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People are freaking out because their mortgage interest rate might rise to 4%, and there might be 5% price inflation.

Our first mortgage interest was 21% and over 20 years later our mortgage interest rate was 7.99%. Inflation was higher than it is today but we survived.

People who are overextended will deal with it as past generations have. You tighten the budget, work more hours, or sell stuff to lower your debt.

In worse case financial scenarios, you declare bankruptcy and start over with a life lesson under your belt and a better plan.

Higher interest rates would be a whole new world for a lot of people.
It's not the same as past generations. RE prices were much lower relative to wages when rates were higher

8% mortgage, cheaper RE and reasonable saving yields was a much healthier economy. Inflation raised the value of assets and benefits those who already own. Of course you survived @sags all you had to do was buy a house and let its value increase. How would you like to start now the RE is so high?

Low mortgage rates allowed people to borrow more and bid up RE prices. Raising rates back up is not really possible without crushing the young people who just bought in. Saying people just need to learn a life lesson and a better plan is very narrow sighted and ignorant of reality people face today.

Worst case scenario is far worse than some personal bankruptcies. CMHC and banks would suffer. Economy would suffer
 

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Ultimately, government is printing a lot of money is because of aging population. Aging population reduce the amount of consumer and the size of labour force, which reduced the growth of economy. As a result, the government have to continuously reduce interest rate in order to encourage investment in order to counteract the effect of aging population.
 

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A traditional hedge for inflation is gold.

The price has done pretty well even out to the past 20 years where it is up 580% and the past 5 years is up 53% and the past 30 days is up 5.58%.

 

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When boomers were buying homes at astronomical interest rates, home prices didn't rise as they have in the low interest environment of the past few years.

Many boomers had already retired and sold their homes before the steep rise in home prices.

We never considered our homes as investments, but liabilities that provided shelter. It was considerably less costly to rent shelter.

Our investments were pension contributions, CSBs, GICs, and for some financially astute boomers equities, often in the form of mutual funds.

Young people who are overextended on their mortgages have put themselves at great risk if interest rates rise precipitously, and I don't see any way for them to avoid the ensuing financial hardship that would create.

The problem is too big for the government to save everyone.
 

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Are any active investors making adjustments to the allocation or tilting their equity to certain sectors?
Yes. screened out companies that don't have pricing power. Started a while back and on-going. As there is strong underlying economic growth I'm less concerned about debt levels if the company can grow cashflow. Some of the best opportunities in fact have been in heavily indebted companies where the equity value has recovered strongly in reaction to fundamentals.

Looking ahead my sense is we need to be selective. With valuations where they are any company that misses on top line or earnings has it's multiples reset - immediately. Focus on good operators. Somewhat of a contrarian to some I'm focused on large cap (oil aside). Thesis is larger enterprise with good management have the resources to manage a transition manufacturing and logistics processes reflecting the current environment, and also implement digital transformation.
 

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Yet the loonie goes up because the world wishes they were us.

Don't worry, Chrystia has a masterful plan and Canadians will be thrilled and amazed.

Stay tuned.....all will be revealed soon.
 
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Loonie goes up because oil goes up.
Compare where loonie was at 80$/bbl in 2010-2013 to where it is at 80$/bbl now.
Then you wouldn't talk nonsense about loonie going up.
CAD is still a petrodollar. It is just weaker than it was pre-2014.
 

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When boomers were buying homes at astronomical interest rates, home prices didn't rise as they have in the low interest environment of the past few years.

Many boomers had already retired and sold their homes before the steep rise in home prices.

We never considered our homes as investments, but liabilities that provided shelter. It was considerably less costly to rent shelter.

Our investments were pension contributions, CSBs, GICs, and for some financially astute boomers equities, often in the form of mutual funds.

Young people who are overextended on their mortgages have put themselves at great risk if interest rates rise precipitously, and I don't see any way for them to avoid the ensuing financial hardship that would create.

The problem is too big for the government to save everyone.
The government needs to smarten up and allow development, and fix housing laws.
They caused this problem, the first step to fixing it is to stop causing it.

Some people are touting the NZ approach, of basically trying to get rid of government roadblocks to building housing.
Just think about that, the next big idea in fixing real estate is stopping government interference.

Also figure out how to raise interest rates << that's the hard one.
 

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I remember struggling, like others of our generation, on $12/hr and paying our 21.75% mortgage on my $80k home in the 80's. What a struggle that was, fortunately it dropped to about 19 % the next year and slowly dropped as time went by. The fact that several homes later we have finally paid off our mortgages, our home has grown and increased our NW, doesn't give us spendable cash because we still need a place to live and don't want to be renters. We could downsize a bit, but that would only free up a little cash.
 

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I remember struggling, like others of our generation, on $12/hr and paying our 21.75% mortgage on my $80k home in the 80's. What a struggle that was, fortunately it dropped to about 19 % the next year and slowly dropped as time went by. The fact that several homes later we have finally paid off our mortgages, our home has grown and increased our NW, doesn't give us spendable cash because we still need a place to live and don't want to be renters. We could downsize a bit, but that would only free up a little cash.
I rather have an 80k mortgage at 20% than a 600k+ at 2%.

Wages have not increased.

It's all fictional, fairytale money.
RE (and everything else) keeps rising and wages are not.
 

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will interest rates ever return to 4-5% ? That what they were back in 2003 to target the inflation.
Well, let's see. Imagine you have a $300,000 mortgage with a 1.3% variable rate like seems reasonable right now according to Ratehub.ca. With 25 years amortization, your monthly payment is $1185.

Now, let's say the BoC interest rate goes up to 4%. This would increase your mortgage rate by 3.75%, bringing it to 5.05%.The same house now costs $1753 per month, an increase in payments of almost 50%. That would destroy the finances of pretty much any average family in Canada.

And that is the story why the BoC rate will never go back to 4%.
 

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I rather have an 80k mortgage at 20% than a 600k+ at 2%.
No doubt! Also consider how much easier it was to save up a downpayment.

If you were really worried about the interest payments you could just save up for longer and take a smaller mortgage.

$80,000 house in 1981:
$12/hr = 25K/yr salary (approx.)

Time required to save down payment (10% savings rate):
5% down = 1.6 yrs
20% down = 6.4 yrs


$600,000 house today:
Salary adjusted for inflation = 70K/yr (approx.)

Time required to save down payment (10% savings rate):
5% down = 4.3 yrs
20% down = 17.1 yrs

These numbers might be conservative. A house that cost 80K in 1981 is easily a million dollars around here today.
 

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Time required to save down payment (10% savings rate):
5% down = 4.3 yrs
20% down = 17.1 yrs

These numbers might be conservative. A house that cost 80K in 1981 is easily a million dollars around here today.
So it might take a long time, but there are shortcuts. The $600,000 house needs $120,000 for a 20% downpayment. So their parents with a million dollar home can borrow enough money to easily give 3 children a full 20% downpayment. While this isn't true for everyone, it is true for close to a majority of the population.

And even if you didn't have supporting parents, then you can accelerate the 5% down by investing in your RRSP and taking out the $30k out on a tax free loan. Probably only actually 3 years of savings. And half that at a 20% savings rate. And half again if you have a working couple.

And with inflation at 5%, those old mortgages are looking quite nice. Your $600k mortgage saves you $30k on inflation alone in a single year, giving you a 100% return on your 5% down payment, a little less with insurance.

It's easy to see how it's not hard to get a mortgage, even at $600k. This is why prices are rising - the money is loose and easy, and competition is very high.
 
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