Keystone Blog

I am not an economist, but as an appraiser I am always looking at statistical barometers to aid in determining market trends. These barometers include, but are not limited to:the value of the Canadian Dollar;

• employment rates;
• commodity prices;
• interest rates;
• business start ups;
• current and past MLS stats such as number of listings, number of sales, average and median selling prices;
• population demographics;
• economic indicators nationally, provincially and internationally;
• projects

Canadian Dollar/Commodity Price/Bank of Canada Interest Rates

I am going to buck the consensus on just about everything. The general consensus seems to be that:

1. The Canadian Dollar will stay at around or above parity for 2011;
2. Commodity Prices will continue to increase;
3. The Bank of Canada will raise interest rates;

y opinion is that the loonie will, for the first part of the year, be at or near parity and then drop towards the end of the year to below 95 cents. My main reason for this is that China appears to want to decelerate their economy. They raised interest rates on Christmas Day and are withdrawing stimulus. As China is the major trader, I believe it will have a downward affect on commodity prices. The European economy is still in dangerous flux and will probably worsen which will result in looking to the safety of the US dollar. You wonder how long Germany and the UK can keep bailing out European Countries. First Greece, then Ireland and probably Spain and Italy next.

Most financial institutions and economists are saying that The Bank of Canada will be raising interest rates. I believe they will be very cautious about raising interest rates and probably won’t. Reasons:

• The US Reserve is still wanting to maintain low interest rates and continue their policy of quantitative easing. (The central bank creates money which it uses to buy government bonds to increase the money supply, thereby increasing the excess reserves of the banking system, and raising the prices of the financial assets bought (which lowers their yield).[1]
• Canadian household debt is at record highs;
• Some of the positive economic indicators that Canada enjoyed over the last couple of years are petering out (job creation, stimulus spending, etc.). I don’t believe that it will be major but enough for the BoC to forego raising interest rates.

So, as mentioned, I am not an economist and it will be interesting to watch and see how it all plays out. Forecasting is only a best guess as there are so many variances. My next blog will take a look at these forecasts in addition to other statistical information to forecast the effect of real estate prices in the Kootenay Boundary.