Interest Rates and Housing always head in the same direction

April 22, 2008

Another rate cut and deeper in red. Boom and here comes the bust.
Is the history of boom bust cycles going to repeat itself?
We are seeing this play out in the US, just a matter of time before it moves North.
The Bank of Canada warned of a deepening economic slowdown as it cut its key interest rate by 50 bps.
Since December 4, 2007 the Bank of Canada has been aggressive in cutting rates by 150bps.
Canada's slowing economy is driving interest rates and housing lower.
US, Ontario/Quebec then out west to BC/Alberta. That's the cycle.
Housing, usually a 25 - 30% drop, but after the party in Alberta their drop maybe as bad as it gets in the states.

Bonaventure D'sa

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November 29, 2007
Quick question!
When Interest Rates are rising, are House prices rising or falling? Interest Rates UP, House Prices? --- Up or Down?

If you said, when Interest Rates are rising, House Prices are/will Fall, then think again….
In reality, When Interest Rates are rising - House Prices are climbing, and when Interest Rates are falling - House Prices are dropping.
Has more to do with the health of the economy than the mortgage rate.
When the economy is healthy, things are good, people are working,inflation is rising,House Prices are rising, Interest rates will rise to slow down the economy.
When the economy is loosing steam, jobs are lost, House Prices are falling, Interest Rates will decline.
I won't get into the full discussion of the why, only the facts.
For the last few years the US housing market was on a tear, yet they experienced 17 rate hikes up to June 29, 2006.
Since then the bubble has bust and guess what, we are seeing Interest Rate cuts, and no one is expecting House Prices in the US to run up anytime soon.
In Canada, we have seen 9 rate hikes in a row, rates rose from a low of 3.75%, January 15, 2002 to the current rate of 6.25% July 10, 2007, the Housing market has experienced a similar move.
Interest rates in Canada have risen 66% over the last 5 years and Real Estate has doubled.
The last Real Estate bust saw Interest rates drop from 13.50% in 1989 to 7.25% in 2000.
Real Estate bottomed in 1999 out East and 2000 in BC.
Going further back, to the Real Estate bubble of the late 70s early 80s.
Interest rates rose from a "lowly" 9.25% in 1978 to a high of 18.25% in 1982.
Rates doubled and so did the Housing Market. Subsequently the housing bubble bust and so did Interest Rates.
History is a great educator, and every time we say its different this time, History repeats itself.
Next stop, almost everyone agrees are more rate cuts.
If we get a rate cut on December 4th - this will send a strong signal as to the direction of the Canadian Housing market.
The housing market going up or down starts in the US, next is Ontario/Quebec, then West to BC/Alberta. Happens everytime, and this time is no different.

Have a great day.