Interest Rates, Oil Rising & Global Woes

To nobody’s surprise, the Bank of Canada decided to keep its key interest rate on hold at 1 percent yet again in its latest announcement released in mid January. While the economy and overall outlook in Alberta continue to get rosier, the same cannot be said for many other parts of Canada and more importantly, for the global economy.
The intent of keeping rates at this level is to help keep money flowing in the economy. Lower borrowing costs make it more attractive for business (and consumers) to borrow, expand and grow their operations. Increasing rates have the reverse effect on business and in areas where the economy is stagnant or slowing (like Ontario and Quebec), it’s vital for the government to use the rates to stimulate growth. Hence, no change.
For Alberta, where our economy has been becoming more and more robust, it’s just like adding fuel to the fire. The low rates will just contribute to making borrowing easier and the growth of the economy the envy of much of the world.
This continued economic growth, will continue to contribute to more people moving to the province as they seek employment and wages continuing to increase. As the resultant combination of low vacancies and more disposable cash increases, it inevitably leads to increased prices in the housing market.
Of course, this is all predicated on our energy industry remaining strong and we have both good and bad news in this sector. On the bad front, natural gas continues to be a disappointment. There are still huge excesses of inventory on the market and there doesn’t appear to be any significant price changes coming in the near future.
While Alberta is regarded as an oil province, much of the wealth actually comes from the gas industry, which has been stagnant for years now. With all the new shale projects appearing in the US and in other provinces, it really doesn’t look like natural gas will go anywhere for the next several years.
On the good front though, our oil industry is growing steadily and recent announcements by OPEC and specifically Saudi Arabia point to very positive news for 2012. In the case of oil, higher prices tremendously impact the bottom line, but more importantly, they impact the mega projects in the province.
This is why Saudi Arabia’s recent announcement where they identified $100 per barrel price point as an ideal price for them is so positive. This is the first time the Saudis have mentioned a preferred oil price since 2008 and sets the stage for where oil prices may remain for the remainder of the year, which is only good for us.
Whether it’s as good for the world economy remains to be seen. It becomes a fine line at times, as to what is most beneficial for everyone. If oil does rise too much in price, the decrease in economic growth worldwide affects demand. If demand decreases prices decrease and it affects our economic growth.
Recently it seems that line for everything to continue to move forward hovers between the $90 and the $100 per barrel mark. As we are moving forward, it appears that is exactly where values seem to be stabilizing.
All of this positive news eventually reflects on Real Estate values and is why the next several years will be very positive for the housing industry, yet again. So hopefully armed with an understanding of where the province is heading, it will give you an idea of why I’m so positive about the future of our Real Estate market, as you should be too!