Sep 062013
 

Real Estate Sales Strong Despite Higher Mortgage Rates

Yesterday we just saw the yield on the 10 year US treasury climb to 2.99%, a multi-year high, and mortgage rates are starting to creep up. But houses are still being sold with unimpeded fervor in many parts of Canada ๐Ÿ˜Ž The number of homes sold in Vancouver was 52% higher last month than the same period in 2012. 28% higher in Calgary year over year. 10% higher in Edmonton, and 21% higher in Toronto. Holy guacamole! ๐Ÿ˜ฎ This is good news for myself and the other 69% of Canadians who are homeowners because it means there is still lots of transactions and liquidity in the real estate market. How to profit from this trend? Buy a home ๐Ÿ™‚ People told me to wait for the bubble to pop when I was looking to buy a condo back in 2009. Fiddlesticks!ย If I had listened to them my net worth would not be even close to $187,000 today ๐Ÿ˜›ย 

No Hard Landing

I don’t believe we’re going to see a crash or even a sustained correction over 10% in Canada’s housing market on average. The one thing that would put downward pressure on home prices is rising interest rates. We are starting to see that already, but I don’t expect it to increase more over the next 6 to 12 months.ย Almost everyone in Canada who has bought a home between 2009 and today would have to renew their mortgage terms and negotiate a new rate in the upcoming years.ย 13-09-interestrates

Personally my variable mortgage rate is just Prime minus 0.4% ๐Ÿ˜€ Let’s say most people’s mortgages are around 3%. If mortgage rates went up too quickly, to 6% for example, then a $300,000 mortgage would cost people $750 a month more than what they’re paying today. That would mean less personal savings, stronger Canadian dollar, slower economy, increase in delinquencies, and home prices would drop 20% immediately because the cost to finance debt has gone up by 100%.

So I believe interest rates WILL rise over time. But it will happen so slowly that by the time home owners renew their mortgages they will already have paid down a noticeable amount of their principle balance, so that their interest costs will roughly be the same as when they first bought their homes when rates were lower. I don’t think we’ll see the Prime lending rate climb back up to 5% until 2016, maybe even later. Until then, I’m going to enjoy the low interest rate environment and not worry about the $385,000 of debt that I have ๐Ÿ™‚ #Winning

We Love Buying New Cars

Canadian automobile sales in August were up 6.5% from last year, with car sales increasing by 7.2% and light truck sales up 5.9% according to DesRosiers Automotive Consultants. We are now at pre-recession highs โ—

13-09-carsales

How can we profit from this trend? Invest in Magna International ๐Ÿ˜€ (MG on the TSX) They are a Canadian based multinational, diversified, automotive supplier providing manufacturing, assembly, and engineering services.ย I plan to buy 30 or 40 shares in November this year or whenever the stock price corrects by 5%. And then I will simply sit back and make lots of money while other people buy more cars hah! #GettingRichSlowly Below is their stock chart.13-09-magnaint

 

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Blog roundup โ€“ Personal finance and other articles from around the web this week

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14 Comments on "Weekend News and Blog Roundup: Low Interest Rates are Staying"

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momoneymohouses
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Thanks for the link love! ๐Ÿ™‚

Cat Alford (@BudgetBlonde)
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Cat Alford (@BudgetBlonde)

Thank you so much for the link love!! You rock!

GirlCountingPennies (@gcpennies)
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GirlCountingPennies (@gcpennies)

Thanks so much for the mention!

Pauline
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Thank you for the mention have a nice weekend!

theoutliermodel
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Thanks for including us! Always nice if you can grab a stock like that that slowly ramps up – go growth investing!

Canadianbudgetbinder
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I think the rates will go up as well and just another reason why we want to pay the mortgage off now and then start investing the income we have every month. We bought in 2009 so we would be up for renewal next year had we not paid it off (we are in the process). You did great with your net worth by the way and I’m always thrilled with your enthusiasm.. makes me want to start buying stocks… MAGNA here i come lol. Have a good one mate.

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