Wow, I can't believe 2020 is coming to a close - what a year!! It has me thinking of the new year, what that means for me personally, this world and of course our (collective) finances! Here is what I see coming in 2021, as it relates to personal finances. Some are good, some not so much. Such is life.
Let me get the bad news out of the way first. Taxes. They are going up. It may start in 2021, dependant on when the governments stop pumping stimulus into the economy, but tax hikes are inevitable, it's just a matter of when. Many of the first world governments (US and Canada to name a couple, and the two I am the most familiar with) have put billions and billions of dollars into the economy to try to offset the economic impacts of various levels of lockdowns that we've seen this year. Eventually, these funds have to be paid back, and the way governments get paid back is well, through taxes. This could come in the form of income taxes, capital gains and investment taxes, sales taxes - you name it. My advice on the subject of taxes is, get some advice. In Canada for sure, there are some additional tax write offs/credits that you could be taking advantage of in 2020, and on the flip side - some of the government support that was offered and given out will see some Canadians having a tax bill at the end of the year (ie. if you collected the CERB). All to say, get some advice. Ensure that you are doing everything (legally) possible to minimize your tax obligation.
Mortgage rates are at an all time low, and they will likely stay low for at least 12 months. In Canada, the Bank of Canada said that they didn't foresee large increases to their rate until 2023! That's a long time in a 5 year mortgage. There are many people that have locked in at rates above 3%, that could get a mortgage today for half that rate. It's worth having a look at your mortgage, and understanding what the cost would be to break it and refinance. There could be some significant interest savings. I could get into a whole other conversation here about variable rate mortgages versus fixed rate mortgages, but I'll save that for another day. What I will say today, is if you have the opportunity to get into a new mortgage or a renewal this year, consider wading over to the variable rate mortgage side. It's not that risky. In 10 years, I've never had my payment change during my term, and the rates have been up and down like a yo yo. And I've saved thousands of dollars in interest costs had I got a fixed rate mortgage. In 50 years, variable rate mortgages have been the better option and less than 20% of people take advantage of this. This is mind blowing to me! I'd love to help people be more comfortable with this option. The problem is, it's typically banks that sell mortgages, and they make great money on fixed rate mortgages, so that's what they push.
The financial markets will continue to recover. Typically after a market crash, recoveries take several years. This year, the post-pandemic-crash market has come back quicker than expected. While there is still a lot of volatility in the markets, there is still some opportunity to get in. I hesitate to share this advice because I advocate for people not to time the market, to just invest consistently, but perhaps this is the incentive that some need to finally get going on this front. Read my other blog post here to review your investing options, and reach out if I can help.
Condo prices have softened this year. Why? Because investors that held these units in large city centres that were collecting frothy nightly rates on Airbnb, saw their rental incomes diminish to almost nothing when travel bans and work from home arrangements came into play in 2020. Home/condo owners saw an opportunity to move out of the city once their daily commute moved from 90-120 mins a day to 10 seconds from the kitchen to the home office. On the flip side, houses, rural areas and cottage country have seen bidding wars as people try to adapt to a non existent commute and a need for more space at home (for work and family life). All of this provides a buying opportunity in the condo market. If you are trying to get into the real estate market, or you're looking to add an investment property to your portfolio, their is a flood of supply now. The reality is, people will travel again, and return to their offices, and condo prices will grow again. Everything is a cycle, and while mortgage rates are dirt cheap it might be a good time to consider this.
Last but not least, one of the topics on everyone's minds these days. Travel. People are starved to start travelling (safely) again. I believe travel will pick up in the back half of 2021, once the vaccine is widely distributed. But as the most basic economic principle states - as demand increases, so will the price. The cost to travel in the back half of 2021 will be more expensive than it is now, or was prior to the pandemic. The airlines are on life support. They are offering incentives and deals in order to secure future bookings, and pay their bills. Many of the airlines have been offering extra flexibility and free changes (at least one), so it might be a good opportunity to plan and book your travel in the first quarter. These prices aren't going to last!
What are your thoughts? Agree, disagree? Will any of these predictions impact how you plan 2021?
Happy New Year! Much love, gratitude and money.