Financial institutions appear to be cracking down on rules for borrowers with self-declared income, a move that comes as Finance Minister Jim Flaherty said he’s concerned about a lack standards in the sector.

Responding to a question about whether the Office of the Superintendent of Financial Institutions was looking into the practice of banks loosening their standards for so-called stated income mortgages, Mr. Flaherty confirmed it is an issue.

“OSFI’s concern arises out of some work that OSFI has done as part of it – the ordinary course of its business to look at some of the — some of the loans being made by financial institutions. I was informed of what their assessment showed with respect to a few financial institutions which is a matter of concern and that is — that is being corrected,” he said.

The Financial Post first reported last month that the government was looking at another round of tough new mortgage rules, among the considerations being a crackdown on how the self-employed qualify.

Stated-income products have become very popular during this housing boom, allowing more banks to get involved in loaning to the self-employed. A source indicated many financial institutions have looked more at the financial behaviour of the self-employed — about 13% of the market — because income is hard to verify.

Vince Gaetano, principal of Monster Mortgage confirmed that CIBC’s wholesale arm FirstLine Mortgages Inc. is pulling out of the stated-income business. Mr. Gaetano said Street Capital Financial Corporation has followed the CIBC lead and he expects other financial institutions to follow very soon.

“We are hearing rumblings that everybody is going to be tightening up in the next week,” he said. “What’s happening is one person leads and everybody follows.”

What it ultimately means for the self-employed is they will end up back in the arms of non–traditional lenders and that means higher rates for them — something they faced in the housing market about five years ago.

“It’s bit like we are going back in history,” said one economist, who didn’t want to be named. “This is the way it used to be before the market took off.”

For his part, Mr. Gaetano said the federal government should blame itself for loosening standards on the minimum down payment required before consumers have to get mortgage default insurance. The government required 25% down last decade but it has since been lowered to 20%.

“The reason it changed is the banks were pushing their line of credit products. They could only lend up to 75% and they wanted the extra 5% to go to 80% without insurance under the Bank Act,” said Mr. Gaetano.

That drop in the minimum down payment could also be attributed to the banks being forced to buy more portfolio insurance for loans that have more than 20% down.

The banks have been seeking insurance on loans with even high down payments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.

Canada Mortgage and Housing Corp. acknowledged to the Financial Post this week it had talked to lenders about reducing its bulk or portfolio insurance as it tries to allocate its resources. The Crown corporation, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government, but it is getting close to its $600-billion limit. Third quarter results showed it was backstopping $541-billion of loans.

Banks have been scrambling to deal with the CMHC change and are said to have contacted private insurance Genworth Financial Canada and Canada Guaranty Mortgage Insurance which together have a $300-billion limit guaranteed by Ottawa for loans they insure.

OTTAWA — Canadian house prices dropped in November for the first time in nearly a year, according to the monthly Teranet-National Bank house price index released Wednesday.

The 0.2% drop followed two months of flat prices, and was the first decline in the index since a “brief correction during the three months ending November 2010,” said National Bank senior economist Marc Pinsonneault.

The national composite index, which tracks registered prices of homes sold at least twice, shows prices fell in eight of the 11 metropolitan markets tracked — one more than in October.

“Calgary and Victoria stood out with declines of 1.6% and 0.9% respectively,” said Mr. Pinsonneault, noting the declines were much smaller in the other six markets, though declines in Toronto, Hamilton and Winnipeg “are noteworthy in that these three markets are considered tight.”

December data released by the Canadian Real Estate Association suggested most real estate markets in the country are balanced, with the exception of those three cities, and Victoria, which is considered to be a buyer’s market.

November’s prices were higher than October’s in Edmonton (0.1%), Montreal (0.4%) and Halifax (0.5%).

Year over year, the composite index has gained 7.1%, up slightly from 7.0% the previous month because of a bigger drop in prices between October and November in 2010.

“Since prices began rising again in December 2010, the recent acceleration trend in 12-month changes could come to an end with next month’s report on December 2011 prices,” Mr. Pinsonneault said.

TABLE

November housing prices (% change m/m % change y/y):
Calgary -1.6 0.5
Edmonton 0.1 1.0
Halifax 0.5 2.8
Hamilton -0.3 4.4
Montreal 0.4 7.2
Ottawa -0.2 4.2
Quebec -0.2 6.0
Toronto -0.2 10.8
Vancouver -0.2 9.1
Victoria -0.9 -0.3
Winnipeg -0.1 7.5
National Composite -0.2 7.1
Source:Teranet-National Bank

Real estate investment guru Don Campbell blames the media’s sensational reporting for a lot of the confusion that exists today around the real estate cycle.

