Stimulus packages coupled with ultra low interest rates are attempts by national governments and central banks to reflate economies around the world. If these efforts are successful (I think they will) I think inflation will be an issue in 2-3 years in Canada. I think elected politicians and to a lesser extent central bankers will find it very difficult to stop priming the pump once things improve.

I think changes in the Chinese economy will also push up inflation as we move forward. A 2007 Report by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) has said inexpensive Chinese exports have kept inflation around the world in check. As China develops though, the cost of China’s labour becomes more expensive, pushing up costs for the huge amount of simple products it exports around the world.

How does this relate to Vancouver Real Estate?

Inflation will cause prices and rents in Vancouver to increase while fixed rate mortgages locked in before inflation hits will decline in real and nominal value at an accelerated rate. Equity will increase at an accelerated rate for those with fixed rate mortgages.

Variable rate mortgage holders would see their rates and possibly payments rise in line with Bank of Canada rate increases to combat inflation.

If inflation does re-appear it will be very interesting time in the Vancouver Real Estate Market.

I’d love to hear everyone’s thougths!

The Ascent of Money. Wow! What a book! I read this book when I was away in Mexico growing this crazy red beard you see me with in all my recent videos.

Niall Ferguson is an Economic Historian at Oxford and Harvard Universities and the authour of several books. In The Ascent of Money, he accurately predicted the Credit Crisis of September 2008 in early 2008. Very impressive!

In Chapter 4 of his book he discusses Real Estate. If you are interested in why property prices go up and down, this should be required reading…

Have a look at the television version of The Ascent of Money on PBS.

I’ve posted some recent videos of him discussing The Financial Crisis and would love to hear your thoughts.