EDITORIAL: Watch interest rates

The real estate industry can breathe a sigh of relief, as can many homeowners.

The real estate industry can breathe a sigh of relief, as can many homeowners. The Bank of Canada said last week that interest rate increases aren’t likely any time soon, given the economic uncertainty in Europe and many challenging economic situations across the world.

In that environment, an interest rate increase will just cause more trouble.

Nonetheless, homeowners with large mortgages would be wise to try to lock in low rates for as long as possible and, at the same time, do all they can to reduce their total debt.

Interest rates will not stay this low forever, just as they didn’t stay at 20 per cent in the early 1980s. Those high rates had a lot to do with the last significant housing price correction in the Lower Mainland.

At that time, some people simply walked away from their homes. It was a situation very similar to that in many U.S. cities in the past four years.

Here, the housing market has been very stable since the late 1980s. Prices fluctuated in the 1990s, but for the most part they have been on a steady upward trajectory.

In recent years, prices have jumped to levels where many people are having difficulty buying a home. This is particularly true of single-family homes. Only low interest rates have kept many people in the market.

Interest rates also have other effects, on retired people on fixed incomes. Low interest rates cut deeply into their purchasing power, as they are dependent on investment income for at least part of their income.

A long period of low interest rates, as we have seen, can wreak havoc on pension plans.

It all makes for many challenging situations. Saving is of limited benefit, but so is borrowing too much.

The best approach is to keep expenses under control and pay close attention to interest rates.

– Black Press

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