What's up for 2014?

I’ve recently heard one of my favourite economists, Benjamin Tal of CIBC World Markets speak about the outlook for the global economy in 2014. How do world affairs affect the housing market? Global events impact people’s inflation expectations. Inflation has a direct impact on the bond market, which is correlated to fixed-rate mortgages. If rates go up, there is less demand for housing as the monthly carrying costs are higher. 

The overall mortgage rates message is relatively boring for 2014: low stable rates. However Benjamin Tal highlighted some interesting bits that are worth sharing:

•  2013 was a year in transition. There is real and sustainable recovery in the U.S. and the Canadian and the U.S. economy are still tied closely together. So as rates remain stable south of the border, they will also remain stable in Canada.

• There will be fewer first-time home buyers in 2014. Young people in Canada are more educated than ever before, but also less financially sound. Those graduating from college or university have higher student debt and lower income as compared to previous generations. The lift in the housing market for those homes appealing to “first-time buyers” will not be the same in the near future.

• Opportunities for real estate investing rest with properties that appeal to a younger demographic who can’t purchase a home, but want to rent a reasonably nice home or condo.

• The demographic trend for those who are 55 or up is easy to follow; investing in this market is a sound decision.

• Facebook and twitter are not driving forces in the economy and should be considered cautiously when long-term investing. However, technological innovations are a key factor in increasing productivity around the world. The U.S. continues to make great strides in this area, while Canada lags behind.

•  The consumer debt Canadians are acquiring through mortgage debt will continue to be a drag in the Canadian economy.

•  The increase in a bank’s prime rate isn’t forecast to move until the first quarter of 2015. This is significant for those who have variable rate mortgages.

It’s critical for those who work in the real estate industry to understand how the global economy affects the housing market. 

Whether you’re a client of a bank or mortgage brokerage, if you’re interested in reviewing your own home purchase or sale and how it will impact you financially please contact me by phone at 519-763-3900 ext. 1001 or via e-mail at lastovic.s@mortgagecentre.com.

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