Variable Rates are still the flavour of the day
Merrill Lynch has gone boldly out today and predicted that the Bank of Canada could drop short term interest rates down by as much as 1.75% this year. If that were to happen we would see the prime rate drop to 4.25%.
Now, will it happen? This is largely based on what many economists are saying is an inevitable recession in the US to come in the first half of the year. IF that comes or for that matter even if it is close this will no doubt bring slowdowns to Canada.
I can tell you this. I believe there is a slow down if anything to be felt in Canada, likely not an official recession (2 quarters in a row of negative growth) but definitely slower.
There is another side to this. IF, or maybe we should be saying when, the bank of Canada does drastically reduce short term rates, this will likely weaken the Canadian Dollar, which will be good news to many businesses especially in Ontario.
January 15th, 2008 at 2:19 pm
If interest rates fall this coming year how would that effect real estate prices in a market like calgary that has recently experienced a period durastic increased inflation? Will calgary see another housing boom?
How will lower interest rates effect the current credit crunch?
Thank you,
Joe
March 11th, 2008 at 10:02 am
Sorry it took so long for me to respond, I am just learning about blogging and did not even know there was a comment.
To answer your question, my opinion is that falling interest rates will largely have little effect on Real estate prices.
Real estate prices are mainly a function of supply/demand and other market factors such as interest rates have minimal effect other then to say that it helps boost demand, which in Calgary would be real nice.
Our primary concern in Calgary is this year we currently have double the amount of listings, and 40% less sales year over year. Adding to this we currently have an absorption rate of around 5 months. The absorption rate over 3.5 months means 100% of the time in the past house prices will drop. Calgary real estate board suggests that a normal absorption rate is 2.0 to 3.5.
Bottom line, we need more sales.