I'm a very optimistic person. I like to see the good in people and in situations. However, as a realtor, there are things that tend to keep me up at night. One of those things is the spectre of rising interest rates. Now It's important to note that rates are at historic lows and that they have been low for a long time (since May 2009). In fact they've been low for so long that we may be taking them for granted. Really, we should be aware that these record low interest rates are the only thing that got our market kickstarted when it went into a coma after the financial meltdown of 2008. Real estate prices fell about 20% between August 2008 and April of 2009. If you recall, that particular time period was very tough. The stock market had tanked, banks and other large corporations were either failing or getting bailed out. It was a scary time. When mortgage rates fell to all time lows of 3.7% the market came back to life.

 

Now it's important to say that the market we are in now is fairly robust. It's not on fire but it's not dead either. It's a bit of a Goldilocks market, not too hot but not cold either. It''s just right you might say. And real estate prices are not increasing.

 

So here's the moderately scary part. The US is about to roll out another round of "quantitative easing". That means they will print money (in the billions of dollars) in order to make the US dollar less valuable and boost exports and make their economy a little more lively. That's all fine except that massive increase in money supply actually causes inflation. And what happens when investors expect higher inflation? The answer is that they demand higher interest rates in the bond markets. The banks raise mortgage funds in the bond markets. That is why mortgage rates are impacted directly by the price of 10 year government bonds.

 

I've been in real estate long enough to have seen what rising interest rates can do to buying and selling. In 1995 interest rates increased by at least 2 percentage points (can't recall the exact numbers). The result was a sluggish and stagnant real estate market that lasted 6 long years. Prices fell about 15% between 1995 and 1998 and then fell more until 2002. Believe me it wasn't pretty. The number of active realtors in the Great Vancouver Real Estate Board dropped from about 12,000 to around 5,000. Michelle and I did fine but I can tell you that it's not fun to go through a market like that. We should all hope that we are not done in by our wonderful neighbors to the south.