It has been quite a year, 2015. At Robert Floris’s Mortgage Architects office in Hamilton our thoughts and predictions have been spot on while writing our blog. Some of the areas we will brag about are how oil prices and other commodities will slowly change the landscape of our economy. We were also correct on the lack of affordable housing in the Hamilton area for Hamiltonians. We were incorrect in the prediction of whether the Bank of Canada would lower rates. Hey nobody’s perfect.
Today I will wrap up the end of the year with our economy and how it will affect interest rates. Earlier this year, we believed that the lower oil and commodity prices would affect not only Alberta but spread to the rest of the economy.
Well as of today Alberta has twice as many EI recipients than it did last year. This has spread to other areas of the economy in terms of economic growth. The Bank of Canada has just lowered its forecast for our nation to just 2% from 2.3%.
Here is my biggest concern as our economy is predicated on using debt to grow. Our country has grown in recent years not because we are producing goods, but because we use credit cards and lines of credit to buy things. Remember eventually we have to pay this debt back. As well government borrows money to pay bills, build roads and pay for the future. My fear is all this borrowing will probably come to an end in 2016. Government has lowered interest rates to record levels and it has had a significant effect on house prices. As mortgage rates have declined, consumers can afford higher home prices and thus it has had a major impact on the large elevation of housing prices. It has affected one major section of our population. Our Millennials appear to be effected the hardest.
Consider this; 72% of Millennials having stated that high home prices have led them to delay their decision to start families.
46% cannot even think of buying a home because of their debt load.
Remember that it is the Millennials who are to be our first time home buyers. If they are struggling, what does that mean for our immediate future?
In conclusion the slower economy, the large debts and the already amazing rise in house prices; I do see a slower economy and most likely a recession. Nothing goes up forever. A recession can be a great opportunity to cleanse our economy and get the Millennials ready to begin a new growth cycle. The silver lining is mortgage rates should remain low. Therefore it somewhat favours the variable rates, but with the 5 year fixed rate below 3%, mortgagees will still have amazing choices for purchase, renewals and refinances.