It’s tough to look back when starting a new year, but to figure out where the interest rates are headed one must have a look back through the years to try and forecast the future.
As you are all aware we are in a time that isn’t as economically cyclical as usual. Ever since the all too mentioned ‘credit crisis’ of September 2008, the global markets have been all over the map, and the media has been having a heyday with it. “We’re in a recession, we’re out of a recession, there wasn’t a recession, it’s going to be a depression and what does Europe have to do with us here?” Blah Blah Blah!
It is tiresome to hear over and over and over again, but they do need something to fill the air with, even if it is just filled with heat.
Anyway, where was I? Oh yeah mortgage interest rates. There’s really three topics rolled into one here, firstly the global economy (mainly U.S. and Europe), the Canadian economy and the Alberta economy as we must remember the health of the economies dictate interest rates.
With Europe’s debt problems, mainly in Portugal, Italy, Greece and Spain still causing issues for their stronger economies, France and Germany have some very difficult decisions to make as they are the ones that are going to be bailing them out. With Greece’s economy on the brink of collapsing, they are threatening the value of the Euro and ultimately its debt holders, which includes many banks, lenders and governments around the world. Some say it’s time to let them plunder and others (mainly those holding its debt) say we must keep them afloat for fear of plunging the globe into another recession.
The U.S. still has the same issues it has had for the past few years, plunging home values, high unemployment and political posturing that will likely keep major decisions detained until the next government is elected. Even though they are technically out of a recession, if you ask the average American they’ll tell you they are years away from playing catch up from the years of lost savings because of low income employment. They are still the largest economy on the planet and are creating employment gains here and there, and surprisingly their retail figures are stronger than expected, so watch for some gains here, but I think the larger gains will all depend on how the election is played out.
Realistically, the Canadian economy is one of the top performing economies around the world these days, even though we were touted as too conservative financially in the early part of the past decade here we are proving ourselves right. Canada’s employers are creating jobs and that’s priority number one for the Harper government. For about the past 24 months, the Canadian economy has been holding its own and looks to be going that way for the next few years.
And now we land in Alberta, where you, my audience are either in the market for a home or currently own one. We are the luckiest of the bunch. We’ve got an energy hungry planet, and we’ve got lots of it. Employment gains in Alberta once again outpace the rest of the country, our economy is growing and it’s seemingly rosy for us right now. With all this great news for Alberta, we are in one of the most positive economies to be buying or owning a home. We are in what I think is a transition from a buyer’s market to a balanced market whereas we’ll start to see some higher home value gains coming for the next 12 months and beyond. This is where you smile; you live in a growing economy where home values will likely stay flat and likely increase a little bit and carrying costs as low as they’ve ever been. Consider yourself one of the few on the planet that doesn’t have to force a smile.
Throughout the next year we’ll see interest rates bounce around the bottom, (where we are currently at, and I’m going to use the five-year fixed mortgage rate, 3.25%, as a comparison product) and maybe creep up to as high as the mid 4% level, but I think it’s going to take some pretty strong news to make that interest rate jump to that level. On the other hand, it won’t take much bad news to keep interest rates floating at the bottom with a life preserver, but again, this isn’t terrible news for an Albertan, low housing costs plus growing economy means opportunity- likely the only thing you have to complain about is finding a parking spot at a mall.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be reached for appointments or more information at 403-343-1125 or emailed to jturcotte@regionalmortgage.ca.
