Mortgage expert David Larock recently weighed in on factors that could affect the housing market in 2015. There’s no denying 2015 will be a big year for the Canadian housing market. For the first time it looks like interest rates could finally be going higher. The only thing that could spoil those plans is lower oil prices. Let’s take a look at five factors to watch out for in 2015 and how they could affect mortgage rates.
The U.S. Economy
Although we Canadians like to see ourselves as independent from the U.S., the sad reality is the wellbeing of our economy depends a lot on our neighbours to the south. While Canada is suffering from lower oil prices, the U.S. is enjoying 5% GDP growth for the third quarter of 2014. Despite slower growth in Canada, interest rates could still be on the rise, especially if the U.S. Federal Reserve raises interest rates mid-2015 as many economists predict. If this occurs, not only will variable-rate mortgages be on the rise, but fixed mortgage rates could be, too, as government of Canada bond yields creep up.
The Chinese Economy
While 7.3% GDP growth may sound like a cause for celebration, it isn’t in China. This is a lot lower than the 9% GDP growth enjoyed over the last decade and a half in China. Why does China’s economic growth matter to Canada? China may be half a world away, but it imports a lot of commodities from Canada. If demand in China slows, it could mean slower economic growth in Canada, making a rate hike less likely.
Quantitative easing in the U.S. is a double-edged sword. Despite the Bank of Canada staying clear of QE, we could still be affected. As a result of QE, the worldwide financial markets are flooded with liquidity. What does this mean for government of Canada bond yields? QE will most likely continue to keep our bond yields low, which in turn will keep fixed-rate mortgages near record lows.
The Falling Price of Oil
No one could have predicted oil prices would drop below $60 a barrel six months ago, let alone $50 a barrel. With economists predicting oil prices as low as $30 a barrel, the winds of change are blowing fiercely in Canada. Alberta, which has been leading economic growth in Canada, faces growing pains from lower oil prices. With slower growth, the likelihood of a rate hike is lessened, which means lower mortgage rates for the next while.
The World Markets
While the U.S. economy may be on the mend, the same can’t be said for Europe and the Far East. With the Euro Zone barely eking out any growth and Japan once again in recession, Canada still looks like a good place for investors. Government of Canada bonds are a lot more attractive, which pushes bond yields and fixed-rate mortgage rates lower.