Interest Rates.
by Joe Samson, Calgary Realtor
WOW, what an incredible year we had, real estate prices have increased by 36.4% since last November, interest rates are on route to drop next year, and Alberta’s economy is humming away at an unprecedented rate and no end in sight for a real estate turnaround.
In my last newsletter I had provided a few fundamental points explaining some of the major influential factors that affect the real estate market and why there isn’t going to be a bubble in Alberta. This month I would like to share with you what is happening with interest rates and the driving factors behind it.
First things, first. Let’s take a look at why Bank of Canada needs to control the cost of borrowing or interest rates. In a well balanced economy a healthy economy’s growth is 3% per year otherwise known as the speed limit of the economy. If the economy is churning too fast than people will earn more and proportionally spend more as well. An unfortunate side effect of this situation is that the demand for certain products increases and causes greed among suppliers therefore prices will rise or inflation will occur. To keep inflation under control Bank of Canada adjusts its lending rates to keep the economy’s “speed limit” where it should be. In a circumstance where the economy tends to be underperforming (below 3% GDP) Bank of Canada will decrease the posted lending rate to stimulate spending and investing which will generate a higher demand for certain products and services therefore creating employment opportunities which will ultimately cause people to earn and spend more money and causing the economy to “speed up” again. When the economy is performing above the normal “speed limit” than the exact opposite is expected to happen to interest rates. Rates go up, people will earn and spend less, unfortunately some companies will have to lay people off due to lower demand for their products or services and the economy will eventually slow down until the interest rates are adjusted downwards again.
All right, but where in the world are we today and where are we heading to? One of the major misbelieves that I would like to iron out is that Canada isn’t as US dependant as many might think. Today the US is only responsible for 15% of the world’s combined economy where China and India makes up almost 50% of the total global GDP. In a nutshell it means that it’s extremely important to look at a global picture than just what is happening in our neighbour’s backyard.
For simplicity, let’s use oil as an example to prove my point and I think we all agree that it plays a very important factor in our local economy.
Not that long ago George W. Bush has admitted that the US is addicted to oil (by the way of which we have lots of) and they need to outsource more reliable exporters other than the Middle East and South America. As I had mentioned before, and have the world’s fastest growing economy with the highest amount of growing middleclass citizens. alone has 25 million people moving into the major cities each year that needs to purchase a vehicle, house, build factories etc. All this comes with a higher desire of consuming more commodities such as oil.
Not that long ago George W. Bush has admitted that the US is addicted to oil (by the way of which we have lots of) and they need to outsource more reliable exporters other than the Middle East and South America. As I had mentioned before, and have the world’s fastest growing economy with the highest amount of growing middleclass citizens. alone has 25 million people moving into the major cities each year that needs to purchase a vehicle, house, build factories etc. All this comes with a higher desire of consuming more commodities such as oil.
Absolutely nothing as far as Quebec and Ontario is concerned. Alberta is doing exceptionally well with a 6.9% GDP (remember 3% is normal) where in the East, they are toying with a recession if interest rates would go up. Quebec and Ontario is heavily manufacture oriented to the US market, however the US is slowing down therefore ordering less products from Canada due to lower demand and secondly due to a more expensive Canadian dollar.
This is a very unique dilemma to the decision makers at the Bank of Canada because they have to control the economy of Canada equally with the same principal which is adjusting interest rates. If they would decide the faith of the interest rates based on the Western economy it would be guaranteed to go up for the reasons I had discussed before. However if int
As a conclusion it only makes sense to make the decision (lower interest rates) that will create the best possible results to the most economically sensitive region within Canada
One might wonder about how Albertans are going to be able to afford to survive with prices escalating so fast? The fact is that Albertan households are in the best shape among the rest of the country. The average Albertan household has $250,000 of net assets compared to rest of Canada ’s which is $200,000. Most workers in Alberta had enjoyed a 6.3% increase in their disposable income where the rest of the country only saw a 3.9% raise. A general prerequisite for real estate prices to increase is that people need to earn more money before they can spend it on housing, this is known as the Housing Affordability Index. As obvious as it may sound this indicator plays a very important role of the prices of real estate. In Calgary the average family spends 37% of their pre-tax household income on housing vs. someone in Vancouver who spends 72% of their pre-tax earnings on housing.