 The misinformation that results from this reporting gives rise, he says, to differing opinions as to whether real estate is a sound investment vehicle. The confusion comes from what he calls moment-in-time reporting that fails to recognize other factors that have influenced how a cycle plays out.

So when the media reports that housing starts are down and interprets the slump to mean the real estate market is slipping, that’s just plain wrong.“There’s a lot of guesswork going on,” Campbell says. “And you have people making bold statements that, for example, housing starts are down so the real estate market is down and those aren’t equative.”

Following January and February of this year, you’ll likely see reports about housing starts being up in Toronto. But don’t be fooled into thinking that the city’s housing market is on the rise again, says Campbell.  That’s an example of his moment-in-time theory, when in fact the reason for the apparent hike in housing starts will be “developers trying to slam through major developments before the possibility of a major strike by city workers.”

The influence of, say, a pending city strike or changes to the country’s mortgage regulations or large volumes of foreign money coming into the country can influence a real estate cycle by prolonging a boom, a slump or a recovery.

Understanding how and why cycles work should be top of mind for anyone involved in real estate from buyers to realtors to investors, says Campbell.

“The more time people spend doing homework and understanding the basics of cycles, the more clear and intelligent choices they’ll make when buying their home,” he says. “I think homebuyers need to start thinking as investors do in order to make a good solid decision. You can save thousands and thousands by thinking like an investor.”

The real estate cycle is a relatively simple concept that has a beginning, a middle and an end.  At its simplest, says Campbell, the real estate cycle is a number of phases ranging from a real estate bust to a real estate boom. But a deeper, more sophisticated understanding of the cycle shows that it comprises three major phases consisting of boom, slump and recovery.

According to Campbell, a real estate cycle is predictable but its duration is not. A cycle typically lasts anywhere between seven to eighteen years. To more deeply understand real estate cycles, we need to consider key drivers that push the cycle along on its regular path. Key drivers tend to be more long term and supportive such as the job growth currently taking place in Alberta, says Campbell.

Key influencers, however, tend to bump a cycle off its path some by extending the boom or the slump. Campbell cites foreign money coming into Canada as a good example of how that has influenced longer-than-expected upward real estate cycles in Vancouver and Toronto.“Once an investor grasps this, they are no longer worried by influencers such as news headlines,” says Campbell. “I’m telling you this is not rocket science and people truly believe it’s a magic crystal ball.  Then you hear sales people trying to justify the market by saying this time it’s different.  But the truth is it’s never different. The only time it seems different is when market influencers are pushing the market off its cycle.”

Political influence and financial regulation can heavily influence real estate cycles, says Campbell. Historically, real estate price bubbles occur when governments loosen their financial industries and offer favourable taxes to real estate investors. Given the deregulation of the financial industry in Europe and the U.S. over the past 15 years it’s not surprising that a real estate bubble formed and burst in those countries beginning in 2006. But by comparison, Canada refused to loosen its financial regulations and as a result managed to maintain relatively stable real estate values and a healthy banking system.

Jarek Bucholc, who owns and operates Canada REIC (Real Estate Investors’ Club),  says real estate cycles are very important in terms of investing and the more knowledge you’ve gleaned and acquired along the way, the more likely your odds of success. Not only is it vital to learn about the markets you’re interested in, he believes you need to take into account world economies and global politics as well.“If you’re having problems in Europe and the U.S., directly or indirectly our properties will be influenced by these events,” says Bucholc. “We have a crisis in the U.S. and even if our banking system is more powerful and well organized we are still affected by the crisis by our neighbour to the south. Because we are providing resources to the U.S. so automatically if there’s less demand from our neighbour than you see a higher unemployment rate and less demand for workers and migration and the real estate boom goes down.”

The Calgary-based real estate investor encourages other investors to subscribe to his golden rules when considering cycles and how best to spend your money to maximize your return. Bear in mind the kind of cycle you’re currently in so you can best use your marketing strategies. Don’t speculate that the market you’re in will appreciate and consider it a bonus if it does.

It’s important that housing professionals know what drives real estate cycles, says Michael Ponte, owner of Prosperity Real Estate Investments based in Langley, B.C.“For people in the business, it helps them prepare for those things in advance and a lot of agents don’t understand those determining factors,” explains Ponte. “It’s their business and they should truly understand their business. They want to maintain profitability and provide that extra level of service that speaks volumes about their credibility and sees them educating their clients.” 

