Personal Finance

Interest rates rising next year, prepare for a world of pain

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  • Mar 22nd, 2017 2:06 pm
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Deal Addict
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Nov 13, 2010
4461 posts
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Scarborough
so whats the prediction next......is Canada going to raise them as well even with crappy economy?
Deal Addict
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Dec 20, 2004
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Toronto
lol @ OP. why not just admit you were (completely) wrong?
Deal Addict
Nov 27, 2007
3149 posts
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Interest rates raise in USA, effects bond markets, fixed mortgage goes up for Canada... So he is not wrong...

Bank of Canada rate only effects variable
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Dec 8, 2007
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gei wrote:
Mar 18th, 2017 12:24 pm
lol @ OP. why not just admit you were (completely) wrong?
Because if they wait long enough rates will eventually rise and they can say "told you so!" ..... 3+ years after OP lol
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Aug 7, 2014
167 posts
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Engi-Nir wrote:
Mar 19th, 2017 7:30 am
Interest rates raise in USA, effects bond markets, fixed mortgage goes up for Canada... So he is not wrong...

Bank of Canada rate only effects variable
OP may not be wrong going forward from now, but he was wrong in his Nov 2014 heading at first page that "interest rate rising next year".

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Deal Addict
Oct 7, 2007
2569 posts
441 upvotes
Facts;
1. Trump has said many times that he wants to normalize interest rates because they are too low and have been too low for too long.
2. Trump, so far, has been working towards fulfilling all of the things he said he would do during his campaign.
3. Interest rates are artificially low which is creating huge asset bubbles all over including the stock market and real estate.
4. The economy is picking up in the U.S. and the stock market is overheated.
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Jan 6, 2011
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psudolam wrote:
Mar 19th, 2017 9:22 am
OP may not be wrong going forward from now, but he was wrong in his Nov 2014 heading at first page that "interest rate rising next year".

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5yr CDN Govt bond yield did rise since Trump.

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Deal Addict
Nov 2, 2013
3933 posts
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Edmonton, AB
apnayloags wrote:
Mar 18th, 2017 12:22 pm
so whats the prediction next......is Canada going to raise them as well even with crappy economy?
The average Canadian likely is more concerned about having a job than what his/her dollar is worth. Less significant, but Government likely wants us to buy Canadian goods rather than foreign anyhow.
Deal Fanatic
Aug 14, 2007
7649 posts
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Toronto
Rhaegar wrote:
Nov 25th, 2014 12:34 pm
I'm locked in below 3% for another few years, and am paying my mortgage off so fast that even if rates are 5%++ when I renew, I can still pay it off within 5-10 years at the same payment I'm doing now.


The financial illiterates buying with 5% down and making the minimum 30 year amortized payment's won't be so fortunate though.
Which is exactly why the people who can buy now but won't are going to luck out compared to the ones buying with nothing but their only savings and then having nothing.

I plan to buy by the time I turn 35 but that's me and that's another 4 years. Hopefully by then the market is more reasonable.
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Dec 11, 2008
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XtremeModder wrote:
Mar 20th, 2017 7:33 am
Which is exactly why the people who can buy now but won't are going to luck out compared to the ones buying with nothing but their only savings and then having nothing.

I plan to buy by the time I turn 35 but that's me and that's another 4 years. Hopefully by then the market is more reasonable.
Hopefully those who buy later will be able to pay the home down fast too if the interest rates do rise by then.
Deal Fanatic
Aug 14, 2007
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Toronto
speedyforme wrote:
Mar 20th, 2017 8:08 am
Hopefully those who buy later will be able to pay the home down fast too if the interest rates do rise by then.
Yea that's my only worry however I'm gonna take a random uneducated guess and say I have another 3-4 years of saving before housing becomes more affordable, specifically for first time home buyers and my car will also be paid off by then as well.

The way people live now is beyond me. I rent and I don't mind, I know one person who bought a house with their brother... they used to be able to do simple things like go out on tuesdays after work for cheap wings with coworkers... now they can't even afford to spend that $15. I have another friend who claims to make a LOT of money in their job, no car payments and all that yet I know for a fact have missed a few mortgage payments...

I believe the current market is making many live incredibly stressful lives and living a lie as well. Once the market comes back down and houses aren't worth close to what they are now, it's going to suck for many of them and the people like myself and many others who decided to wait will ultimately end up doing better.

