Quote:
Originally Posted by Jedi Ninja
The main argument against the longer term prospects of the market relates to interest rates. Rates right now are as low as they will get. This has drawn a lot of people into the market. It has also altered the rent-vs-buy equation substantially. But the economics of buying a home on a 2.5% (variable) mortgage versus a more normal rate of 6% are quite dramatic. The interest-only cost of a $400,000 mortgage goes from $10,000 per year to $24000.
The question is, how long can rates stay this low? I wish I had the answer myself. After Japan's property bubble collapsed in the '90s, the bank rate there stayed low for years. The same may happen here.
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I think it's hard to call property prices here a bubble still, if a recession only takes off 10% then that's still pretty well supported prices.
But you are right, higher interest costs will slow things down, but I think they've said that as long as inflation doesn't become an issue (and hard to think that it will coming out of a recession), rates will stay where they are for at least a year. Things could change, but I think that's as good a guess as any.
Longer term as rates increase that'll keep things from overheating again, but as long as people keep moving here and the economy keeps growing, we should be ok.
To me the biggest threat to Alberta is the government. After years and years of making Alberta super attractive to business investment (O&G especially), it seems now that the government doesn't care as much. If companies move elsewhere, so do the jobs, and so does the growth. That's something that concerns me.