Realtors generally understand the type of market they’re working in, says Ponte.  A recovery market is one that is balanced and experiencing steady growth with equal numbers of buyers to sellers and marginal increases in the one to three per cent range. A slump is a buyer’s market and is characterized by an abundance of inventory and a lot of negotiating. Finally, a boom is considered a seller’s market and is marked by limited inventory and lots of buyers.“It can be difficult to get your head wrapped around it but the more you can understand the markets your involved in – by looking at GDP growth and population growth and those key things that will create a boom, slump or recovery scenario – the better off you’ll be. In a lot of ways it’s like having a crystal ball.”

Do you look to real estate cycles when guiding the path of your career decisions? Is this something you discuss with clients? What cycle would you say you’re working in right now? Share with us.

While 2011 proved to be a rocky road in the economy, there is much to look forward to in 2012 in the housing market- according to Dave Liniger, Chairman and Co-Founder of RE/MAX.

Speaking about the recovery of the US housing market, Liniger says that the key to activity lies in the continuation of low interest rates.

Many believe that 2012 may the year of turnaround for the beleaguered US housing market, but Liniger draws on several factually based elements to make his predictions for the year to come.It has been stated by the Federal Reserve that homeowners can expect low interest rates to continue through the next few quarters.  A move like that has been unprecedented, and provides a unique opportunity in the housing market.With interest rates low, of course, there will be more buying activity- which will in turn bring some life to housing prices that have remained depressed throughout the recession, and afterwards.He believes as well, that inventories will continue to rise, as foreclosures will continue to rise too.  

There will be great buying opportunities on the market.He also sees the rate of homeowners fall, perhaps suggesting that those who may have been on the fringes of homeownership prior to the subprime crisis are now removed- and that those who continue to be homeowners have healthier financial situations, which contributes overall to economic health.With prices continuing to be low, there will likely be a continued interest from foreign property investors. Liniger puts 25% of purchases next year in the hands of investors. Canadians lead foreign property investment in many pockets of the country, in appealing areas like Arizona and Florida.Linger also thinks that 2012 will be the year that will see the resurgence of the real estate agent. In times of trouble, people need guidance and support that training and experience provides. He thinks that more homebuyers will be seeking this in the coming months.

According to CMHC, the seasonally adjusted rate of housing starts rose in December, mostly due to a spike in multiple urban starts, support the notion that condo development is surging in this country.

There has also been a trending towards returning to urban centers- in particular with the Baby Boomers to be closer to amenities and health care. 

Housing starts registered in at 200,200 units in December up from 185,600 units the month prior.

“The increase posted in December was mainly attributable to the multiple urban starts, particularly in Ontario and in Atlantic Canada”, said Mathieu Laberge, Deputy Chief Economist at CMHC’s Market Analysis Centre.

Multiple urban starts far outpaced single urban starts. Urban starts overall went up by 10.1 % to 181,900 units in December. Urban single starts rose by 3.8%, compared with a 14.5% surge in multiple urban starts for the same time period.

Regionally, Atlantic Canada far and away saw the most starts, claiming 52.9% of the total. Ontario and Quebec also saw rises in urban starts, with 35.3% and 9% respectively. Housing starts actually fell in B.C. and in the Prairies.

Rural starts came in at an estimated at a seasonally adjusted annual rate of 18,300 units.

We’re a little late on the New Year’s musings, but we wanted to give you a week to recover from the post-Christmas hangover. No, not the boozy hangover you get from too much New Year’s revelry — the financial hangover many of us suffer when we realize we spent too much at Christmastime.

Mid-January is a great time to take stock of you financial situation and set some goals for the new year and the years ahead. Maybe you want to reduce consumer debt and the move what you owe into a lower-interest bracket by consolidating some loans. Or maybe you want to pay your mortgage sooner by reducing your interest rate. With the record-low rates we’re seeing these days, sometimes it’s even worth getting out of your old mortgage before the contract expires and paying the penalty.

If you’re looking at options, talk to us. Steven Brouwer can help you find the best option for your situation.

By The Canadian Press

OTTAWA – Statistics Canada says the economy began creating jobs again in December after two straight months of declines, but not enough to prevent the official unemployment rate from edging up a notch to 7.5 per cent.

Canada added 17,500 jobs during the month, yet the jobless rate increased because there were more people actively looking for work.

In an anomaly, every province in Canada saw a slight increase in employment except Quebec, where losses in the construction and health care and social assistance sector contributed to a decline of 25,700 jobs.

While the overall pickup nationally ends the year on a positive note, there was little to cheer in the report.

