“I have been following your site from over here in the UK for almost a year now. Both my girlfriend (who is Canadian) & I have decided to move back and settle in Vancouver. It’s been a very tricky decision as we will both be leaving secure jobs and I personally believe that Vancouver will be spending the next 3-5 years recovering from the most incredible 10 year credit binge. We have put this move off for years due to the insanity that is Vancouver real estate … however, nesting instinct is taking over and we certainly aren’t getting any younger! Needless to say, we won’t be taking out an $850k mortgage for what look like new 1:1 scale model houses and will settle as mere 2nd class citizen renters to begin with.
Anyway, the real reason for this email… I see there is real potential that the BoC will lower interest rates. As you may know, the base rate over here in the UK is dictated by the Bank of England and has been kept at an historical low since ’09 (0.5%). However, base rates don’t necessarily correlate with that what is paid by the home-owner … the latest over here is that LIBOR has increased and home-owners are going to get stitched (perhaps even those on capped rates!).
[See ''Mortgage timebomb': RBS and NatWest make first move with rate hike for 200,000 customers - Halifax could be next', MailOnline, 2 Mar 2012]
If Canada were to join the sub 1% club, what is the likelihood that the national banks would pass this lower rate on?… will homeowners get the better deal or will it the banks use this as an opportunity to raise capital against an increasingly dodgy looking uninsured (non-CMHC) lending book? As sentiments change and exposure to risk increases, banks could very well end up closing their doors to other banks. Record low base rates would only offer some protection to the homeowner at this point.
Also, if the amortisation period is being lowered along with interest rates, central policy could very well be to help stem the influx of fresh meat into the housing market whilst protecting the financially feckless… but for how long could this façade be played out for?
Not sure if my assumptions are relevant over in Canada, but I hope it at least offers an alternative perspective on the subject of rates and the consequences that are already playing out over here in the UK…”
- from ‘FotheringtonSmythe’, via e-mail to VREAA, 4 Mar 2012
This is an anecdote that supports one aspect of the bull argument – that people will keep coming to Vancouver despite very high RE prices.
As for the question about rates, perhaps readers can add their thoughts.
We personally believe that the market is so overextended that, at some point, it will implode regardless of how low rates go. – vreaa