Living in Hamilton Ontario and being an independent mortgage planner (Mortgage Architects) means I am in my car quite a bit. I cannot say I’m not happy. Can you believe I filled up for 94 cents a litre, I felt good. I was saving twenty dollars per fill up. I started to think is this a good thing? (I know, I should get a life). Well, my thoughts turned to who will benefit and who will not. It is easy to think who will benefit from these low prices. Consumers will benefit with cheaper oil prices as they will have extra money to pay down debt. Manufacturing costs will certainly come down with these prices. Airline and trucking companies will benefit with lower costs which translates into higher profits. As Western Canadian oil has come down, so has our Canadian dollar. Canadians will now be tempted to stay on our own soil for vacations.
The interesting question about the lower price of oil is what is really going on? From a domestic point of view, Alberta and Saskatchewan will definitely not be celebrating. Most of the revenues for these provincial governments come from the oil patch. According to the Alberta government every $1.00 drop in oil prices produces a corresponding $215 million reduction in provincial revenue over a 12 month period. Again, so what?
Well we live in Hamilton, yes but if Alberta does not boom they cut back. That means less capital projects and therefore less steel. Don’t believe me? Check the stock of Russell Metals. This could affect us all, even in Hamilton. Look for steep cuts in government services such as health care and infrastructure in Alberta.
I am not a doom and gloomer but this will have an effect on real estate. Look and monitor Calgary. If prices of oil remain low look for lower to collapsing prices.
We must remember we have not had a recession in 6 years. To be honest, this is what oil prices are telling me, world growth is slowing. This will affect us all. The nice thing for mortgage consumers is that rates should remain low.
We are a little different at Robert Floris, Mortgage Architects. We want our clients to have good relationships, pay down debt and have a good life. Mortgages are cheap so please pay yourself first and avoid financial mistakes.