Making predictions about the housing market is never a sure thing. And since hindsight is 20/20, we can learn a lot from the past. Housing market experts predicted a significant rise in mortgage rates for 2014. Instead, rates slipped and remained low for far longer than predicted. Because of this unexpected drop, some pundits are now predicting rates to fall in 2015.
Aside from following last year’s trend, there’s a huge reason to suspect a dip in mortgage rates for 2015: low energy prices. Upon a preliminary look, the two events may seem unrelated. But there is a significant connection between the housing market, the economy and the energy industry.
Falling Oil Prices and the Buying Market
As you might have noticed, petrol and gasoline prices are at quite a bearable price. Many people argue that this phenomenon can only last so long, and they may be right. What few people realize, though, is that plummeting oil prices will affect more than just your mood at the pump.
As a consumer, you likely appreciate the lowered gas prices since it leaves you more money to spend elsewhere. What you might not appreciate is that lowered oil prices decrease inflation. Eased federal concerns about inflation always helps maintain interest rates—which is good news for home buyers.
What scares many investors is the fact that the economy isn’t growing, but weakening in the wake of lower energy prices. A massive drop in prices benefits the buyer, but usually not the seller or lender.
Large oil companies may not be able to keep up if they don’t make a profit, which seems unlikely at the current oil rate. Job losses and a general industry slow-down from the large supply and lessened demand will have an effect somewhere.
You can bet that mortgage rates aren’t immune from economic cause and effect. Many economists say mortgage rates will rise to 5% in 2015. But, these forecasts make little sense when you account for lowered oil prices and a scrambling global economy.
The bad news for energy investors could be just the trick for potential home buyers. Those in commercial real estate will be even more responsive to these fluctuations. After all, many people invest in real estate as a direct result of the energy market. Even those looking to refinance should have more attractive possibilities with lowered mortgage rates.
Seeing the Effects Already
Again, there are many who would tell you to expect an increase in mortgage rates for the coming year. These naysayers and many others received quite the shock back in January, though. As of January 21, 2015, the Bank of Canada made an unexpected cut of .25% to their interest rates. This cut was neither arbitrary in amount nor timing.
Fortunately, many economists interpreted this unexpected action as a way to soften the blow of dropping oil prices on the Canadian economy. So while few expected mortgage rates to lower this year, at least some see the connection between dropping oil prices and increased mortgage opportunities.
Of course, this drop in mortgage rates applies more to floating or variable rates. However, even fixed rate mortgages will experience a decline from bond yields which will drop in response to the Bank of Canada’s cut.
What This Means for Canadian Home Buyers
Some worry that the lowered rates could encourage people to go further into debt, and this is often the case. That’s why many predict the re-entrance of boomerang buyers, or those who lost their homes within the past seven years. The lowered rates will only encourage those in debt to attempt buying again.
If you are financially responsible and looking to buy a home in the next year, this is good news. Your better credit score makes you a leading candidate to potential lenders, especially compared to other less-reliable applicants. Buyers in eastern Canada can take particular advantage of sensible property prices that aren’t jumping as quickly as central Canada.
Lowered interest rates can cause a great many changes, which then create their own reactions. If mortgages are more affordable, many more will qualify for a mortgage and refinance the ones they already have. Unlikely home buyers may consider taking the plunge with lowered payments and rates. This in turn will increase home sales and add a higher variety of inventory.
It’s quite possible that the mortgage industry will have a good year in 2015. Every action makes a reaction, and if you’re looking to buy a home or refinance, you will want to pay attention in the coming months. Consult an accredited mortgage broker at The Mortgage Centre in St. John’s, Newfoundland to learn about mortgage rates and find out what the current state of the economy can do for you.