We all know that interest rates are rising signaling the end of borrowing at an ultra low cost. Keep in mind though, we're seeing very small increases and compared to early 90's when rates were astronomically high, nominally increased rates are still low, very low indeed. While our banks maintain relatively conservative policies and criteria when it comes to lending money, some consumers carrying onerous amounts of debt will feel the pain when the rates climb. For others, people who actually save money (?!?), seniors, fixed income investors and even first time buyers who've been waiting on the sidelines higher rates are most welcome.
Most people don't realize that there are advantages to rising interest rates. Here are a few:
1) The end of bidding wars ---> We're already seeing an increase in listings resulting in a more balanced environment. What this means is that unless your home is a gem (read: totally done, immaculately maintained, fantastic location, properly priced), chances are your property won't sell in a bidding war. Buyers can breathe a bit easier in knowing that they can be more selective and negotiate for a lower price especially on a property that may be overpriced to begin with or on the market for a certain length of time. Home prices may drop slightly which is good for those investors and even first time buyers (sitting on a bit of cash that is...) who have been holding back on making a purchase.
2) Higher GIC rates ---> Only a few short months ago, the best rate for a GIC was 3.25%. Now you can buy a fixed rate 5 year GIC with no minimum for 4% ( www.ally.ca ) . Short term bond rates have fallen pushing up the yields which make fixed income securities like GIC's way more interesting again.
3) US Bound Travel ---> With our Canadian dollar at parity with the weak USD, that much awaited trip to San Francisco can finally happen. No more having to figure out the exchange rate only to realize that purchase from Century 21 wasn't such a bargain after all. It's a great time to buy American goods!
4) Save Save Save ---> If you have been one of the smarter ones who actually still has a savings account (well hopefully a "high interest" savings account), then you may finally start to feel good about the value of your money. Not only will you actually receive some interest to speak of, you will be able to capitalize on purchasing certain assets at a lower price.
If you have purchased a property when the rates were ultra low and prices on the higher side, don't fret. I always say, it all comes out even in the long run. Six of one and half dozen of the other... you pay more interest which means lower affordability less affordability but then you may pay less for the same house.