Monday 26 January 2015

Will falling oil prices kill the real estate market?

There's a lot of concern about the falling prices of oil and their potential impact on the economy.  The reality is everything is connected.  Besides the direct impact on oil-production companies and the province of Alberta, even local governments may see some impacts as their revenues from HST on gasoline sales falls with the price at the pump.  The oil market has some far-reaching impacts.

So could falling oil prices tank the real estate market?  Well, sure, they could.

And so could a giant earth-shattering meteor hitting the planet and wiping out all life.  But I'm not particularly concerned about that happening.  (I fully expect Bruce Willis to take care of it)

I'm no professional economist and I don't have a crystal ball, but here are some of my thoughts.

While there are some negatives to the dropping oil prices, everyone is saving money at the gas pumps.  Depending on what you do for a living, this might mean more or less savings.  If you commute to Toronto for work, drive a taxi, or work in a transportation business, gas prices are good for your bottom line.  I know it is reducing my costs of getting around for business.

And then there was the surprise interest rate reduction by the Bank of Canada last week.  This could mean lower interest rates on variable rate mortgages.  That is good for people already on variable rate mortgage, and maybe good for new buyers too.

If you live in Alberta or work in a business directly related to oil production, then you're more likely to see some economic effects on your own life.  But for the rest of us, the biggest thing to fear is fear itself, as the old saying goes. 

A much larger risk to the real estate market is everyone getting into a panic and killing the market.  So is there a risk from the oil?  Yes, but the risk may be in our heads more than in our wallets.

My advice?  Stay calm and make rational decisions based on your circumstances.


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