The most enduring and simplistic argument for buying a house is that you’re making an investment.

What an understatement. Between your mortgage, property taxes, utility bills, maintenance, furnishings, renovations, landscaping and such, you’ll be investing non-stop in your home. But what’s the return on your money?

Looking back a decade, houses have been an excellent investment that rivalled the stock market. But the view ahead is not nearly so positive. Bear this in mind if you’re considering a jump into this high-priced and increasingly unaffordable real estate market of ours.

How did the market get where it is today? Housing economist Will Dunning says resale housing prices have grown by an average annual 4.9 per cent in Canada since March, 1988, which is the year that comprehensive real estate industry data begins.

The more recent experience with housing is even better, Mr. Dunning found. The 10-year average annual price gain for a house is 8.3 per cent, almost on par with the average 8.9-per-cent increases logged by the S&P/TSX composite index, including dividends.

What we have here is a housing market that has been rising at close to double its long-term rate in the past decade. Don’t expect this to continue.

“I’m not in the camp that says we have a big correction coming, but I think we are looking at a fairly long period of moderate changes in house prices – plus or minus 2 per cent,” Mr. Dunning said.

In its most recent update on housing affordability, Royal Bank of Canada predicted a period ahead of very modest price increases. “(The) rapid home-price appreciation of the past 10 years has likely run its course overall in Canada,” the report said.

We’ll call that the optimistic view of what’s ahead for the market. For the pessimists, the question is how far prices will fall, and for how long. Sample prediction: Toronto-based Capital Economics sees a decline in prices of up to 25 per cent in the next three years.

The negative outlooks for housing are based primarily on factors such as prices, income growth and interest rates, all of which are a function of current economic conditions and thus short-term in nature. A long-term concern for housing values is Canada’s changing demographics.

The fastest-growing component of our population comprises those who are 65 and older. In other words, people who are going to be selling houses over the decades ahead and doing very little buying, if any. That’s bound to affect demand for homes and the potential for price appreciation.

For an actual real life example of how real estate prices can fall, let’s look at what happened in Toronto between April, 1989, and February, 1996. According to Mr. Dunning’s numbers, the average resale home price in the city fell to $192,406 from $280,121, or 31 per cent.

That was an extreme plunge, fuelled in part by a level of rampant speculation that we aren’t seeing in today’s market. But prices can still fall in today’s market. Check out the Calgary market, which dipped 1.7 per cent in March.

“The fact remains that housing can decline in value, and for prolonged periods,” Moshe Milevksy, a finance professor at York University’s Schulich School of Business, wrote in his 2009 book Your Money Milestones. “It is definitely not a risk-free investment.”

Buying a house and living in it for decades can protect you from temporary market dips, just as long-term investing in stocks smoothes out the stock market’s ups and downs. Still, it’s worth noting that someone who bought an average-priced house in Toronto around the ’89 market peak and still owned it would be looking at modest annualized gains in the 2-per-cent range.

Historical changes in housing prices are just a guideline, anyway. They don’t consider things like mortgage interest, property taxes and maintenance, none of which add any value to a home.

Houses bought today have questionable investment value, but there are some other factors to consider if you’re thinking of getting into the market. First, gradually paying down the mortgage on your house is a kind of forced savings plan. Not a great savings plan, but better than nothing.

Second, there’s the best reason of all to own a house. It’s freedom: Your family, your rules, your lifestyle. That’s really what you’re investing in when you buy a home today. 

You walk into the open house, take one look and say to yourself: This is it. It’s the house I have to live in. Where do I pay? A bidding war? I’m in.

Over my years of buying houses, I never bought one that did not have that frisson moment, that thrill of finding a place so suited to my wants. Indeed, I have in the past decided that I wanted to buy a house in what seems, in retrospect, to be nanoseconds. (By contrast, I’ve taken weeks to decide on the right pair of shoes.)

It is no way to make an “investment,” to be sure. But, as I’ve previously discussed in this space, buying a house is perhaps the most uninvestment-like of investments.

