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How US interest rate hikes might affect housing market in 2016?”

Tina Mak, realtor at Coldwell Banker Westburn in Vancouver had a 25 minutes detail interview with Budge Huskey, President and CEO of Coldwell Banker on “How US interest rate hikes might affect housing market in 2016”.

The US Federal Reserve raised 0.25% interest rate hiked on Dec 16th but rates could continue to rise up to 1% over the next year because it believes an American recovery is well underway and unemployment rate at 5% in November, 2015.

1) In your opinion, how does rate hike means for the local buyers?  Would this bring burden to the homeowner mortgage payment?

With inflation well under the target rate, interest rate adjustments will be insufficient to impede the real estate recovery.    The financial impact will be minimal, especially when compared to the alternative of rising rents.   The greatest impact may prove psychological, as many young adults who may be first time buyers have never witnessed interest rates climb.

Canadian has been #1 foreign investors since 2008 until our dollar starting to slide in 2014 and the Chinese investors flood to US real estate market and took over our #1 spot.  The record low oil prices causes our economy weak to the point that Bank of Canada governor Stephen Poloz is now actually talking about the possibility of going the other way, all the way to negative rates.  Our unemployment rate is now at 7.1%, 2 points higher than the US.  Now the US rate is slightly higher and the greenback is getting stronger.  It is obvious that the Canadian has slowed down investing in US.

2) Do you see the Chinese investors might slow down as well esp they usually buy higher price real estate?  The strong currency means the Chinese would have to pay more.

While the currency trends would suggest slowing activity, we haven’t witnessed it as of yet.   The average Chinese purchase is far higher than other international investors in the US, and the areas desires are perceived as worthy of the investment.   And with the recent stock market performance in China, I would envision additional shifting in terms of asset allocation into foreign real estate.   That is being seen in commercial markets as Chinese businesses such as insurance companies invest

3) Do you agree both US and Canada real estate market are popular because we have been viewed by foreign investors as safe havens?  Low or high interest rate, weak or strong currency definitely has some effect but might not be as significant as the economists thing it might be.

Couldn’t agree more.  Especially among the wealthy.  While the factors you mention  may lead to a higher level of caution in the amount one would invest, the security of holding real estate assets in the US and Canada will continue to drive action.   Stability alone is of perceived economic value.

4) Homes in Toronto and Vancouver housing affordability continued to decline.  Many people blamed on foreign investors.  How many US markets encounter similar situation?

The impact of immigration in Toronto or Vancouver will be more pronounced due to Canada being more open, though in the US prices are clearly being influenced in key markets such as Manhattan and San Francisco by the level of international activity.   These are markets where prices are moving out of reach for most buyers.   The reality is real estate values are always a function of supply and demand, and these are all economic hubs drawing far more potential buyers than the supply of homes available.    The good news is that unlike the last decade, prices are based on fundamentals rather than artificial lending so any use of the term “bubble” are totally unfounded.

While the wealth gap between rich and poor keeps growing in North America, China and India’s middle class income growth is increasing.  I personally think this means international students population will increase in North America.

5) What kind of impact do you see this might have on our North America real estate market especially in high ranking school neighborhoods? or student housing properties?

Over the last ten years, the number of international students coming to the US for higher education has skyrocketed, with the Chinese proving the largest group and most affluent.  Increasingly, the trend has been to invest in real estate housing for children while attending school with the ability to hold later as a second home or as a rental investment.   Prices in the US have always been influenced by the quality of schools within a market, but the level of international investment around notable universities has proven an added dimension. 

Having said that, LA shut down all public school on Dec 15th due to an email threat.

6) Do you see if it might affect the housing price in those school neighborhoods?

Unfortunately, we are learning that no area is totally immune to the threat of terrorism and we must take any claim seriously, but it’s clear the recent events were fabricated.   I see no circumstance under which good schools would ever become a detriment to values, and good
school districts will always be the safest investment available. 

Another group of population growth rate is also increasing.  United Nation projects elderly population above 65 is set to grow by 80% worldwide, and the increases are expected to be even higher in emerging markets.  I know China is anxious to learn more about senior housing from
North Americans.  Baby boomers spending power has been very strong.

7) As baby boomers age, they most likely will dispose their property, then either choose to move to senior home or go renting.  Would this lead to a significant reduction of housing demand? could there be a switch from “baby boom to baby bust”?

Due to longer life spans afforded by medical advances, as well as the impact of on savings after the recession, we are seeing a significant delay in the decision to move to retirement housing as people continue working longer and remain in their existing homes.   We have also seen a slowdown in migration to traditional areas for retirement such as Florida and Arizona as more seniors are electing to remain near family and friends.   So this has delayed the flow of inventory into the market, at least for now.  No doubt at some point we will see that shift occur, and it will lead to a significant supply of larger homes coming on the market for which buyers may not be available, or which may not fit the needs of
younger buyers due to construction or style.

To wrap up our wonderful conversation.  Due to the global uncertainty, How do you forecast the 2016 real estate market and what market should we pay attention to? Would luxury home still be as demanding?

We find the forcast for Real Estate  Sale both in US and Canada is going to reflect continous growth, just a little slower, more sustainable pace. Prices will trim off a bit, which is good for buyers overall.

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