Dec, 2018 – News on the News
Dec, 2018 – News on the News
When was the last time you read about “good news”? Recent market head lines are making waves with predictions for a real estate correction, losses in the stock market, and the potential for a looming recession. Doesn’t really sound very cheery does it? The good news is that most of what you are reading about is worst case scenario, and largely based on speculation. There is some merit to the stories though. Yes, I think the real estate market will correct, and yes, I think the economy will be slowing. No, I don’t think either of those are bad things.
Relax, the sky isn’t falling. Most of the losses being projected in the news will not be felt by the average home owner, or long term investor. A dip in home prices is worrisome but only if you recently bought and need to sell. If you’ve owned your home for some time and do need to sell, it’s likely still selling for a very healthy profit. For those in it for the long term, you can rest easy, prices will settle and head north again in due time. Investors will make some changes and navigate the markets to minimize losses and prepare for the next opportunity to present itself. Being prepared and ready to act will be key to taking advantage of this changing market. As outlined below, there are some key takeaways to the narrative.
- Interest rate increases look to be feeling less pressure to continue rising.
- This should help home prices find a softer landing and maintain affordability.
- We should see interest rates and the housing market find a more balanced environment with stability for buyers, sellers, and investors.
If you’ve been following along with me it comes as no surprise the Bank of Canada has suddenly changed their outlook in their recent statement.
Until recently the Bank of Canada had been boasting about the economy and how it was operating at or near capacity, full employment, rising wages and noting increasing inflation numbers which compelled them to raise interest rates and predict rates would continue that trend.
But that straight path has taken a turn, and in December the BoC did not move up, it stepped aside and had a change of tone.
Trade wars, tariffs, falling oil prices, and general uncertainty in the markets has led to a pull back in investments, and GDP projections. Causing the Bank of Canada to change their language to saying the economy is operating “close” to capacity. In the world of central bankers there is a huge difference from being “at” capacity and being “close” to capacity.
The Bank of Canada has now softened its stance on future rate hikes. Look for inflation numbers to tip their hand next, but given inflation currently is forecasting to be well inline. Interest rates might be closer to the new normal than had previously been anticipated.