I’m not sure if the famous nursery rhyme involving the falling sky is currently in the public domain and/or if it is royalty free, so I’ll avoid any direct references to a height-challenged, adolescent chicken…  Add to that the fact that Disney made a movie based on the same story and I am sure is copyright protected!

As usual there has been a ton of froth on the heels of recent real estate sales data from the preceding month, in this case, August.  It doesn’t really matter if the data point to a rising, falling or a sideways market, there will never be a shortage of members of the media and the public who will blow some or all of the data out of proportion, for better or worse.  In this case sales volumes are down considerably from near record highs in August 2009.

That being said, the last couple of months have seen some significant developments (HST, interest rate changes, mortgage options) which has fuelled more debate, mostly in the form of “anonymous” comments on blogs and under media stories from individuals who are sure that the end of the world is indeed just around the corner, which in turn leads a lot of nice people to ponder their fate. 

As I deal with a lot of nice people during the normal course of business I have been pondering a blog post for quite some time to discuss some of the recent questions raised from the implementation of the HST, raised from the spectre of rising interest rates, by media speculation and other topics.  The reason I have been pondering for awhile is that this is a rather expansive topic, and experience tells me that many people who read blogs tend to lose interest in a post if it rambles too long…  This is why I’ve decided to break this into several smaller posts over the coming days & weeks, rather than continue to figure out a cohesive way to cram it all into one long-winded post.

In upcoming posts I will touch on the HST, the Bank of Canada, and demand and supply, amongst other topics.  I will wrap it up with a discussion about whether the sky is falling by contrasting the events of late 2008 (the last time the sky fell) and where we are now (hint: the sky is not falling at the moment, and not likely to, but anything can happen…).

Thanks for reading, as always, please contact us for all of your real estate needs in Victoria, B.C.

Sean Farrell

Statistics Canada reported today that the Canadian Economy increased in the first quarter of 2010 by an annualized 6.1%, putting it close to its pre-recession peak, compared to 4.9% growth in the last quarter of 2009.  This is the fastest rate of growth in the economy in the last 10 years.

With the Bank of Canada (BoC) on the eve of an interest rate announcement on June 1, 2010, most economists are calling for an interest rate increase to address the expanding economy, although some economists (most notably David Rosenberg) feel that the economy continues to send mixed signals about its direction over the next few months.  See today’s Globe and Mail for details.

Further to the Globe and Mail article, the largest driver of Canada’s economic expansion has been by far and away the real estate market, with statistics suggesting that Canadians are increasing their personal debt, although this has been done with people using more credit for homes but using less credit for everything else.

With the updated, and more stringent, mortgage borrowing regulations being enforced on April 19th of this year, many markets are starting to see a significant increase in listing inventory in the entry-level and mid level markets, which is certainly the case in Greater Victoria.

If the Bank of Canada were to factor in the effect of the HST on the real estate market (HST set to become law July 1st in BC and Ontario), they may well decide to wait another month before deciding to increase rates for the first time since the credit freeze of 2008.  Incidentally, if the BoC does decide to raise the overnight rate tomorrow, Canada will be the first of the G7 to raise rates since the 2008 crisis.

Finally, commodity prices have been shakey of late — when added to the spectre of a stronger Canadian dollar under rising rates (which decreases exports, which contracts the GDP), I can make many arguments against the BoC leaving the rates alone for another month.

That all being said, I also feel that a 25 basis point increase (+0.25%) in the interest rates shouldn’t be cause for concern.  We have been at “emergency level” interest rates for a very long time now — keeping interest rates at all time historical lows simply is not sustainable in the long term.  Interest rates will need to increase at some point, and they will, but rising rates should NOT be a cause for panic, no matter how ugly the media may make that sound.  If you speak to almost anyone who lived with the mortgage through the 70s and 80s, any rates below 10% look really, really good!

Whether rates are increased tomorrow or next month or later is a judgement call.  Perhaps a few small increases in the near future are warranted as it could give the BoC a tiny bit of latitude in a few months time should the HST prove to be as large a burden on the economy as many people think it will be.

Thanks for reading, as always, please contact us for all of your real estate needs in Victoria, BC.

Sean