The bottom line is that there is no need to worry about the housing bubble or prices not having any room to grow, or cost of living becoming too expensive because as strange as it sounds Calgary is still one of the most affordable Cities to live in and it sounds like it’s going to be even more attractive once interest rates begin to fall.
by www.JoeSamson.com
Joe Samson is an Alberta based real estate professional and licensed member of the Real Estate Council of Alberta - Proudly representing MaxWell Canyon Creek Realty. Joe began building his personal real estate career in 2000 and hasn\'t looked back since. Using unique real estate strategies he managed to help countless clients of his to become on route to be financially independent and happy home owners. At that time, Joe worked as a Project Manager for a major International gas compression manufacturer. After regular business hours Joe managed to dedicate a large amount of his time to his passion - Real Estate. Joe spent countless hours educating himself of \"how to buy, where to buy and what to buy\" while minimizing risks and maximizing returns. Then he took that knowledge and began working with clients who were interested in purchasing revenue-producing real estate using his own unique strategies. Over the years, Joe has dramatically increased his personal net worth, along with that of many of his clients. And now, with his real estate knowledge and experience backing him, Joe has left his safe/secure job to dedicate his time to growing his Real Estate experience and helping others become financially independent by sharing with them his \"real life\" Real Estate strategies. The foundation of his business really is \"You Can Have Anything In Your Life... Just Help Enough Other People Get What They Want.\" And due to this commitment, virtually all of Joe\'s business comes from repeat or referral clients. To better support his clients, Joe constantly shares his knowledge with others to assist and guide them in their Real Estate & Wealth Creation. Joe Samson\'s background, experience, energy, ability and honest hard work will be key factors in building your wealth, investment confidence and eventually your financial independence! Joe is adamant about always putting his client\'s interests first and realizes that the level of service offered to clients dictates the level of success you will attain. \"don\'t worry about making the sale - concentrate on providing great service and in giving helpful advice the business will follow\" , says Joe. A motto he has lived by since the day he began his real estate career. Joe incorporates the services of a trusted team to enable him to bring a whole new level of service to his clients and offer attention to detail in all aspects of the real estate transaction. Trust and Integrity Joe\'s success comes from taking the time his clients need to make the right choice. Joe is there every step of the way, providing top-notch professional service while at the same time helping to make it an enjoyable experience. Joe gratefully acknowledges the super support he has received from his past clients who have recommended him to their family and friends. The trust and confidence they placed in him when they purchased or sold their home is reflected through these recommendations. Integrity is everything to Joe. He does not hesitate telling his clients the pros as well as the cons to every home buying or selling opportunity. Call Joe today at 403-278-8899 or at www.JoeSamson.com . When the world is moving at speeds too fast to comprehend, it\'s important to keep pace with the competition or risk being left behind. If you plan on buying or selling Calgary real estate, let Joe Samson use his unique real estate systems to maximize your opportunities. He uses all the technological advancements to provide his home sellers and buyers with an extra edge in a competitive market. He makes a point of always staying connected with their clients so that timely decisions can be made effectively. While Joe may lead the way in high-tech conveniences, he still understands that nothing can replace good old-fashioned personal service, hard work and dedication. Buying Calgary Real Estate? Joe will provide you with useful real estate information about the buying process, making an offer, negotiating, financing, mortgage rates, moving, and everything involved in making an informed real estate decision in today\'s Calgary real estate market including school information, amenities and communities. He showcases all the current Calgary MLS listings online from the Calgary Real Estate Board MLS database. These real estate listings are of new and resale Calgary homes, town homes, condos and land with maps, satellite maps, photos and some with floor plans! He offers free relocation services and in-house mortgage brokers to make sure you get the lowest interest rates in town. FREE automatic Calgary Real Estate updates on a daily basis so that as new homes for sale come on the market you are immediately notified by email! \"
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