22% while Vancouver West went up 12%. By 2040, Metro Vancouver’s population will grow by 1.2 million newcomers and employment will increase by 600,000 new jobs. In the next decade alone, to accommodate new residents, the demand for ownership homes will increase by 120,700 units and the demand for rental units will increase 64,900 units!!! Based on traditional analysis, yes, housing prices especially in Vancouver may be overvalued but based on the population forcast. It's all about supply & demand. Don't forget Canada is not just the best place to live in the world politically, it is the safest place to invest in the world as well.
Back to my last week topic. How much do you want to believe in the Economists prediction? You have to use your own judgement just like everything else. After all, real estate is not like stock. We are the President of our property. We decide whether we want to sell or not. Unlike stocks, where you are only a small share holder, we own 100% of our property. If interest rates squeeze out the entry level buyers, it won't stop the investors to buy as more people will be looking for rent if they can't afford to buy.
