Record-low mortgage interest rates have created new opportunities for many Canadian home buyers and homeowners, but falling oil prices, a sluggish Canadian economy, and the fall of the Canadian dollar against US currency could potentially lead to a spike in foreign real estate investment that wipes out the savings available to Canadians.
How Foreign Investment Could Spell an End to Lower Mortgage Rates
Right now, both homes and the mortgages most people need to purchase them are at relatively low prices—significantly so when it comes to mortgage rates, thanks to continued action by the Bank of Canada to keep lending rates down. While this makes it an attractive time for current and would-be Canadian homeowners to secure or refinance their mortgages, it also makes Canadian real estate an attractive prospect to foreign investors.
Much of the world’s wealth is invested, one way or another, in US dollars, and the Canadian dollar has seen a 10% drop in value relative to the US dollar in the past six months. Simplifying the complexities of foreign exchange rates, that means all of the wealth stored in US dollars can now purchase Canadian goods—including real estate—at a 10% discount compared to six months ago.
Even simpler: Canadian real estate is especially cheap for international investors; even cheaper than it is for Canadians themselves.
This could potentially lead to a major influx of US dollars being used to purchase Canadian homes and other real estate, and due to the laws of supply and demand this means prices will increase. As prices for real estate increase, mortgage rates can be expected to rise, as well, as buyer qualifications and investor returns will need to become more stringent to protect lenders.
If you’ve been considering purchasing a home or refinancing your current mortgage, doing so before the foreign investment flood begins would almost certainly be a wise move.