Just about anyone who’s purchased a property or thought about purchasing knows that it is much about gut-feel, in which the senses can conspire to trump sense.

Now, as the major real estate selling season gets under way, along comes a survey commissioned by BMO Bank of Montreal to give statistical weight to the notion that intuition carries a particularly heavy weight in the house-buying process.

The survey by Leger Marketing found that more than two-thirds of Canadians cited a “good feeling” toward the property as a reason to buy. Meantime, though, good sense is not thrown out of that gorgeous bay window and into those manicured flower beds. More than 90% of house-hunters value affordability and location over resale value.

So, the axiom that there are three important things in real estate – location, location and location – might reasonably be replaced by the Three Ps: Price, place and personality.

Nevertheless, that resale value is not a big concern to these surveyed house-hunters – people between 25 and 45 who plan to buy a home within two years – is a telling sign of the real estate times.

With some dips here and there, Canadian house prices have been rising strongly for more than a decade. Indeed, even the recession created just a downward blip in the chart of ever-growing values, with the average national price rising 8.9% last month from the previous March (but just 4.3% excluding Vancouver).

As a result, most of the house-hunters surveyed might never have been aware of a housing market that was not rising. I suspect many in this 25-to-45 demographic believe house prices basically keep going up forever, that though they downplay resale value in the survey, the expectation for solid gains is, well, a given. (Any significant drop in prices would surely shake that belief.)

In recent times, investors have been asked if they are stocks or bonds. If you’re a stock, you are prepared to take on more investment risk. If you’re a bond, you are not.

Perhaps, though, many people are probably houses when it comes to investing. A home is both partly a stock and a bond – and somehow neither.

It is a bond because over the long term it will likely produce modest returns through the enforced savings required by paying down the mortgage. It is a stock because the gains could be outsized if the investor were to buy and sell at propitious entry and exit points for market-timing gains.

And it is neither because it is an “investment” with many moving parts and frictional costs. You don’t live in a stock or a bond, but when the house leaks, it costs money and cuts into the investment. Meantime, the costs associated with buying and selling a property are becoming more daunting in many jurisdictions, with some observers reckoning that a house is often a mediocre investment at best.

But most young first-time buyers and mover-uppers are not fazed by such commentary. Home ownership is a cornerstone of our culture, with 70% of the population owning properties and many of the other 30% looking to join the majority.

And the real estate industry has become far more adept at marketing and selling than in the days decades ago when I was in the market. Today, houses are often professionally “staged” to produce that frisson moment. Prices are sometimes set artificially low to produce that exciting bidding war and that extra frisson of “winning.”

A house, it is said, is not a home. And a home is not strictly an investment. But does a stock have granite counters? Does a bond have stainless steel appliances? http://www.financialpost.com/personal-finance/thrill+buying+house/4655339/story.html

Higher food and gasoline prices and hefty debt loads likely to be made worse by interest rate hikes will impact consumers’ buying habits going forward, say those who track retail spending.

It’s going to be tough for consumers who have depended on a low interest rate environment, said TD Bank economist Francis Fong, adding that rates are expected to go up this summer.

“The rising interest rate environment, this high household indebtedness situation — that’s all going to impede the ability of consumers to spend going forward,” Fong said Thursday from Toronto.

Statistics Canada said retail sales increased 0.4 per cent in February to $37.3 billion, giving retailers some relief after declining sales at the start of the year.

Consumers filling their tanks with higher-priced gas, along with those buying furniture and clothing, pushed sales higher in February.

But Fong said consumer spending will no longer be the same driving force going forward as it has been throughout the economic recovery.

The Retail Council of Canada said consumers are “still hanging back a little bit,” especially now that they have to spend more of their incomes on food and gas.

“Clearly, if they’re going to have spend a little bit more on basic necessities, they may pull back a little bit on the nice-to-haves, but not on the need-to-haves,” said spokeswoman Anne Kothawala.

