Higher Interest Rate?

Lower rate for now, and then...

Jul 30, 2024

TONIGHT at 6:30 Mountain - Why Alberta Now Zoom Call

If you’re interested in learning about why I’m bullish on Alberta, this call is for you.

I will be covering data and my analysis on the Alberta real estate market.

Register here on Zoom

Last week July 24, Bank of Canada lowered short term interest rate by 0.25%, its 2nd drop from a month ago.

I’ve seen posts going around in the real estate community celebrating the drop.

In the real estate business, interest cost is the biggest expense.

A lower interest rate means lower cost or better cash flow for rental properties.

Every little drop will help, especially after the last 2 years of a “higher” interest rate environment.

I double quoted “higher” because if anyone studies history, they know that even at a 5% rate, that was considered a normal rate in the past.

Real estate investors have been spoiled with ultra low interest rate over the past 10 years.

As someone who studies the market and the economy, I expect Bank of Canada to continue cutting rate over the next year.

How fast and how much will depend on the economy.

Based on most metrics I’m tracking, I can confidently say the rate will be lower a year from now than today.

However, I can’t say the same for the longer term.

Markets go in cycles.

For years, we keep seeing interest rate gets lower and lower.

This is because our economy is growing slower and slower.

Economy like Europe, Canada and the US are what’s called Developed Economies.

It’s much harder for Developed Economies to grow like Developing countries.

That being said, I believe we entered into a new market cycle.

There are several trends converging.

Think of them as the undercurrents that are underneath the waves on the surface.

I learned from the big investors to study the undercurrents.

While most people pay attention to what they see above the water, it’s what’s underneath the water that will create the next waves.

These are some of the undercurrents I’m tracking closely:

Trade wars - New tariffs imposed compared to years of free trade between major trading countries

Onshoring - Manufacturing coming back to North America

More money printing - Canada & US governments are in huge amount of debt

Climate change - Increased climate related natural disasters

Skilled labor shortage - Baby boomers retiring and a shortage of trades

All of these undercurrents will point to 1 outcome in common:

Higher prices, aka. higher inflation

The pandemic has accelerated the timeline of the new market cycle.

If you believe we are entering a new market cycle, it is wise to ask yourself if your investment portfolio is positioned properly.

We’ve seen how much the previous speculative real estate markets tumble (mostly in Ontario & BC) over the past 2 years due to higher interest rate.

Those markets will be getting a break for the next 1-2 years.

After that, I anticipate an economy that is higher inflation resulting in higher interest rates.