Added Dec 3, 2011
- Rising interest rates increase bank profits
Added Nov, 17, 2010
- Rising bond rates increase interest rates.
A friend told me that house prices will go down when the interest rate goes up. This sounds a lot like the stock market.
If the above holds true, when should one buy a house?
Based on the records, 1981 was the year with the highest rate of interest at 21%. Therefore, was that the best time to buy a house? After all, when the interest rate drops to historic lows, the house prices seem to increase at a faster rate than normal. Therefore, now is a bad time to buy a house since the interest rate is low.
- Lower interest rate = higher house price
- Higher interest rate = lower house price
Based on this logic, the best time to buy a house is when the interest rate is at its peak. Although this may sound ridiculous, it makes sense. People rush in to buy a house when the interest rate is low, and the monthly payments are manageable, but hold back when the interest rate is high, and the payments are mostly going towards paying the interest accrued.
Purchasing a home is a huge investment. Something that requires a lot of thought. Unfortunately, when it comes to a home, people seem to rush in when the interest rate is at historic lows seeing a bargain. When the time comes to renew the mortgage, the house may not be such a bargain anymore.
Interest rates in Canada from 1932 to present. http://www.bankofcanada.ca/rates/interest-rates/selected-historical-interest-rates/ or interestRateCanada.
Intestest rates from CIBC in Canada can be seen at http://www.fin.gov.bc.ca/PT/bcm/ref/cibcHistoricalPrime.pdf or cibcHistoricalPrime
Document that talks about the housing market. http://www.docstoc.com/docs/18277698/CANADIAN-AVERAGE-RESALE-HOME-PRICES
Interest rates tied to bond market. http://www.theglobeandmail.com/report-on-business/economy/interest-rates/royal-bank-cuts-mortgage-rates/article1942844/
Greater Vancouver house prices over the years. One will see that there is a huge spike that started about the year 2001. http://activerain.com/blogsview/1400469/greater-vancouver-housing-market-for-2010
Canada’s housing market remains hot in tough times due from foreign investment at http://www.theglobeandmail.com/report-on-business/economy/housing/foreign-buyers-buoy-vancouver-housing/article1997038/
Interest rates tied to bank profit margins at http://www.theglobeandmail.com/globe-investor/td-bank-cibc-brace-for-tough-2012/article2256198/
It is odd that the US property values has not increased in value since their Canadian counterparts have. Although, it could be that the US properties that are in demand by foreigners are in specific states. For example, The real estate market in the states touching Canada’s border are most likely doing well since they are easily accessible to Canadians living near the border. For example, Washington’s real estate prices may have dropped, but the drop is most likely less than other parts of the US. It will most likely be one of the first states to recover from the downturn.
Another variable to throw into the equation above is the land. There is a finite amount of land available in Canada. There is land reserved for business, residential, parks, first nations, government, etc. Therefore, what exactly happens when there is no more land to build on?
My guess is that 2 family houses will be torn down and turned into 4 or more. Cottages will be built in backyards. Do a search for ecodensity for more information. Bylaws will change to adapt to an ever increasing population.
For those wondering what will Canada will look like in the future? Look at Tokyo, Japan, and one will see what Canada may look like in the future.