Consumer confidence is soft and that mirrors spending, she added.

“Gas and food prices are actually very closely related. It costs more to transport goods,” Kothawala said.

Statistics Canada said the largest contributor to February’s increase in retail purchases in dollar terms was gasoline sales, which increased 1.3 per cent.

Gasoline prices have been surging along with crude oil, which began rising sharply in February with the outbreak of unrest in Libya, an OPEC member that accounted for about two per cent of the world’s crude output before civil war there.

As of Thursday, the Canadian average price compiled by GasBuddy.com was 129.6 cents per litre, up from about 118 cents per litre at the end of February.

But lower retail sales in Quebec — a 0.8 per cent decline — contributed the most towards the dampening of national retail sales, Statistics Canada said.

“The decline reflected, in part, lower sales of new motor vehicles in the province,” the federal agency said. “This was the second decline in retail sales in Quebec following six consecutive monthly gains.”

Quebec also increased its provincial sales tax to 8.5 per cent in January, up a percentage point.

Sales at clothing and clothing accessories stores were up 2.5 per cent, offsetting a decline in January. Sales at furniture and home furnishings stores grew 2.1 per cent in February, helped by gains in real estate sales.

Prof. Ken Wong of Queen’s University business school said once consumers pay down debt and spend more money on food and gas, there isn’t much left for anything else.

“You have to ask yourself what can be delayed and what can’t be delayed,” Wong said of consumer purchases.

“We cannot rely on interest rates remaining as low as they are as long as they have been going forward,” said Wong, who teaches business and marketing strategy.

Geographically, retail sales in February gained in six of 10 provinces, powered by Ontario where sales increased 0.7 per cent after two consecutive monthly declines. http://ca.finance.yahoo.com/news/Canadian-consumers-expected-capress-3544800240.html?x=0

Friendly faces in a depersonalized, online world – that’s your local bank branch for you.

Branch staff are glad to talk about your financial situation, be it debt, saving or investing. They’re also eager to sell you stuff, so it’s important to know how to talk to bankers before you go in.

Online banking is flourishing in Canada, as well it should because it’s cheap and convenient. But there’s a back-to-the-branches theme to a lot of what the big banks are doing today. There are now 300 TD Canada Trust branches open Sunday. Bank of Montreal is installing free coin-counting machines in its branches to draw people in. Canadian Imperial Bank of Commerce has just begun a marketing campaign that talks up CIBC as the place to go for financial advice.

Bank branches today are much less places to cash cheques and pay bills than they are sales centres for mutual funds, mortgages and lines of credit. Just recently, CIBC said consumer lending is the main driver of its growth plans.

One way to lend more is to attract new clients, something CIBC is trying to do through its Switch campaign. The basic idea is for people who deal with other banks to come over to CIBC for what it described in a news release as “expertise, advice and innovation.”

This represents a new phase in bank strategy. It’s no longer “come into our branches for advice,” but “our branches give better advice than their branches.”

I asked people in my Facebook community (http://on.fb.me/fvo80W) how much they rely on banks for advice and the response was on the whole quite anti-bank. But there’s a point here that may have been missed. People are becoming increasingly aware that they need to cut debt and save more, but lots don’t know how to do it. Banks can help.

Go get that help if you need it, but don’t go in uninformed.

First, you have to understand that banks are essentially sales operations. We have lifelong relationships with our banks, we share private details with them and we sometimes depend on them in moments of stress or hardship. But banks place service to clients in the context of generating revenue and profit for shareholders.

You may hear the word adviser used in the branch, but that’s just a euphemism for salesperson in most cases. Some branches now include people with serious financial planning credentials such as Certified Financial Planner (CFP) or Personal Financial Planner (PFP), but even they’re subject to work rules that suggest it’s all about the sale, not the advice.

Beware of bank products that are highly packaged rather than straightforward. Wrap products are a great example. The banks are selling these prefab bundles of mutual funds like crazy today and it’s not because they’re better than building your own portfolio by selecting individual funds. Rather, it’s because wraps often result in a higher-fee mix of funds than having a customer choose funds individually.

