Our Governments have good intentions when they are trying to let us believe that they will not raise interest rates soon, but they are not in full control!
Peter Lynch once famously said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves."
I would like to borrow his wisdom and apply it to the current real estate market in Canmore. #Canmore is unique because it offers its beautiful #lifestyle within the proximity of Calgary, and COVID has sped the pace of appreciation of the housing market. With incredibly low inventory comes the buyer's frustration as they are trying to make a purchase the way they used to in the past, for at least 10 years. They are waiting for “the dip” to enter.
If you are hesitant to make the purchase in a less than graceful way, you are not alone. In the market experiencing multiple offers, with properties selling in days rather than weeks or months, and selling at a full price most of the time you might feel uneasy, ridiculed or even outright humiliated.
Therefore you are susceptible to fall into our government's siren song telling you that #INFLATION is low and that #INTEREST RATES will stay low for a long time. Governments are trying to achieve the noble goal of low-interest rates to justify their growing debt. The problem is, they are not in full control, they are at the mercy of #BONDS. They know it and therefore they are leaving their back door open. Last week, when US Secretary of Treasury Janet Yellen was asked if she is not worried about inflation she responded that she knows that it is a risk, but added that Fed could always mitigate that risk by raising interest rates!;-)
It's not just the Bank of Canada you need to watch, it's bond markets.
This is a subtitle from a very good article addressing this issue, written by Pamela Heaven in Calgary Herald:
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The Bank of Canada is expected to keep its rate at 0.25% until 2023, but that’s not the only thing influencing mortgage rates.
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“Mortgage rates will depend not only on banks’ funding costs but also lending spreads, which have narrowed in the past year,” says Capital Economics’ Stephen Brown.
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The market appears to agree. Strategists say a recent rise in Canadian long-term bond yields is signaling the economy needs less support than it did in 2020, as investors become confident about the vaccine rollout, Reuters reports.
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Canada’s 10-year yield has climbed nearly 50 basis points this year to 1.15%, an 11-month high.
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Capital predicts the 10-year bond yield will rise to 1.5% this year and 1.75% in 2022, and with them mortgage rates. “Our yield forecasts imply the five-year fixed mortgage rate will rise from 1.8% to 2.3% if the spread were unchanged, or to 2.8% if the spread returned to the pre-pandemic norm,” Brown said.
To paraphrase Peter Lynch: In the long run, waiting for the dip or balance market might cost you a lot in mortgage interest payments, even if the prices of properties stay where they are now. And prices are moving up with inflation. I have a few clients who are waiting since the middle of summer 2020 for a dip, for a balanced market or stock market crash and so far they lost about $50k on $650,000 properties.
Psychology might also play the role, trust me, I feel it myself. We come from multiple cultures in which to pay full price is considered either silly or even dumb. Where negotiation is a big part of life and its tradition deeply engrained in our brains.
Try to step back, look at the facts and accept the reality. The Canmore Lifestyle is worth it!