The gains were all in part-time work and among self-employment workers, whereas December actually saw loss of 25,500 full-time jobs.

The agency says for the year, Canada added 199,000 jobs, almost all in the first six months of 2011.

TORONTO, Dec. 21, 2011 /CNW/ – According to a new study released today, more than one-in-three Canadians (36 per cent) feel more stressed this year about their finances than they did a year ago. Forty-three per cent of women and 53 per cent of Canadians between the ages of 18 to 34 feel this way.

The Canadian Financial Checkup survey, commissioned by Sun Life Financial, polled 2,131 respondents examining how Canadians feel about their personal finances, work and career, and the economy at the end of this year.

Canadians are also feeling stressed about the economy. According to the survey, one-in-five men indicated they feel more stressed about the economy than they did this time last year. It is also weighing heavily on Canadians 55 and older. Twenty per cent of this age group is also feeling more stress about the economy.

“It’s clear from the survey that the uncertain economic conditions are impacting Canadians and causing financial concerns during an already stressful time of year,” said Kevin Strain, Senior Vice-President, Individual Insurance and Investments, Sun Life Financial Canada. “Canadians approaching retirement are feeling these impacts the most because they are planning to put their savings into action. If they haven’t prepared accordingly, the current environment may be throwing their plans off track.”

Strain added that, “working with an advisor to create a solid financial plan that can weather this economic uncertainty can help ease the minds of Canadians.”

Results show that women (24 per cent) and Canadians aged 18 to 34 (30 per cent) are also feeling more stress about their work and career than they were a year ago.

“It’s not surprising that a greater number of women and younger Canadians are feeling more stress related to personal finances and work,” said Kimberly Moffitt, Psychotherapist, MMT and member of the Ontario Association of Counsellors, Consultants, Psychotherapists, and Psychometrists. “We’ve seen that women are often taking care of family finances, and the holidays are when we feel the impacts of our spending habits throughout the year.”

According to Moffitt, Canadians who fall in Generation Y are ambitious and want to move up quickly in the workforce, which can account for the results. She says, “The best way to deal with any kind of stress is to have a plan that is realistic. Make short-term goals for yourself and document them – if you set yourself up for success you’ll actually boost confidence and curb stress.”

Other interesting results showed stress varied by region:

• Four in 10 Ontarians are more worried this year than last about their personal finances. For B.C., Alberta and Quebec, the numbers were 31 per cent, 31 per cent and 32 per cent respectively.
• Twenty-three per cent of Quebecers are more stressed about work and career than they were last year. In Atlantic Canada and B.C., 15 per cent and 16 per cent said the same.
• Respondents from Ontario and B.C. are more stressed this year about the economy (19 per cent and 20 per cent respectively). For Saskatchewan/Manitoba, Atlantic Canada and Quebec, the numbers were: 10 per cent, 11 per cent and 13 per cent respectively.

Methodology
These are some of the findings of an Ipsos Reid poll conducted on December 12 and 13, 2011, on behalf of Sun Life Financial. For this survey, a sample of 2,131 adults from Ipsos’ online panel was interviewed online. Weighting was then employed to balance demographics and ensure that the sample’s composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. A survey with an unweighted probability sample of this size and a 100 per cent response rate would have an estimated margin of error of +/- 2.0 percentage points, 19 times out of 20, of what the results would have been had the entire population of adults in Canada been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.

The dollar took a tremendous hit Tuesday as risk-sensitive assets rallied with unexpected gusto. The volatility of this past session does not necessarily surprise; but the consistency in the steady build of risky exposure certainly does. We are in the gravity of the year-end, holiday trading period when the capital markets thin out as participants balance the book and step back to await the return of liquidity in the New Year.

The dollar took a tremendous hit Tuesday as risk-sensitive assets rallied with unexpected gusto. The volatility of this past session does not necessarily surprise; but the consistency in the steady build of risky exposure certainly does. We are in the gravity of the year-end, holiday trading period when the capital markets thin out as participants balance the book and step back to await the return of liquidity in the New Year. Yet, as is plainly evident now, fear and the chance of speculation are keeping the fires burning right up to the end. However, uncertainty still works to keep a significant segment of the market on the sideline (further encouraged when year-end volatility is taken into account). As such a lack of participation should naturally lead us to doubt the development of lasting trends – that is unless something fundamentally extraordinary occurs to lines all the remaining participants up on the same side of the market or draw capital in the wings back into the fold.