But then the same cycle will just happen all over again.

But what do I know.... I'm just a renter who would prefer not to spend $580K on a house that's actually worth maybe $320K
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May 5, 2008
3998 posts
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Winnipeg
XtremeModder wrote:
Mar 20th, 2017 8:58 am

But what do I know.... I'm just a renter who would prefer not to spend $580K on a house that's actually worth maybe $320K
Unfortunately in 5 years that house will be actually 580K then
Deal Fanatic
Aug 14, 2007
7649 posts
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Toronto
airmail wrote:
Mar 20th, 2017 9:30 am
Unfortunately in 5 years that house will be actually 580K then
What I meant was, in my area, when the market wasn't insane, houses in my area were $320K-$390K. Now those same houses (many of them are pretty old) are going for $580K or more. One near me is literally falling apart and is priced at over $500K. I don't care if someone buys it... my question is WHY.
Deal Addict
Nov 2, 2013
3933 posts
534 upvotes
Edmonton, AB
XtremeModder wrote:
Mar 20th, 2017 8:58 am
Yea that's my only worry however I'm gonna take a random uneducated guess and say I have another 3-4 years of saving before housing becomes more affordable, specifically for first time home buyers and my car will also be paid off by then as well.

The way people live now is beyond me. I rent and I don't mind, I know one person who bought a house with their brother... they used to be able to do simple things like go out on tuesdays after work for cheap wings with coworkers... now they can't even afford to spend that $15. I have another friend who claims to make a LOT of money in their job, no car payments and all that yet I know for a fact have missed a few mortgage payments...

I believe the current market is making many live incredibly stressful lives and living a lie as well. Once the market comes back down and houses aren't worth close to what they are now, it's going to suck for many of them and the people like myself and many others who decided to wait will ultimately end up doing better.

But then the same cycle will just happen all over again.

But what do I know.... I'm just a renter who would prefer not to spend $580K on a house that's actually worth maybe $320K
I'm from the GVA which is a lot worse than those figures, and that was my rationale for buying a home elsewhere. In real terms, it's much more expensive when you relate to average incomes in that area too. It's strange as even in a town 1.5
Hours away from Vancouver, you can still easily pay $450-500/sq ft, but people there are happy to make $30-40K/year. You see mostly cheap little vehicles, and people just making ends meet otherwise. Not to say vehicles are a measure of happiness, but it's just a telltale sign that most people are house poor. It's just an odd sight in a place where a good detached easily runs $1M+. The common excuse is to stay in the area as they couldnt ever live elsewhere, especially if you're Asian and like to associate within your own circles- toronto being the only other major Asian center in Canada, but has a harsher climate. Or, people just keep buying in fear of forever being priced out, and when everyone thinks like that, it's a never ending frenzy. Or, you're just a hippie (Vancouver area is hippie central).

To me the struggle to barely afford a $1M house to say you live 1.5 hours out of Vancouver wasn't worth it, so I opted to go somewhere where housing is still expensive on Canadian terms, but about half of that. Lifestyle in other parts is more balanced, so after paying for your home you can at least enjoy other pleasures in life. At least there are economic opportunities here and a hard working person has a chance to make a future.

Toronto at least has a financial industry. Though competitive, there's at least a small high income crowd that makes some of the housing prices make sense. Not long ago West Vancouver's average household income was $82K, while the average home was $3.5M. It's mostly old money that keeps getting passed down and the offspring just feed off it, or find some arrangement within the inner circle, working menial jobs just as something to do.
Newbie
Jul 6, 2016
21 posts
Gatineau
Real estate is really local, you can't generalize about the whole country. Here in Ottawa-Gatineau, median household income is around $110k and median housing prices are bifuricated. It's around $370k in Ottawa and $270k in Gatineau. If you're willing to commute a bit (30 minutes each way), you can work in Ottawa and live in Gatineau. In that case it's pretty easy to buy a 4 bedroom semi for <3x annual household income. With variable mortgages available at 1.8%, I doubt housing have ever been cheaper.

I looked at how much houses cost in my neighborhood in the past. In 2000 they were selling for about 60% of current prices, but back then interest rates were 7%. Once you factor in the difference in interest rates, monthly mortgage payments remain the same holding amortization constant despite a 67% increase in prices. In the mean time median incomes have gone up, not a lot, but definitely higher than what it was in 2000. This makes houses more affordable today than 20 years ago.
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