Bank mutual fund families include some top-notch products, so don’t dismiss them. But be wary if you notice a conversation with your banker turning into a sales pitch to buy in-house funds. Be aware that you can open up an account with your bank’s online brokerage division and buy any company’s mutual funds, as well as lower-cost exchange-traded funds, stocks, bonds and term deposits with higher rates from other banks.

Whatever your bank recommends you buy or do, ask for hard numbers to document any advantage to you. Then, ask to have the same analysis applied to alternative approaches. When you’re done talking, go home and do your own research. Be sure the rates your bank is offering for both savings and borrowing are competitive.

Why see a bank at all for help with financial matters? One reason, frankly, is that going to a bank for advice is better than living in a state of uncertainty and inaction. Yes, it would be ideal if everyone who wanted advice used an independent financial planner or investment adviser, but that’s just not happening. If the familiarity of a bank branch makes someone comfortable enough to ask for help, so be it.

It’s also worth noting that the best way for banks to sell products is to keep customers and build relationships. Self-interested sales pitches disguised as advice are relationship killers.

Inflation was hotter and more widespread than expected in March, figures released Tuesday showed, leading economists to predict that another strong reading in April could all but solidify an interest-rate hike in July.

Statistics Canada said the annual inflation jumped to a 2½-year high of 3.3% in March, well above economist expectations for 2.8%. Core inflation — which factors out volatile items such as energy and food prices — rose 1.7%, compared with an expected 1.2%.

The figures show prices are rising not only faster than expected, but also affecting Canadian wallets beyond the gas pumps and grocery stores. That puts pressure on the Bank of Canada, especially given its target inflation range is 2%.

“We were already expecting the Bank of Canada to tighten rates in July, but the March numbers were a shocker,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “This solidifies our forecast of a July rate increase.”

Tuesday’s numbers come less than a week after the Bank of Canada raised its forecast for inflation this year, citing rising energy prices. Inflation in March was also a big leap from February, when the headline number was 2.2% and the core rate was 0.9%.

Gasoline prices were one of the main reasons for the inflation surge, with prices up 18.9% from a year earlier. The strong uptick coincides with rising oil prices in the wake of unrest in North Africa and the Middle East.

The figures helped push the Canadian dollar to its biggest advance against its U.S. counterpart in two months, surging to $1.0457.

Mr. Porter said the Bank of Canada’s next policy meeting, to be held on May 31, will signal whether the Bank of Canada will move to hike rates in July.

“They’ll have strong wording hinting at an increase,” he said, adding such a move is likely if April turns out to be another month of strong inflation — which he expects to be the case.

Economists will now be paying attention to April numbers and, in particular, to core inflation.

“The Bank of Canada will get one more CPI report before their next interest-rate decision on May 31, to assess whether this was a one-off fluke or the start of a new troubling trend,” Mr. Porter said. “Suffice it to say that the bank won’t be comfortable keeping rates on hold beyond the next meeting if this is not a fluke.”

The bank last raised its interest rate in September, when it moved its benchmark number from 0.75% to 1%.

But while the strong inflation data surprised many industry watchers, economist David Rosenberg labelled the inflation fears “uncalled for.”

In a note to investors about inflation in the United States, Mr. Rosenberg, the bearish chief economist and strategist at Gluskin Sheff + Associates, said inflation targets were unlikely to meet the lofty expectations of most economists.

“Whenever we go through one of these commodity spasms, household inflation expectations take off,” he said. “But this has proven to have been a great contrary signal each and every time.”

In the United States, fears over rising fuel and food prices have led some economists to predict inflation levels in that country could top 5%, especially given the U.S. Federal Reserve is not expected to boost its benchmark interest rate this year.

U.S. inflation in March was up 2.7% year over year, according to the consumer price index. Consumers’ one-year inflation expectation was left unchanged at 4.6% after numbers were released earlier in April.

