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U.S. Fed chair plays Scrooge as markets tumble following latest rate hike: Don Pittis

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With his long face and expressive grimaces, Federal Reserve chair Jerome Powell might have played a powerful Ebenezer Scrooge, the repentant anti-hero of Charles Dickens’s A Christmas Carol.

Certainly that is how stock markets seemed to see him yesterday after the U.S. central banker hiked rates for the fourth time this year.

Powell and his team of advisers did repent somewhat, saying there would likely only be two rate increases in 2019 instead of the anticipated three. But that apparently didn’t satisfy the Dow Jones Industrial average.

Markets rise then plunge

Initially, the markets went up after the central bank released its statement revealing that, as expected, it was raising rates again, for a total hike of one full percentage point for the year.

But as Powell responded to reporters’ questions in the news conference that followed, the Dow steadily declined by 700 points. By the end of the day, the index had hit its low for the year.

The decline was described as the worst response to a rate hike since 1994, when the Fed of that time raised rates 2.5 percentage points in a year.

However, it was not obvious exactly what the markets were responding to yesterday. Before the Fed announcement, most analysts said the rate hike was locked in and markets had already taken it into account.

In fact, the two-stage process of a Fed release seemed to confirm that was true. Immediately after the printed document  came out at 2 p.m., showing that rates would indeed go up by a quarter point, the market began to climb.

Some of the analysis before Powell’s release had warned there could be consequences if he decided not to raise rates. According to that thinking, pulling back from a rate hike now would show the Fed had real fears for the economy.

But as Powell revealed in his news conference, that was absolutely not the case.

“Our forecast for next year is, I think, in keeping with most other forecasts — that we’ll still have solid growth next year, declining unemployment and a healthy economy,” Powell said.

Recession not in the cards

While economic growth won’t be as strong as the bumper year gone by, with its flood of tax cuts and fiscal spending, the economy in 2019 will be nowhere near recession.

Based on the expectations of the bankers who sit on the open markets committee that advises Powell, the median rate of growth in 2019 will be a healthy 2.3 per cent. Unemployment is expected to fall to 3.5 per cent. Inflation will remain around two per cent — right on target.

The relationship between the economy and markets is a strange one. Clearly, a strong U.S. economy is essential to business in the long term.  

But it is well known that stock markets like low interest rates. In the short term, they may even prefer low rates to a strong economy. Since the 2008 credit crisis, each time the economy sagged and required interest rate cuts, the markets seemed to be the main beneficiary.

Markets don’t like it when central bankers take away the punch bowl. (Everett Collection/Shutterstock)

Bonds, too, shot up in value as interest rates fell. 

As that process reverses, it is clear the people who own those stocks and bonds are feeling the pinch. It really is the classic case of the central banker taking away the punch bowl, especially when people like U.S. President Donald Trump have made it clear they would like the party to continue.

Do the right thing

If Powell is Scrooge, then perhaps the U.S. president has been playing the role of Jacob Marley, constantly rattling his chains and warning that the central banker should change his ways.

In the news conference, reporters asked repeatedly, and in different ways, if Powell would cave to the president’s demands to stop raising rates. Each time his answer was the same. A firm no.

“Political considerations have played no role whatsoever in our discussions or decisions about monetary policy,” Powell said in one response, never once mentioning Trump’s name. “Nothing will deter us from doing what we think is the right thing to do.”

That does not mean Powell and his advisers will be inflexible. 

The Fed chair noted that Trump’s trade war is causing concern, although, so far, it’s difficult to tease that out in the financial data. The market declines, which Powell described as “financial tightening” and a “mood of angst,” could eventually have an effect on the wider economy.

But, like Trump’s outraged tweets telling Powell to desist, they could also be evidence of a painful process where speculative growth powered by easy money goes through an essential transition.

Future financial health depends not just on returns from rising asset prices due to low interest rates but on wise investments that create productive industries and well-paying jobs.

With luck, that is the transition we are going through now.

And if not, Powell and his advisers are ready to watch the data as it comes in and adjust the path of interest rates, following their mandate from Congress to try to keep employment and inflation on track in 2019.

Follow Don on Twitter @don_pittis

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Real Estate

7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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Real Estate

10 Tips For First-Time Home Buyers

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Buying a home for the first time is exciting and a commitment to the future. It’s often challenging, too, and the process requires a lot of steps, many of which can be tricky to navigate as a first-time home buyer.

What are some things you should keep in mind as a first-time home buyer?

First-Time Home Buyer Tips

Here are 10 tips to keep in mind as you begin your journey toward homeownership.

1. Have Your Finances in Order

It’s wise to begin saving as early as possible once you’ve made the decision to purchase a house. You’ll need to consider the down payment, closing costs (which often range from 2% to 5% of the down payment), as well as move-in expenses.

You also need to understand the other costs of homeownership, such as mortgage insurance. property taxes, utilities, homeowner’s insurance, and more.

2. How Much Can You Afford?

Knowing how much you can realistically afford in a home is another important financial consideration. Look for the home of your dreams that fits your budget.

One way to avoid future financial stress is to set a price range for your home that fits your budget, and then staying within that range. Going through the preapproval process will help you understand what price range is realistic for your budget.

3. Make Sure Your Credit is Good

Another thing to keep in mind as a first-time home buyer is your credit score because it determines whether you qualify for a mortgage and affects the interest rate that lenders offer. 

You can check your credit score from the three credit bureaus – Experian, Equifax, and TransUnion.

This is another good reason for getting preapproved before you start your search. Learn more about the preapproval process and your credit score.

4. Choose The Right Real Estate Agent

A good real estate agent guides you through the process every step of the way. He or she will help you find a home that fits your needs, help you through the financial processes, and help ease any first-time buyer anxiety you may have.

Interview several agents and request references.

5. Research Mortgage Options

A variety of mortgages are available, including conventional mortgages – which are guaranteed by the government – FHA loans, USDA loans, and VA loans (for veterans).

You’ll also have options regarding the mortgage term. A 30-year fixed-rate mortgage is popular among many homebuyers and has an interest rate that doesn’t change over the course of the loan. A 15-year loan usually has a lower interest rate but monthly payments are larger.

6. Talk to Multiple Lenders

It’s worth your time to talk to several lenders and banks before you accept a mortgage offer. The more you shop around, the better deal you’re liable to get – and it may save you thousands of dollars.

7. Get Preapproved First

Getting a mortgage preapproval (in the form of a letter) before you begin hunting for homes is something else to put on your checklist. A lender’s preapproval letter states exactly how much loan money you can get.

Learn more about the preapproval process and how preapproval provides you with a significant competitive advantage in our article How Preapproval Gives You Home Buying Power.

8. Pick the Right House and Neighborhood

Make sure to weigh the pros and cons of the different types of homes based on your budget, lifestyle, etc. Would a condominium or townhome fit your needs better than a house? What type of neighborhood appeals to you?

9. List Your Needs and Must-Haves

The home you purchase should have as many of the features you prefer as possible. List your needs in order of priority; some things may be non-negotiable to you personally.

10. Hire an Inspector

Hiring an inspector is another crucial step in the home buying process. An inspector will tell you about existing or potential problems with the home, and also what’s in good order. You can learn more about home inspections and how to find a home inspector through the American Society of Home Inspectors website.

Buying a home for the first time is a challenge, but it’s one you can handle with the right planning and preparation.

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