Mortgage forecast 2015

Potential rising interest rates in new year to coincide with growing economy

nolanThe once seemingly clear crystal ball that existed prior to the surge of Calgary housing prices in 2006 turned hazy during the global financial crisis that began in 2008 – and has  remained hazy ever since.

There have been moments since 2008 when predicting the future of interest rates seemed clear, however, other than the obvious that rates will eventually go up, predicting the timing has been elusive. Even the Bank of Canada itself has stopped providing forward-looking statements.

Who would have thought five years ago, when it was assumed rates would rise immediately and sharply as they did in the 80’s, it would turn out to be one of the longest periods of low interest rates in Canadian history.
In fact, economists have done only one thing consistently since 2008, and that is prove they are more effective in terms of hindsight than they are foresight.

Thus, our prediction for 2015 is economists will change their predictions – constantly.

Interest rate forecasts will be modified regularly throughout 2015 as it becomes increasingly clear the market is full of surprises, and predicting when rates will go up will become persistently more difficult.

When rates do go up will depend entirely on how good things are in the economy. The better things get, the more likely interest rates will be to rise.

Rising rates however, will likely coincide with a growing economy, and subsequently rising incomes, which means the higher cost of borrowing caused by increasing rates will be manageable.

Therefore, the impact of higher rates will not be on the ability of borrowers to pay their mortgages, but on the real estate market itself which will flatten out for the long term, deviating from the rapid fluctuations we have seen in the last eight years.

Housing prices will grow at a more moderate pace similar to the 15 years prior to 2006, which will equate to stability in the market and more confidence among homebuyers.

Stability, combined with the inevitable inflation that will lead to higher interest rates, will make houses bought in today’s dollars a deal, if not a steal, long-term. Think about it this way, if you could go back and buy a house 25 years ago knowing what it was worth today, would you have? Yes, you probably would have bought 10!

In 25 years we will look back on 2015 and reminisce about how cheap real estate was and kick ourselves for not buying more, which is why Mortgage360 is launching Cash Flow Club this month.

With rising rental rates, returning stability, and low interest rates, it is the perfect storm of investment opportunity. An opportunity to purchase property that will pay for itself over the long run and set up investors for a lifetime of prosperity.

Even if those with a negative outlook on the real estate market are correct and we see a decline in home values in 2015 due to the drop in oil prices, short-term volatility is an advantage to the real estate investor who is purchasing with the future in mind.

For more information, or to apply for the Mortgage360 Cash Flow Club, go to mortgage360.ca/cash-flow.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

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