If there is one thing the lunar Year of the Snake has brought thus far it’s cheap money.
That’s a bit of good fortune for households and entrepreneurs in B.C. and across the country looking for financing to spend on themselves or their business.
According to the interest rate forecasts of all the major banks and Central 1 Credit Union, the long-anticipated rise in Bank of Canada’s overnight lending rate is being pushed forward to at least the second half of 2014 instead of the second half of 2013.
Slower-than-expected economic growth in Canada and muted increases in the cost of living in the country has taken away much of the rationale for Canada’s central bank to increase lending costs. The numbers have been so bad, some forecasters had even suggested the Bank of Canada could introduce a new rate cut after keeping rates at 1% for more than two and a half years.
While households should benefit from consumer lending rates staying flat for yet another year, businesses should also benefit from the low rates. As long as the rates remain low.
With commercial lending rates for real estate as low as 1.5% above Government of Canada bond rates, it’s still possible to get cheap financing to make a profit despite low real estate yields.
While narrow margins and low yields pose some risks, such transactions are in the works.
“With interest rates today, people are trying to find reasons to buy real estate just to borrow money. I’m not kidding you,” said Kirk Kuester, managing director at Colliers in Vancouver. “While valuations have been compressed to record lows, it’s working fine now because occupancy levels and rents are reasonable. What everyone is concerned about right now is when those rates begin to move a bit.”
So far the 10-year benchmark Government of Canada 10-year bond has remained below 2%. But it has been edging up this year.
How far will likely be at the whim of global capital flows. But Central 1 says that if global economic turmoil continues, expect rates to stay “stay low longer than expected.” •
