Thursday, March 19, 2009

The Central Issue for Vancouver Real Estate


Well, faithful reader. You no doubt tuned in this morning and wondered where the latest blog update was.

What can I say?

I had several real estate items to post, but I have set them aside. In it’s place, a late posting on everyone’s favorite topic… the economy.

Late yesterday morning (2:00pm Eastern time) the US Federal Reserve Chairman dropped a bombshell which had an immediate impact on the stock markets.

How immediate? Check out this graph profiling the performance of a Canadian silver exchange traded fund on March 18th. Look at what happened at 2:00pm.

As you can see, the price of silver was declining, steady. Then Bernanke made his announcement and BANG! The price of a share in the silver fund shot from $14.23 to $15.00… instantly. And it kept going up from there.

This pattern repeated itself in gold, silver and commodities stocks everywhere. And today, the price of Gold shot up over $70 an ounce over and above yesterday's spike.

Bernanke’s announcement?

From the Los Angeles Times, “Chairman Ben S. Bernanke and his peers at the central bank stunned financial markets by announcing two huge steps aimed at driving down long-term interest rates, including mortgage rates: The Fed said it would buy up to $300 billion of longer-term Treasury securities for its own portfolio and that it would expand its purchases of mortgage-backed bonds to $1.25 trillion from the previously announced $500 billion.”

And why did the markets explode?

“As the Fed effectively pumps another $1 trillion-plus into the financial system, critics say it's setting a time bomb for a future surge in inflation -- the classic case of too much money chasing a limited supply of goods and services.”

As predicted last week, inflation is set to become the central story of these times.

And while Bernanke has said he intends to control the threat of inflation by pulling this money back once the economy is on solid footing, there are many investors who don’t trust the Fed, or who don’t feel the Fed will be able to control it.

In 1981, in an attempt to wrestle inflation to the ground, the prime lending rate in this country soared to 22% and the backs of US Federal Reserve policy. If you were to renew your $650,000 mortgage at that sort of rate today (22%), your monthly payment would be $11,412.24.

That’s makes this THE central story about Vancouver Real Estate right now.

Tomorrow a closer look behind the Inflation debate.



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