Quote:
Originally Posted by Mr.HappySilp
wonder what happens if mortgage rate were up to the rates back in the early 1990s (over 10% I think). That would surely crash the market LOL.
And yes those rate are very real back in 1990s.
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It's all simple economics, rates will go up to the per crash rates of 5-6%, affordability will, thus, go down, prices will compensate accordingly, at this time I will likely buy with a 30% downpayment, perhaps more (depends on returns on a diversified investment portfolio at this time, should be 8-10%)
Now, people think, blindly that rates are here to stay - how? Interest rates are a monetary tool to speed up or slow down the economy when need be. If rates are at, effectively 0%, what happens if our economy starts stalling - we NEED rates to normalize so that the next time things f up, rates can be brought back down to allow for easier lending
Now, all of this is overly simplified - but the point remains. The US worked it quite well. Emergency low rates, the economy has turned around GDP per capita is stronger, employment improving, rates are thus increasing (due to fed action), will slow down the growth, but that's necessary as otherwise we'll just bubble again
Unfortunately for Canada, we didn't crash when we should have, due to commodities - the strong dollar has fucked us over - export businesses hurt beyond belief, consumers are loving it, but that's no good for our economy, we're spending money outside of Canada.
What has happened since 2008 in Canada doesn't bode too well for the next 5 years. Sell Canada, buy US is still the right move - not as good as it was 6 months ago (the latter part), I'm just glad the majority of my net worth is in the US and denominated in US $, beyond the increase in asset values in the US, with up coming tapering of QE, the US $ will continue to strengthen, which will continue to hurt commodities above and beyond the china story.
All in all, none of these things bode well for joe public home owner who has entered the market since about 2005, 2006 (let's not forget, house prices in Vancouver and Canada were low up to 2003... What happened then, lending regulators got lax, rates went down, real estate started a stupid rise which has now entirely decoupled from fundamentals (price to income, price to rent) - we WILL return to these fundamentals within the next 5 years, I'd guess nearer 3.
We're fucked, be liquid, earn income from your assets, and never take on 'cheap' money - rates and prices are, generally, inversely related (there are studies that disclaim this, but they're weak and have too many things over simplified to make the point)