1. Rates are the lowest that they have been for 70 years.With the Bank of Canada's decision to lower Prime a quarter per cent from 2.50% to 2.25% and its commitment to not change rates for another year, Canadians are expected to continue to take advantage of a record-low prime rates, which are 2.25% at most financial institutions. 3.80% for a 5 year fixed or 3.00% variable(Prime +.75%) are the lowest rates have been since WWII. Rates are this low due to the housing problems started in the USA. Canada followed the American lead lowering rates step for step and now is the best time to take advantage of the situation. In fact, most people with mortgages at 5% or more, who are in year 3, 4 or 5 of a 5 year term, should be better off with renegotiating their mortgage rates.
2.Prices are the lowest that they have been for 3 years .The recent price declines have seen condos that were selling at $260,000 in 2007 now selling for $199,000. The average home price in July, 2007 was $473,000 and is now $403,000 - $70,000 less. These are considered short term price reductions due to the overbuilding in the last boom produced.
Fourth quarter 2008 research by RBC, which measured the proportion of pre-tax household income needed to own a home, found that affordability improved across Canada up to 3.5%. This is due in part to rising family income, as well as lower lending rates. For example, the Bank of Canada has further reduced the overnight rate to 0.25%, from 4.5% in about a year
3 & 4. Interest rates & home prices are expected to increase due to inflation. The US has stated that they are ready to print up to $5 trillion in new funds to support their stimulus spending package, bailouts of the banks, fighting 2 wars and continue to pay their debts, including Medicaid and Medicare, which are $2 trillion underfunded today.
Printing the extra money to pay for it all (the largest increase in national debt since WWII) will increase the money supply by 40% - 50%. That means for every $5 in people's pockets there will be an extra $2. That extra $2 causes more money to chase the same amount of goods when the recession is over and people start to spend again. Prices then increase
because the supply of goods has remained the same, but demand for those goods has increased and those extra dollars in people's wallets cause the price to be bid up.
Real Estate is a built-in hedge against inflationThe best way to slow inflation is to raise interest rates so interest rates are expected to go up quickly when the recession is seen to be over by the governments. Raising inflation means that your house will also be going up at the same rate as inflation rises.
Let's say you put down 5% on a house for $400,000. If inflation then goes up to 10% in one year then your house should go up at the same rate, or 10%. Your house is now worth $440,000 and all the other homes would have gone up the same amount as well. Your $20,000 down payment has now made $40,000. This is called leverage and is a great way for most people stay "even with inflation." If you decided to keep that $20,000 as cash, it would now really be worth only $18,000 after inflation is taken into account ($20,000 - 10%= $18,000).
5. Buying can cost less than renting because rent is "sticky". Wages and rents are ‘sticky.' They go up fast but come down slowly as no one wants their wages or rental income to be reduced. A rental house recently purchased with 15% down for $400,000 at 6.5% interest would need to have a rent of about $1500 a month to break even. Most investors would not want to take a loss and would set the rent the same as the mortgage payment. Average rents would then tend to even out at the same $1500 a month.
Cheaper to buy then rent Because house prices are already down 15% - 20% and mortgage interest rates are less than 4% for a 5 year term, that same $400,000 house can now be purchased for $320,000 with 5% down and payments will now be about $1,340 a month plus property tax of $125 = $1,465 a month. It is now cheaper to buy than rent! Generally, the gap between renting and buying is close to the smallest it has ever been for the last 4 years. Rents are expected to stay the same or increase with the expected inflation. If they increase the same stickiness will keep them where they are even when inflation subsides. This makes buying an even better bet as you are paying your own mortgage, not someone else's.
6. Alberta & Canada Economies Are Still Strong.
- Canada is predicted by the International Monetary Fund - IMF - to be one of the first G20 countries
to emerge from the world wide down turn. Our energy and natural resources are the raw materials used for the world's production and demand for them will kick start our economy first.
- Since October 2008, Canadian job quality has basically held steady according to CIBC's Employment Quality Index (EQI). The bank's EQI ranks job quality by assessing a number of factors including the distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment in more than 100 industry groups.
"The relative stability of our employment quality index suggests that when the labour market turns a corner, job gains will translate into income gains much more quickly than they have in the past, as the base of the existing labour pool is of a higher quality when compared to previous recessions."