I'm getting right to the point here...a quick snap shot of things to consider for the next six months if you're interested in real estate...
A prime rate that’s “back-to-normal”
The prime rate has been artificially low throughout the recession. The Bank of Canada has kept their policy rate low to help stimulate activity in the economy. When interest rates are low, money is cheap to borrow, and consumers and industry spend. Now that things are getting back to normal, the Bank of Canada will move its policy rate. The increases in the rate will begin in mid-summer and continue. The forecast for the prime rate is an increase of 2% over the next year to year and a half. This adjustment is a reaction to the continued improvement in the economic outlook.
Fixed rates are moving up, buy why not variable rates?
Fixed-rate mortgages are based on the bond market which forecasts the outlook for future inflation. Because of the predicted improvement in the economy, inflation is expected to kick-in. The recent increases in fixed rates are a predictable move given that the Bank of Canada key policy rate will move up in mid-summer. The increase in rates does not mean that inflation will be a problem, but that we are moving out of the recession and into a marketplace where growth is slow and steady.
Smart real estate investing – it may not be smart
Over the past two years many have lost money in their traditional financial investments. With the strength in the real estate market, we’ve seen a strong movement to buy rental properties. Why have prices been so high in real estate investment properties? It’s because interest rates are so low. Low rates give rise to low mortgage payments, which in return justify higher prices in investment properties. Recent changes in the lending guidelines for real estate investing, such as a 20% down payment requirement, will help eliminate investors who may not have enough capital to cover changes to future interest rates. In my own investing, I normally watch what the mass market is doing and do the opposite. A herd mentality in any type of investment leads to unprofitability. It's always a good time to invest in real estate by keeping the fundamental of positive cash flow the goal.
Private mortgage investments
If your financial investments have suffered in the last two years and you are looking for a more conservative investment with a good rate of return, I believe private mortgage investing is an option worth exploring. As mortgage-lending guidelines have tightened, there are still borrowers who are willing to pay a higher interest rate, in order to consolidate debt or purchase a home. Private mortgages can balance the need for borrowers and real estate investors. The higher the risk, the higher the rate-of-return for investors. When considering if a private mortgage is a good investment ensure you work with a reputable mortgage broker who has experience in this area and can advise you on both the benefits and the risks of each private mortgage investment.