As it stands now, the persistence of a lasting bull trend in speculative buildup is questionable when we look at the lackluster volume figures on the S&P 500 stock index (my favored benchmark for risk appetite). Turnover for the index measured 742 million shares – in line with the monthly average and unusually sedate for such an impressive surge in price. If we look for the fundamental basis for this drive, there was little on tap that would spark the kind of optimism such a drive would imply. What clearly stands out though was speculation of the global market’s most recent stimulus effort: the ECB’s Long-Term Repo Operation (LTRO). This program is meant to provide liquidity to European banks that are facing a wave of maturing debt over the coming year and rising short-term market rate, but there are likely end objectives for encouraging financial institutions to purchase more government debt while banks could take advantage of an easy carry trade. There is generally a positive speculative influence from stimulus efforts. What truly matters, however, is the market’s confidence over the coming 24 hours. When the central bank announces the amount of funds drawn from the unlimited, three-year (and three-month) facility; the masses will have to decide whether this is encouraging for promoting stability or a concerning indication of just how strained the European banking system truly is (and perhaps that liquidity doesn’t answer the long-term issues with a broader economic slowdown and sovereign debt collapse).

As a safe haven and liquidity currency, the dollar’s reaction to the resultant sentiment should be pretty straightforward. Looking away from the heavy influence of underlying risk trends for a moment; we should also account for the greenback’s own fundamental health. We’ll ignore the housing starts volatility and instead take note of the $35 billion auction of 5 year debt. Record low rates (0.88 percent) and a 50.6 percent take from foreign interest (the highest in 16 months) show strong demand for Treasuries and thereby dollar.

Euro Advances Only Against Funding Currencies On ECB Liquidity Dump

The ECB’s call for bids on the three-year LTRO program stole the headlines Tuesday; but this was a buy the rumor event. We won’t know what the actual allocation to the Euro-area’s banks will be until the central bank reports the allocations in the upcoming session (scheduled for 10:15 GMT). There is heavy debate (with strong cases on both sides) over whether this liquidity injection will offer lasting help to the region’s troubled financial markets. Being ‘right’ in this case does not matter for traders. If we are looking for the market impact of this event, we should watch whether this program is met with optimism or pessimism. Yet, we should recognize that these are not very conducive conditions to follow through and you don’t often see a buy-the-rumor / buy-the-news event unless there is something unexpectedly encourage (which would be difficult from this event). Meanwhile, Fitch warned the EFSF ‘AAA’ rating rested with France and put French, Italian and Spanish banks on watch.

New Zealand Dollar Restrained with Rally ahead of 3Q GDP

The kiwi dollar advanced alongside its Australian and Canadian counterparts Tuesday. Anything with a high yield or distinct investment aspect to it was lifted – and the New Zealand currency was no exception. In the upcoming session, traders should keep a close eye on the 3Q GDP reading scheduled for release. An expected jump in activity through the quarter could further support its effort to level of field with the Aussie.

British Pound on the Verge a Break Higher with BoE Minutes, ECB Money Ahead

The GfK consumer sentiment survey released early this Asian session kept optimism for the UK at a three-year low. That is a fundamental reminder of what the economic conditions facing the economy are (there is still a concerning probability of a recession). However, the economic prospects for the pound could easily be overlooked in the upcoming session as the market measures the EU’s health after the ECB LTRO.

Japanese Yen Turning Dangerously Quiet – An Opportunity for the BoJ?

USDJPY has a habit of working its way into an exceptionally small range and then post an expectedly dramatic break. This pair indeed has found its way into a narrow band of price action as market participants weigh flimsy real rates (point to JPY) and the need for liquidity (point to USD). The BoJ could take advantage of this. Though they kept policy untouched this morning, intervention is leveraged in thin markets…

Canadian Dollar Rallies Alongside Gold, Inflation and Sales Figures Add Economics

The Canadian yield may not compete with its Australian and New Zealand (even its European) counterparts; but it is still a premium to its US counterpart. Furthermore, Canada has investment potential through commodity production and export. Risk trends continue to dominate this scene; but we should pay attention to this correlation. CPI data this past session helps maintain rates; and retail sales ahead defines growth.

Gold Rebound Takes Shape as the ECB Devalues Euro, Risk Rebounds

Gold is slowly retracing its steep losses through the first half of this month. With the ECB’s liquidity infusion suppressing the Euro banks’ need to liquidate assets (including gold) to raise capital and a rebound in risk appetite sending traders on the hut for cheap assets, the precious metal is finding a bid. Maintaining this push higher depends upon the level of liquidity in the market. If the market needs funds, gold will take a hit.