What do you think about interest rates? That is my most asked question. In general, I will relay my thoughts for our short term future. For the next year I do not see any significant changes in the interest rates. For consumers in low variable rate mortgage products this will come as a relief. I really believe rates will remain where they are.
When I was young, everybody focussed primarily on the Canadian economy. It was a lot easier to predict changes. Today, the global economy could affect not only the Canadian economy but the local Hamilton market as well. As an example, there is a glut of oil which caused the price to be cut in half. Oil companies are cutting back on their budgets of drilling and pipes. Now Hamilton Ontario is affected since the cutback with steel pipes is in less demand. As well, cheap steel is coming from other countries which lower the price of that commodity as well. So far employment has not been affected but it is something we are concerned at Robert Floris’ Hamilton office.
As the Bank of Canada remains low with the overnight lending rate, borrowers continue to borrow at record levels. This is why Canada and the Hamilton area continue to sell homes well (exception Alberta). Canada’s consumers represent approx. 60% to 70% of economic activity for our total economy. Can you imagine a healthy rise in rates; consumers would stop buying cars or consumer product.
Imagine the mortgage rates going from 2.8% for a 5 year fixed to a rate of 3.50% for 5 years fixed. It does not sound like much but that is a 20% increase. This would greatly affect Canadians. Yes, they would pay their mortgages but it would affect other areas of the economy. It is estimated that over 30% of Canadians have variable rate mortgages. They would certainly feel the cash crunch. Even Canadian banks and lenders have gotten in the act of cutting mortgage rates. As many consumers have hit the wall with the total debt they can borrow, we are getting a shrinking pool of qualified buyers.
I would not want the job of the Bank of Canada. When it is time to lift rates, they must do it very slowly and carefully as to not shake the Canadian economy to hard. Consumers are in their golden years. It will never get better then this during their lifetime. I truly hope Canadians take advantage of this. I hope Hamiltonians buy modest homes and enjoy a good life. Rates will be low for a long while. This is an opportunity of a lifetime.
Robert Floris is an independent mortgage broker with Mortgage Architects In Hamilton Ontario