by: Don Bayer, Founder MonsterMortgage.ca
I came across this cartoon in the G & M and I had a good chuckle. I don’t remember my “Hopes and Aspirations Day” at my school growing up – but I would be lying if this wasn’t a topic that is discussed every day with our clients. The term “drive till you qualify” was first delivered by an economist in 2019 and it seems to ring true, even today.
There really is only one set of events that will slow down the housing market. The irony is that as little Johnny holds his card up and reads “Afford to buy a Home”, we actually need interest rates to increase or at least normalize. After all, what is the point in having a 5 year interest rate at 1.89% if you can never find a home to buy? It’s a bowl of ice cream without a spoon. We have not had a balanced market for quite some time.
The Bank of Canada will be walking a tightrope when communicating its rate decisions in 2021 and 2022. Something is happening in the bond market and bond yields have been moving steadily higher since January of this year. This indicates that they expect our economy – and more importantly, that of our neighbour, to expand as the vaccine is distributed later this year. The amount of stimulus both countries are injecting has never been done in the history of our countries. As we pour Miracle Grow on our economy, the bond yields creep up and interest rates begin to normalize.
It normally happens faster that most people think. The bond market is very liquid and very large. Once it makes a move, it is like a streamliner ship and stays on target. The Bank of Canada has repeatedly said it does not expect to raise rates till 2023. Doug Porter, chief economist for BMO said ” We continue to believe that both the bank and the Fed will remain extraordinary patient – if they are going to err, it will be by erring on side of staying too easy for too long.”
It’s hard for people to believe that prices of homes will drop as interest rates increase. It happens with every asset class and will happen here, just like it did in 1980 and 1989. I guess you need to experience it before you believe it will happen.BACK TO BLOG FEED