Mr. Rosenberg, however, said history shows inflation is unlikely to hit those kind of levels.

“In periods when inflation expectations breach 6%, as is now the case, inflation has always receded in the next year and by an average of 300 basis points,” he said.

The latter two years showed just how volatility in non-core items can disrupt inflation. The summer of 2008 saw economists predicting inflation levels of nearly 8%, just as oil pushed US$145 a barrel.

“A year later, the inflation rate was flirting with the 0% threshold,” Mr. Rosenberg said http://business.financialpost.com/2011/04/19/it-started-with-energy-now-inflation-has-come-home/

Let’s just say you owed somebody a ton of money but there was no legal way to force you to pay it back?

Would you? What if it was one of those evil corporate banks that make for an easy target? Did the answer just get a little easier?

Not for 60% of Americans who say it is never OK to simply stop making payments on your home, according to a survey by Eagan, Minn.-based findlaw.com, a free legal information website.

Another 34% say it’s OK to walk away from a mortgage, but only if you can’t make the monthly payments. Only 3% believe you should be able to walk away from a mortgage anytime you want, according to the survey, which interviewed 1,000 American adults and had a margin of error of plus or minus three percentage points.

It’s an interesting survey given that U.S. law in a number of states allows consumers to simply hand over the keys to their homes without the lender going after their other financial assets -something that is all but impossible in Canada.

That is not to say that walking away from a mortgage isn’t affecting the credit of Americans who do so. They might not be able to buy another house for years unless they do so with cash.

Despite what the survey says, Americans have been walking away from mortgages in droves because it makes financial sense.

Think about it. You have a home with a $500,000 mortgage on it. The present value of it is $250,000. Why would you not walk away, if you could?

“We just asked people what do you think of the idea, not would you do it yourself or have you thought about doing it yourself,” said Leonard Lee, the researcher behind the survey. “There is a practical argument, but there’s a whole philosophical argument.”

If you were shareholder in a company that owned a $250-million building but kept making payments on a $500-million mortgage even though the company had the ability to walk away from the debt, how would you feel? Would the executives be breaching a fiduciary responsibility?

The U.S. real estate industry even has a term for all this: strategic default. “You are asking at some point, doesn’t it make more sense to walk away from the mortgage where you are unlikely to recoup your original investment,” Mr. Lee says.

Ted Rechtshaffen, certified financial planner and president of TriDelta Financial, says once you put aside the moral issues, it would come down to a simple choice.

“It will impact your credit rating, but from a financial perspective, why wouldn’t you do it? You are getting a $250,000 head start. Another investment is probably going to be better than your current house,” Mr. Rechtshaffen says.

But Benjamin Tal, deputy chief economist with CIBC World Markets, says while it might not make economic sense, there is evidence Americans are not actually walking away from property as much as they probably would if they were listening to a financial advisor.

“Whatever the default rate is now in the U.S., people say it’s 8% and that’s extremely high. I say that’s surprisingly low,” Mr. Tal says. “You have up to six to seven million households that could default any day, namely because they are in a negative equity position.”

What’s in it for them to keep paying? There is something to say for wanting to stay in your home where you have been living and raising a family. There is also a stigma that comes with somebody slapping a foreclosure sign on your property -suddenly your neighbours know a little more about your financial situation.

“At the end of the day though, that’s the rational thing to do. You are talking about houses that are under water more than 20%. Based on an economics textbook, that would be the rational thing to do,” Mr. Tal says.

In Canada, it’s pretty tough to do. For starters, if you have an insured mortgage backed by the government, the bank will get paid off for its loan. But the insurance company, whether it’s Canada Mortgage and Housing Corp. or a private insurer, will go after you for any deficiency created by proceeds from the property being less than the mortgage.

It’s the case in most of the country for uninsured mortgages, too, says John Turner, director of mortgages for Bank of Montreal. Rules are slightly different in Alberta and are designed to protect consumers, but Mr. Turner says banks can elect to go after other assets in some circumstances.

