QE 2 is scheduled to end by mid June and the U.S. economy would then be left to sink or swim on the merits of the recovery that has taken place since the implementation of the first round of quantitative easing that started in 2008. There is much debate and some uncertainty regarding how markets will react to the removal of this stimulative safety net. Whether the inflation, that has caused prices for almost everything from fuel through food (wage rates generally exempted) to rise despite the continued unemployment, will force interest rates higher is a big question. The U.S. federal reserve has traditionally pushed interest rates higher in the course of taming inflation, but with the employment situation as it is and much public pressure to create jobs, many believe interest rates have to remain low for the foreseeable future.
Of particular interest to us, of course, is the real estate market reaction to any changes in U.S. monetary and/or fiscal policy and in turn, will change south of the border, effect our own interest rates and property markets. Once again, I believe there are some uncertainties and room for speculation (figuratively as well as perhaps literally).
Many of the pundits remain cautious on forecasting the direction of U.S. residential real estate prices in the near term. Higher interest rates, if they come to pass, would normally be somewhat stimulative to real estate prices and that would be the preferred result of increasing borrowing costs. No one seems certain that will happen and as mentioned earlier with unemployment remaining high, holding interest rates at their present historic lows could in fact force another leg down in prices in a number of markets.
Canadian residential real estate has weathered the U.S. downturn well and despite no present hard evidence that it will deteriorate in any major fashion, there seems to be no shortage of forecasts that suggest as much uncertainty as in the U.S. market.
In summary, one thing does appear to be certain and that is ,that we are most likely in for a very interesting 2nd half in 2011 and if (a big IF) interest rates do not increase in Canada and the U.S., 2012 is likely to move from the realm of interesting to that of challenging.