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 😎 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! 😮 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 🙂 People told me to wait for the bubble to pop when I was looking to buy a condo back in 2009. Fiddlesticks! If I had listened to them my net worth would not be even close to $187,000 today 😛
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. 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.
Personally my variable mortgage rate is just Prime minus 0.4% 😀 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 🙂 #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 ❗
How can we profit from this trend? Invest in Magna International 😀 (MG on the TSX) They are a Canadian based multinational, diversified, automotive supplier providing manufacturing, assembly, and engineering services. 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.