It was already the perfect storm for long-term real estate investing in Calgary.
Now, lower interest rates, thanks to the Bank of Canada’s unexpected-but-not-unpredictable rate cuts, are adding fuel to the fire.
Since the beginning of December, Nolan has focused this column on the alignment of five key rules for real estate investors. The rules – only purchase revenue properties in markets where rents are rising, vacancy rates are low, net migration is positive and housing costs are, on average, less than 45 per cent of incomes – have all aligned for the first time in Calgary since 2005. In other words, Calgary is a safe bet.
Fixed rates are now at an all-time low of 2.79 per cent on five-year terms and 2.49 per cent on three-year terms. He expects them to go lower.
For investors and savvy purchasers, variable rate mortgages are now as low as prime -0.70 per cent, which, with the lower prime rate, equates to 2.15 per cent. If the Bank of Canada decides to lower rates again, which they may be forced to do given Canadian banks chose to only pass 0.15 per cent of the 0.25 per cent decrease onto consumers, we may see five-year fixed rates drop below 2.5 per cent for the first time in history.
With the average five-year fixed rate at all time lows, Calgary’s homes are becoming even more affordable, which is the most common-sense measure of our real estate market.
When housing is affordable – less than 45 per cent of income is being used on average to support the loans – the real estate market should remain stable.
Stability is exactly what CREB® is predicting in 2015, with a forecasted 1.58 percent increase in prices, which will bring calm to the market. Yet with low supply and even lower interest rates, price growth could be greater than predicted even if there are fewer sales.
Net migration remains positive in Alberta, with Canadians continuing to move from the have-not provinces to Alberta. That, in turn, contributes to stable house prices as well as a thriving rental market. In fact, Calgary real estate investments are thriving, returning 15 to 25 per cent before appreciation.
With a strong rental market come increasing rents and vacancy rates that remain well below two per cent, unlike 2009 where they crept above five per cent. The primary difference between then and now is the stronger U.S. economy is providing stable demand for our cheaper oil and natural resources. For Americans, the weaker dollar means Canadian products are on sale.
So, just when we thought maybe housing prices and demand would go down, the Bank of Canada has reinforced the fact it is the perfect time to buy real estate investments in Calgary.
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