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Interest Rates are Rising… and Expected to Continue… But!

December Blog Image

Rates have been rising gradually over the past six months following several years of historically-low rates. There should be no surprise that rates are rising – it was bound to happen. But, we can be thankful they’re not predicted to spike. It’s much easier to deal with – and plan for – gradual increases.

Benjamin Tal, Deputy Chief Economist of CIBC World Markets Inc, spoke last week about his predictions for rates and a bunch of other economic indicators. I’ve been following him for 15 years now. He’s one of the few economists whom I respect, as his forecasts have proven very accurate. So, let’s pay attention!

Continue reading “Interest Rates are Rising… and Expected to Continue… But!”

Housing bubble? Waiting for the crash before buying has cost you 60% in the last 6 years.

Housing BubleBad news travels 10 times faster than good news!  It’s just human nature that we can’t seem to escape.  We seem more likely to gossip about someone’s misfortune than their accomplishments.

Here’s a negative headline….  YOU LOST APPROXIMATELY $355,000, SO FAR, IF YOU’VE BEEN WAITING TO A BUY HOUSE SINCE 2008.  Read on to see understand how and why.

Take Wednesday’s headline in the Financial Post, “Bank of Canada warns house prices are overvalued by up to 30%” .  WOW!  How’s that not gonna get your attention?   It certainly got mine.  I immediately had to read this article.  But the more I read, the clearer it became that this statement wasn’t exactly true.

The article pointed to a semi-annual report that is put out by the Bank of Canada entitled, Financial System Review December 2014.  That headline is an attention grabber.. And like most media headlines, it’s not the full story.  In fact, it’s not an accurate reflection of what the Bank of Canada report had to say.   If you look at Stephen Poloz’s (Bank of Canada Governor) comments, he says “there is some risk that the housing market is overvalued, and our estimates fall in the 10 to 30 per cent range”.

But he’s not done there.. Continue reading “Housing bubble? Waiting for the crash before buying has cost you 60% in the last 6 years.”

Rising personal debt levels.. but how about rising asset levels?

net worthEver notice how all economic news is bad?  Seriously, when was the last time you heard Canadians were doing well, financially?   Even when we came out of the October 2008 U.S. sub-prime mortgage crisis (notice I’m very specific about the cause of that recession) with flying colours, we kept seeing the same negative messages about how lucky we were to come out of this as strong as we did.

But here we are, 5 years later (hard to believe it’s been 5 years) and all we keep hearing and reading is how the economy is fragile… the housing bubble is coming… personal debt levels are at record highs…  housing affordability index has increased (this measures how much of your income is used for housing)…   This all sounds terrible and depressing.. maybe we should sell everything, move to another country and herd sheep? Continue reading “Rising personal debt levels.. but how about rising asset levels?”

Ben Tal, Senior Economist, CIBC shares his thoughts

Last week, we had the privilege of listening to Ben Tal, Senior Economist with CIBC.   He said we can expect rate hikes of between 1.00% to 3.00% over the next 2 years… but he also said that there is no straight line when it comes to interest rate hikes… so we will see staggered rate movement…  Mr. Tal said that he does not see the need for anything above this given that the motivation for any rate hikes by the Bank of Canada is slow the economy and keep inflation in check.

There were 4 charts in particular that caught my eye..

1-The Gap between Consumer Confidence and Consumer Capability.. this chart shows why the Government is concerned about our personal debt levels… The chart shows our confidence is higher than our capabilities…

2-Share of Household with Mortgages has fallen…this chart shows that more Canadians own their homes without mortgages… and that’s great news.. it means more Canadians are paying their mortgage debt down…

3-Size of Average Mortgage on the rise… this chart shows that while more Canadian own their homes without mortgages, the mortgage size has increased and this should be monitored and reviewed…

4-Hosing Affordability…. saving my favorite for last… I’m a big believer in tailoring the mortgage around your affordability.. and this chart shows us that on average, we have a lot of capacity when it comes to absorbing interest rate hikes… this is a chart that should make all Canadians feel good..