Making Cents of Mixed Messages
by PJ Wade
Wednesday, June 20, 2012
Early this spring, the Bank of Canada led the call for interest rate increases, but a few months later, it's holding steady on rates. The Bank decided to keep it's trendsetting overnight rate at one per cent for the 14th consecutive policy announcement. Its recent media release attributes its change of plans to "a sharp deterioration in global financial conditions."
Anyone who's been watching the news out of the European Union, online and off, is not surprised at the Bank's reason for shifting financial policy. They're just surprised that the Bank missed what seems obvious.
This may be an instance of being blind-sided by one's own agenda and biases. The Bank's experts favour increased rates for domestic reasons, and, therefore, may have unconsciously underestimated the impact of global connections. Biases are distracting.
Hanging out with like-minded people can limit thinking. The commercial banks await rate hikes and related profit increases. Their eagerness may create a subtle atmosphere of expectations in the "everyone knows everyone" financial community that includes Bank of Canada experts.
The Winnipeg Free Press also credits the Bank's un-decision to "an uneven Canadian recovery that is not quite [as] strong as advertised." Meaning that the Bank was taken in by the "no-bubble-here" hype that promotes unbridled real estate buying?
If you relied on Bank of Canada projections of pending increased borrowing costs to make real-estate decisions this spring, you may be disillusioned to learn that with all the federal bank's experts and its inside track, the Bank of Canada missed it. There are many other examples of know-it-all financial types and organizations getting it wrong. This is not an unusual situation, but it should be considering how much they all earn.
1. What can we learn from this disillusionment? Even though technology makes us more interconnected than ever before in history, no one knows what's next. It's just the odds: with so many guessing across so much media, someone will always hit an emerging reality on the head and get the credit for being really smart. That means if you take the time to observe what is going on, you can be right too. Instead of waiting for the experts to interpret the world for you, take a shot at it yourself. What's happening in your local real estate market? Talk to people. Listen. Patterns will appear.
2. The mistakes we make as individuals are mistakes organizations and governments make too. Which of your biases are leading you in the wrong direction or causing you to miss opportunity? This is not a matter of determining what the banks will allow you to buy, but of deciding how you want to live out your future, then figuring out how to leverage resources and connections to get yourself there. Too lofty for you? Simply, if you want more than you can manage alone, buy with partners or tenants, or make it part of your business to have access to the type of real estate that you want to spend time in. Your assumptions, biases, and limiting beliefs are the biggest obstacles to overcome. Start by deciding what you know is impossible. This will reveal what's holding you back. Usually, if you can imagine something, you or someone can figure out how to achieve it. Since we're talking real estate, search out a creative-thinking real estate professional to help you tackle what seems impossible. You may be surprised at the possibilities that emerge.
3. Low interest rates are driving real estate markets. How are you taking advantage of that fact? Make sure you take advantage of this financial calm before the rate-hike storm. Put real estate to work for your future. What will that mean for you? Buying more real estate than just your home? Selling to realize profit? Or both? Avoiding debt makes sense too since, when rates rise, you'll be working harder to pay for things that are long gone, unless that debt is a manageable mortgage on hot real estate.
4. Solid financial and real estate knowledge is valuable. Have you found good sources for both? If not, why did you quit looking?
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