Interest rates are the biggest variable that is outside of our control when it comes to income properties. This week we chat about where they go from here and more importantly .... playoff time is coming ... GO LEAFS GO!!
Hey everyone, it's Tom Karadza with another rock star minute.
So, the biggest thing we look at as real estate investors, our number one risk is interest rates.
The U.S. just slightly raised their rates. Now Canada is expected to raise their rates.
So, our question is, what's going to happen over the next year? The U.S. has said they're going to raise in March, June, September, and December of this year. That would be a full 1% raise. Here's why we don't think they can pull that off. If you look at the data, and we're going to put up the U.S. debt clock here, the national debt is $21 trillion. If they raise their interest rates this year by 1%, the additional interest payments that they would have to make on their debt would be $210 billion. If they go ahead over the next few years and raise interest rates 3 or 4%, they would essentially more than double their deficit.
The current deficit, $734 billion according to the U.S. debt clock. If they raised their rates 4%, which goes back to a kind of historical norms, they would more than double their deficit. We can't really see this happening.
How are they going to raise their rates 4% over the next few years? They might even stop this year and not even do the full percent. And historically, we're going to throw up another chart now, historically Canada follows whatever the U.S. does. So, if the U.S. might stop earlier than they have forecasted raising rates, maybe Canada stops too.
So our question to ourselves is, we always have to be paranoid, right? As real estate investors, we are long-term positive, short-term paranoid. That's the way we look at the markets, and that's why we're so focused on interest rates, but it looks to us that although low-interest rates might creep up a little bit, much longer term, like a year, 2, 3 years, they may not be going up very much at all because they just can't afford to do it in the U.S. and Canada then might not follow raising their own rates. Just something to think about.
I got to address the jacket before we leave. The Leafs are entering the playoffs. We're huge Leaf fans. I've been a Leaf fan since I was a kid. I used to stare at a jacket like this and wish I had one, I never had one. So, I bought myself one in anticipation of the Leafs playoff run going deep this year. We're super pumped, go Leafs go! Until next time, your life. your terms.