There’s also the scenario where you might have bought a condominium as an investment before it was built and put down, say, a 20% payment. If you think you can walk away if prices dropped by 50% once the building is up, forget it. You’ll be sued.

“As lawyers, we can’t advise someone to break a contract. The law is not you don’t have to obey it, the law is the consequences of not obeying [the contract],” says Calgary lawyer Jeff Kahane. “You haven’t broken the law, you’ve broken your promise. Is it any different than saying why would I want to pay for a chocolate bar at 7-11 when I can put it into my pocket and steal it if I can get away with it.” http://www.financialpost.com/news/Escaping+from+mortgage+prison/4587056/story.html

Canada’s economy unexpectedly shed 1,500 jobs last month, the first fall-back since September that analysts interpreted as a sign growth is moderating from the rapid pace of recent months.

The disappointing report from Statistics Canada was not all bad — full-time jobs shot up by 90,600, hours worked rose a significant 0.5 per cent, and wages increased. Those are all signs the recovery is gaining strength.

As well, the official unemployment rate edged down one-tenth of a point to 7.7 per cent, although that was only because more Canadians stopped looking for work.

On the other side, 92,100 part-time jobs vanished in March, and if self-employment is discounted, the number of employees in Canada fell by 18,900.

Most analysts saw it as a negative signal — although a slight one — given that the economy had been pumping out new jobs at the rate of 38,000 a month since December.

As well, the United States has seen a revival in the labour market this year that many expected to be carried over into Canada, its main trading partner.

“The weaker employment performance is consistent with the view that real gross domestic product in March will be softer than in the prior two months,” said TD chief economist Craig Alexander.

But he added that moderation in growth was expected after a strong fourth quarter wrapping up 2010, and an even stronger start to 2011.

The OECD economic think-tank forecasts the first three months of 2011 will produce a 5.2 per cent jump in economic activity in Canada — the strongest in the G7 — which analysts say cannot be sustained.

The implications for federal political parties campaigning for the May 2 election are likely uncertain. There is enough ambiguity in the numbers that both the government and opposition parties can make a case for their side, said Douglas Porter of BMO Capital Markets.

“Where you stand on this report depends on where you sit,” he said. “It’s definitely a mixed bag.”

While March ended three positive months of job creation, the economy has produced more than 300,000 new jobs in the last year, 251,000 of which were full-time.

Economists were of one mind that the jobs report would also have no impact on next week’s interest rate decision from the Bank of Canada.

Most see the bank keeping the policy rate at one per cent until at least the end of May, and more likely through to July. However, that has not stopped some banks from beginning to hike mortgage rates in advance of a central bank move.

In another economic indicator released Friday, the Canada Mortgage and Housing Corp. said housing starts rose to a better-than-expected 188,800 units annualized in March, with dwellings of multiples such as condos leading the way.

Scotiabank economists said the housing figure was positive but won’t add much to the country’s economic growth, given that multiples are not valued as highly as single dwelling construction.

In March, Statistics Canada said most of the employment gains came in the accommodation and food services sector, up by 36,000 jobs, and construction, up by 24,000.

Meanwhile, 17,000 jobs vanished in the health care and social assistance sectors and 13,000 in public administration. Manufacturing also saw a reversal of fortune, with a decline of more than 9,000 jobs.

The agency said men fared better than older women and youth during the month. Employment among males 25 and over increased by 32,000, while work among women over 55 fell by 17,000, the same number of jobs decline that occurred among youth aged 15 to 24 years old.

Regionally, the big change was in Quebec, where 14,700 jobs were lost during the month. Prince Edward Island saw a significant pick-up relative to its population of 1,400. In Ontario, 63,000 new full-time jobs were mostly offset by the loss of 58,000 part-time employment http://ca.finance.yahoo.com/news/No-new-jobs-created-March-capress-3768214987.html?x=0

One-third (33 per cent) of B.C. residents say that rising food and gas prices have had a significant impact on their budget, according to the latest quarterly RBC Canadian Consumer Outlook Index (RBC CCO). In addition, more than half (53 per cent) of British Columbians say they have delayed a major purchase because of the current economic climate.

