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Ali Khalil – Calgary’s New Home
Interest Rates Will Go Up Quicker Than You Think
I just attended the Calgary Regional Home Builder’s Economic Forecast Dinner at the Coast Plaza this week. It was an event for networking, connecting with old colleagues, and hearing what economists have to say about our future here in Calgary, Canada, and the Western World in general. There was a lot of information, some of it good and some of it a little scary depending on your situation. Here are some highlights of the presentation:
The rates are historically low and the minute the government whiffs that the economy is recovering they’ll start to raise the rates fast! That affects your purchasing power just as much as the price, which is expected to rise another 5% this year. On a $400K house, that’s $20K. On a mortgage, that’s close to $100 a month. Imagine paying $20K more something that was cheaper for no other reason than because you decided to wait. Expect rates to start climbing after July.
If you don’t want to wait to see prices rise, than ask around the industry what’s happening. It’s not like the builders had that much room to drop prices since their suppliers didn’t drop them all that much. Now that they’re inventory is low guess what they’re doing. You guessed it, raise prices. If you have 20 lots to sell over the next 12 months and know that’s all you’re going to get what do you do? You ration them out and wait. That’s what builders do. This way, if they can get an extra $2000 a lot per month and sell 2 lots a month. That’s an extra $4000 a month more for the same lot than before, resulting in an extra $40K over 10 months. That’s like selling a whole extra house! This is a small sample of how they make money. No crooked tactics here, they’re just following the market. They have patience where most people don’t. On top of that, they’re all primed for $10,000 - $20,000 increases on housing prices. I mentioned this before and I’ve spoken with a number of them and this is what they’re planning, especially if land is limited, which it is. The result is in about six months the average new home price will cost about $30,000 more than it does right now. That’s why they’re selling like crazy right now and burning through inventory very quickly. Another reason the builders are doing well is because the MLS inventory is surprisingly low right now at only 3,702 listings as of this printing. That’s not a lot for a city of 1 million people. Only 2382 of those are houses.
The interest rates are expected to take a sharp turn upwards from July of this year onwards to next spring. 2 % is pretty significant. The expectation is at that point there will be more people working and more money to go around and that leaving the rates low will cause runaway inflation, especially in housing prices.
Canadians got real conservative with their cash in the last while. So much so that Canadians held over $1 trillion in their accounts last year. That’s 70% of all consumers spending. This means that the will to buy and spend evaporated almost overnight. I don’t believe Canadians desire to spend and purchase went away. I believe that they all got scared to do so and as a result, are now waiting for a good time to do so. Once that time arrives, the spending will resume. I can tell you it has started in the real estate market and that’s usually one of the leading indicators for economists.
Here it is in a nutshell. Prices are going up, interest rates are going up faster than you think, and more people will have jobs too look forward to. If you were waiting for a good time to buy a house I’m going to tell you what I told all my buyers in the last two years, you missed the boat on the ideal time to buy because the prices have risen. If you want to know when and what’s the best opportunity to buy real estate, I’ll tell you right now! If you wait, you will pay a premium. The desperate sellers are few and far between and usually have bidding wars requiring you to take a risk to make the deal. I’d say get something now while the going is good. You’ll be surprised what a difference six months will make.
Ali Khalil – Calgary’s New Home Specialist