Rate drop shouldn't be surprising

Swings in economy are to be expected

Last week, the Bank of Canada surprised some Canadians when it lowered the overnight lending rate from one to 0.75 per cent.

However, the decision to lower interest rates should not have been as big of a surprise as it was, nor should the fact that the banks have failed to lower their respective prime rates.

On the day before the rate drop, I told two separate groups of real estate investors – totaling 60 people – that, in my opinion, there was as good of a chance that rates would decrease as there was they would increase. The next morning, the Bank of Canada proved me right. I don't write about my successful prediction to impress anyone. Believe me, I am wrong more often than I am right, just ask my wife – I write about them to make the point that in today's economy, expect the unexpected.

Consider the economy over the last eight years. No one expected that, in 2008, the world economy would collapse. Yet it did.

Canadian economists predicted shortly afterward that interest rates would increase both substantially and quickly. Yet that did not happen either.

Economists worldwide have assessed the Canadian real estate market as overvalued. Yet our so-called "bubble" has yet to burst – and with the drop in the Canadian dollar it likely won't, at least not in Calgary.

The only thing that has been consistent over the last several years is the market has surprised us. But that is what makes the economy exciting. If markets were predictable, there would be no need for economists; everyone would know exactly where they stood financially all of the time.

In the end, economies are not predictable. The only thing you can predict is there will be surprises – such as the substantial drop in oil prices we have seen recently.

It almost seems as though the only reliable way to predict what will happen in the economy is to assess the predictions, poke as many holes in them as possible and form your own opinions from there.

If you take ego and emotion out of the equation, it quickly becomes apparent that, more often than not, common sense will prevail. Which is why, despite the fact that many are predicting doom and gloom for Calgary's real estate market, we are bullish.

We believe Calgary's landscape today is far different than it was in 2009, the last time oil prices crashed. Demand is far stronger in the economy, the weaker dollar makes today's oil more valuable and Canadian products cheaper and vacancy rates remain at historical lows.

With downward pressure on interest rates and net migration remaining high, Calgary home prices should finally stabilize. Which is why this is the perfect storm for real estate investing, and why we started Cash Flow Club.
To find out why now is the right time to buy revenue properties in Calgary, visit us at www.mortgage360.ca/cash-flow.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

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