Confidence in the economy, however, is rising on Canada’s west coast. B.C.’s overall economic outlook index has moved up nine points to reach 98, its highest level this year. Coupled with this rosy outlook, nearly half (49 per cent) of B.C. residents believe they are managing their debt well, the highest ranking in the country and well above the national average of 38 per cent.

“B.C. residents are confident in the job market and believe the economy will continue to improve,” said Graham MacLachlan, regional president, British Columbia, RBC. “However, rising day-to-day costs of gas and food are starting to have an impact, so it’s good to see British Columbians making debt management a top priority. We continue to stress the importance of meeting with a financial advisor, who can help you refine your budget and financial plan, to ensure there is always room to adjust for everyday financial pressures.”

According to the most recent Economic Outlook by RBC Economics, the B.C. economy will grow at a rate of 2.9 per cent this year. “B.C. will continue to benefit from improved market conditions for most commodities produced in the province, as well as from growing demand from China,” said Craig Wright, senior vice-president and chief economist, RBC. “Expanding trade ties with fast-growing China and the further strengthening in the U.S. economy will help the B.C. economy set a slightly faster pace of growth of 3.2 per cent in 2012.”

The RBC CCO is Canada’s most comprehensive consumer assessment of the economy, personal financial situation and economic and purchasing expectations. Other provincial highlights from the March 2011 RBC CCO include:

• Economic Outlook: More than six-in-ten (63 per cent) of B.C.’s residents rate the current Canadian economy as good, two points higher than the national average; nearly half (46 per cent) believe the economy will continue to improve over the next year, compared to 42 per cent nationally. Job anxiety has dipped to 17 per cent, just one point higher than Saskatchewan and Manitoba who have the lowest job anxiety in the country at 16 per cent.
• Interest rates: The vast majority (80 per cent) of B.C. residents believe that interest rates will rise this year, compared to the national average of 74 per cent. To combat this expected interest rate increase, 31 per cent of British Columbians plan to find ways to reduce their interest costs or monthly payments, 28 per cent plan to increase their savings and/or investments and 43 per cent intend to spend less in other areas.
• Personal Financial Situation Outlook: While more British Columbians feel that, over the last quarter, their personal situation has worsened (32 per cent) rather than improved (23 per cent), more than a third (36 per cent) expect it to improve over the next year.

The Bank of Canada boosted its growth forecast Tuesday but threw a curve ball at Bay Street expectations for a July interest-rate hike by warning the “persistent strength” in the loonie could cause even greater headwinds for the economy.

While some analysts still expect the central bank to start raising rates in July after leaving them unchanged on Tuesday at 1%, others said the statement indicated the bank is in no hurry and could wait until the fall at the earliest.

“It will be difficult to pin down when the next hike will be when you have a central bank that takes the currency into account when making its policy decision,” said Avery Shenfeld, Chief Economist at CIBC World Markets. “And we have a currency that’s volatile right now.”

Shenfeld said the central bank would prefer a “softer currency” before it opts to raise rates again. He added that could unfold in July if commodity prices take a breather.

Click here for the full Financial Post article.

As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.

RBC’s annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That’s 10 percentage points more than the national average for all age groups.

Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much income — suggesting their peers may have good reason to wait.

A sharp rebound in housing market activity as Canada emerged from a recession in late 2009 and early 2010 has sent home prices soaring.

The national average home price rose 8.8 per cent year over year to a record $365,192 in February, although it was skewed upward by sales in the red hot Vancouver market where the average home price was $790,380.

Meanwhile, Canada’s job market has taken longer to recover and income levels haven’t grown at the same rate. A Bank of Montreal report released last month found average resale home prices compared with personal incomes are 14 per cent above the long-term trend.

