When I wrote my personal finance predictions for 2020, I started with this warning: “My crystal ball, like yours – like everybody’s – is severely broken.”
At this time last year, we knew that 2020 would bring its share of surprises, but nobody was ready to live through a time that’s likely to be enshrined in history books for future generations to shake their heads at.
And yet, here I am again trying in vain to make predictions for the year to come. If there’s one prediction I can make with any certainty, it’s that I won’t learn from my past mistakes and will continue my habit of trying to see into the future, blissfully unaware of what reality truly holds in store.
So, please do hold your breath as you enjoy my personal finance predictions for 2021 and bear in mind that I’m likely to be far less accurate than an octopus making world cup soccer predictions.
Prediction: Interest (and mortgage) rates will stay low
The Bank of Canada (BoC) has already come forward and said rates are likely to stay low until at least 2023. That’s good news for your debts with variable interest rates, which could include personal loans, lines of credit, and mortgages.
Fixed-rate mortgages follow a different economic indicator, bond yields, which make them a bit tricker to predict. With 5-year fixed rates already as low as 1.39%, it’s hard to imagine them going any lower – but we were saying that back in 2010 when they were in the mid 3% range, too.
I think it’s safe to say that your mortgage will not be more expensive in 2021 than it is now, andif you have an opportunity to refinance in 2021, it may be worth your while.
Prediction: More turmoil in the real estate markets
As people have become less tied to their physical desks in their physical office buildings where they have to ride the physical elevator and wear physical pants, populations have begun moving away from downtown areas. The resultant effect on real estate, combined with people unloading properties they used for AirBNB, has been a slump in condo prices and more intense competition for detached homes in suburbs and ex-burbs.
When more of us are vaccinated, watch for the pendulum to swing the other way. There could be a real push for people to start getting together again as early as the end of the year. While a number of us will continue working from home indefinitely, many will return to the office and look to take advantage of a glut of condo availability as a means to put an end to commuting.
A confounding factor in all of this is commercial real estate and how companies choose to move forward. What will become of all the office buildings? And how will it affect where and how we choose to live? This is a question that will be answered over the next decade or more with all the twists and turns of an ‘80s soap opera.
Prediction: All of us take on more debt
Low interest rates and shaky job security can only lead to one thing: more personal debt.
We’re in for a wild ride of shifting regulations and priorities, especially early in the year. Further lockdowns will spell the end of many small businesses. Job security will be shaky for “non-essential” workers. And knock-on effects will reverberate for some time.
As a result, personal debt is almost certain to rise, as people borrow against their homes and use credit cards to make it through. A relatively low cost of borrowing will make it easier to borrow more, and make it tempting to not pay it back.
If you do borrow money to make it through 2021, try to have a plan in place to pay it off quickly and avoid letting a short-term solution become a long-term problem.
Prediction: Higher taxes
In Canada, governments have opened the war chest and handed out tons of cash in an effort to keep people afloat through the pandemic. Ottawa has spent $240-billion. Provincial governments have opened their chequebooks, too. And municipalities have suffered massive revenue losses with little recourse to cut services.
Politics aside, all that money has to come from somewhere. Expect to pay more taxes in 2021, either directly (through sales, income and property taxes) or indirectly (as a result of corporate tax or austerity measures).
Prediction: Stock markets complete their recovery; average Canadians miss out
After the financial crisis in 2008 it took a few years for the stock markets to sort themselves out. After the crash in March 2020, it’s looking like it will take even less time than that. By the end of 2021, the markets may be back to where they would have been anyway.
To this you might say, “oh but stock markets are things for rich people to worry about. Why should I care if the markets are up or down or sideways?”
Because, investments are on sale!
Buying stocks and other types of investments is a great way to get your money working for you as you save for retirement. And right now, they’re on sale – but the sale is almost over.
Investing doesn’t have to be laborious or even terribly risky. There are really great options out there like robo advisors that can help you make investing decisions and grow your money. If you’re curious about investing, now could be a perfect time to get started.
The bottom line
2021 is sure to be a year of ups and downs, dictated first by how we continue to recover from the pandemic. There will be gains in some areas, losses in others, and there are sure to be a few unexpected twists along the way. Your job will be to remain level-headed, make money decisions for the long-term as much as you can, and hold on tight – it’s going to be a bumpy ride.
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