That makes it more difficult to afford a home — as mortgage payments eat into a larger portion of Canadians’ paycheques — especially those of young people who are just settling into careers and tend to have less money saved.

In addition, young people already struggling with student loan payments may be influenced by a steady stream of warnings over the past year about Canadian debt-to-income ratios reaching record highs, suggested Bernice Dunsby, RBC’s director of client acquisition for home equity.

“Canadians are heeding some of the advice around larger debt levels and stretching themselves too thin so they’re actually taking the time to pause and reflect and plan accordingly, especially when it comes to things like their down payment,” Dunsby said.

Some young people watching home prices soar beyond pre-recession levels may be waiting for a widely predicted drop anticipated over the next year or so, said David Madani, Canada economist at Capital Economics.

“We’ve kind of reached a threshold in the sense that affordability is pretty tough,” he said.

“If you’re talking about a potential young home buyer who is living in Toronto or Vancouver or some other big market, it’s really pricey to get into right now, so that’s discouraging for some young home buyers.”

First-time buyers account for a huge portion of all Canadian housing sales, making the demographic influential in determining the health of the country’s housing market.

This year’s survey, conducted by Ipsos Reid in mid-January, came at a cooling off period in the Canadian housing market following a spate of frenzied buying in the early months of last year.

There will be a drop in demand this year after a number of factors last year combined to drive buyers to jump into the market earlier than planned, Dunsby said.

Many first-time buyers rushed into the market in the first half of 2010 while the Bank of Canada’s key interest rate — which influences commercial lending rates — was set at emergency lows of 0.25 per cent because of the recession.

Those changes affect a minority of mortgage holders who opt for variable rate mortgages linked to the commercial banks’ prime rates.

“(However) they may look at interest rates as an indicator of when to jump into the market,” said Dunsby.

Some buyers also wanted to enter the market before the new harmonized sales tax was implemented last July in Ontario and British Columbia, two of the country’s largest real-estate markets.

Although the HST only applied to some services associated with a home purchase, such as lawyers’ fees, some buyers thought it could push closing costs up a lot more.

First-time homebuyers are also most affected by government moves to change mortgage rules that made it more difficult to qualify for a mortgage. Stricter lending rules brought in the spring of 2010 require all homebuyers to qualify for a standard five-year, fixed-rate mortgage.

More recently, new changes enacted last month shortened the maximum amortization period for a mortgage to 30 years from 35, increasing the size of monthly mortgage payments.

Demand for homes began to wane last spring in the face of rising home prices and short-term mortgage rates, along with stricter mortgage rules and the exhaustion of pent-up demand from the recession.

That has put buyers and sellers on a more even footing when they negotiate.

“In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home,” Dunsby said.

“It’s also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don’t become house poor, as home maintenance and lifestyle costs can add up.”

While 43 per cent of younger Canadians told Ipsos Reid they were paying off their mortgage faster than expected, two-thirds, or 66 per cent, said their mortgages were still larger than they would like.

Rising real estate prices, along with having a large enough down payment, were the biggest concerns among young people surveyed.

Still, 43 per cent of the young adults who responded to the survey said they were looking to buy in the next two years, suggesting the housing market will continue to be healthy going forward.

That’s higher than the national average of 29 per cent for all age groups.

In comparison, only 29 per cent of Canadians aged 35 to 54 said they want to buy within two years and only 17 per cent of respondents over 55 were looking.

The survey also revealed that young people have different ideas about how to seek advice on home ownership than those belonging to older generations.

Most young people said they were more inclined to use websites, family or friends for advice while more than 70 per cent of Canadians over 45 said they would rely on a real estate agent.

The survey’s findings are based on responses from an online panel of 2,103 Canadians, conducted Jan. 12 to 17. A survey of this size has a margin of error of plus or minus two percentage points 19 times out of 20 http://ca.finance.yahoo.com/news/More-half-young-adults-capress-3474012092.html?x=0