9 Feb

Tighter inventory levels helped to make the last decade one of the healthiest periods on record for Canadian real estate…

General

Posted by: Steven Brouwer

Tighter inventory levels helped to make the last decade one of the healthiest periods on record for Canadian real estate, insulating markets in major centres from the peaks and valleys characteristic of past decades, according to a report released by RE/MAX.

The RE/MAX Housing Barometer Report measured monthly sales-to-new listings ratios in 18 major centres across the country from January 2000 to December 2010. The report found strong seller’s/balanced conditions prevailed for much of the timeframe, prompting significant gains in housing values. The lone exception was when the market dipped into buyer’s territory during the latter half of 2008 and early 2009. But fewer listings served to offset diminished demand and provided greater stability. 

Average price increases from 2000 to 2010 ranged from an annually compounded rate of return of 4.82% in London-St Thomas to a high of 9.56% in Regina. The national average was 6.82%. By far the tightest market in the nation was Winnipeg, where sellers ruled the roost for 85% of the decade, followed by Hamilton-Burlington (67%), Regina (63.6%), Kitchener-Waterloo (59.8%) and Edmonton (57.5%). 

Housing markets have been remarkably hearty over the past decade and the stage is set for a better than expected 2011. Inventory has proven to be an effective form of market self-regulation, providing both an ideal climate for price escalation and a shelter in periods of softer home-buying activity. As a number of city centres are already reporting stronger than usual activity out of the gate, it’s clear supply will continue to be the wild card in 2011.

 Click here for more details from RE/MAX.

9 Feb

The Canadian Real Estate Association has raised its sales forecast for the rest of the year,

General

Posted by: Steven Brouwer

The Canadian Real Estate Association has raised its sales forecast for the rest of the year, calling for a smaller decline than it originally expected as low interest rates keep buyers in the market. 

The association now expects sales to fall by 1.6% in 2011, compared to its November call for a drop of almost 9%. Prices are also expected to do better than forecast, with a gain of 1.3% instead of a slight decline. 

 “The hand-off going into 2011, together with the highs and lows for sales activity posted in 2010, provided guidance for CREA’s revised forecast,” said Chief Economist Gregory Klump. “The announcement of the new changes to mortgage rules will likely bring forward some sales into the first quarter that would otherwise have occurred later in the year.” 

 For 2012, CREA expects sales to slightly outpace 2011 and prices to advance by another 1.3%. The forecast is at odds with a recent report by Capital Economics, which said prices could fall by 25% in the next three years as interest rates rise. Several Canadian banks raised their mortgage rates by 25 basis points this week. 

Click here to read the full Globe and Mail article.

9 Feb

As consumer debt levels soar and baby boomers approach retirement…

General

Posted by: Steven Brouwer

As consumer debt levels soar and baby boomers approach retirement, the federal government is looking at adopting a long list of measures designed to prod Canadians into making smarter financial decisions.

The measures recommended by a federal task force cover a wide range of initiatives. Employers who offer pensions would be required to automatically enrol employees and escalate their contributions, so that employees would have to opt out rather than opt in. Financial institutions would be forced to simplify and improve information available about everything from mortgages to mutual funds. Tax breaks would be offered for workplace financial literacy programs, and students would be taught more about debt if they take out a student loan.

 

Click here for the full Globe and Mail article.

9 Feb

Whether you own a house or are looking to buy, rising mortgage rates are your enemy.

General

Posted by: Steven Brouwer

You think you know that, right? With Monday’s announcements that TD Canada Trust and CIBC are raising some of their fixed-term mortgage rates by as much as one-quarter of a percentage point, let’s see if you do.

 

Rising rates will make affording a first home much harder – so much so that you’ll pay more even if housing prices decline. Higher mortgage costs will also shrink the cash flow of families that stretched to buy a home but were getting by in a low-rate world – potentially by thousands of dollars a year. 

 

People looking for a home face astronomically high prices in some cities, but they benefit hugely from very low mortgage rates. What a dilemma these people face – buy now to lock in manageable borrowing costs for a while, or risk higher mortgage rates while hoping for housing prices to fall. 

 

Click here to read more in the Globe and Mail

26 Jan

Canadian, U.S. consumers more hopeful about jobs, finances, purchases

General

Posted by: Steven Brouwer

North American consumers are starting to feel better about their personal finances and the economy, a hopeful sign for the still fragile recovery.

Two fresh surveys, one by the Conference Board in Canada and another from the International Monetary Fund in the U.S., detected an identical pattern of rising confidence in January, although relative optimism continues to be stronger north of the border.

Canada’s confidence index rose 7.1 per cent this month to 88.1 points, the highest since the initial optimism coming out of the recession in the latter half of 2009 and early 2010.

Overall, the U.S. measure still lags Canada but in January it reached its highest level in eight months, rising to 60.6 from 53.3 in December, according to a Conference Board survey there.

Releases from both the IMF and the Conference Board note that levels are still below what would be considered positive, although they are improvements over recent months. Analysts generally welcomed the stronger consumer sentiment.

“In all, better consumer expectations in January bode well for a continued upturn in consumption…which will in turn prove supportive of overall economic activity,” said Martin Schwerdtfeger and economist with the TD Bank.

The increases follow a month of generally more upbeat economic news, particularly in the U.S., which has seen the early stages of an employment recovery and strong manufacturing activity.

But Conference Board of Canada economist Pedro Antunes said while positive news played a part, both in Canada and the U.S., there is also a predictive element to the surveys.

“This is really about looking ahead…and people are a little more optimistic,” he said.

Still, some economists cautioned against reading too much into surveys — for instance, whether more upbeat consumers will translate into more sales of homes, cars and appliances.

“It’s actions that speak louder than words,” said Scotiabank economist Derek Hold. “The way people manage their money and spend can be very different from how they say they will.”

While conditions appear to be improving, that comes after last year’s summer period faced generally downbeat news, when Canada’s recovery slowed to one per cent and the U.S. became so weak both the central bank and the government launched a second round of stimulus measures.

On Monday, the International Monetary Fund gave a modified thumbs up to the global recovery, while noting that advanced countries, including Canada and the U.S., will continue in the slow-growth lane for the next two years.

The IMF predicted Canada’s growth will average 2.3 per cent this year and 2.7 per cent in 2012 — one-tenth of a point less than the Bank of Canada’s estimate of the previous week. The U.S. will grow by three per cent and 2.7 per cent in the next two years, largely thanks to stimulus, the Washington-based financial institution said.

Both countries will get a better measure on how their economies are progressing in just over a week’s time when employment figures for January are released.

Canadians’ rising confidence was seen across a range of measures, but not uniformly across the country.

One of the clearest signals was that 28.1 per cent of respondents said they expect their financial situation to improve in the coming six months, up 3.3 percentage points. The number who felt the next six months looked worse, dropped by 0.7 point to 15.1 per cent.

The respondents were also more confident about Canadian labour markets, with those who felt job opportunities would increase over the next six months rising 1.4 percentage points, while those who felt conditions would get worse falling 2.7 points.

There was also a clear signal that more respondents felt good about making a major purchase, although the optimistic camp and pessimistic group each represented about 44 per cent of respondents.

“Whether this sudden improvement on the major purchases question can be sustained remains to be seen. But, coupled with the increasing optimism about future employment opportunities, it does suggest healthy consumer consumption going forward,” the Conference Board said.

Regionally, confidence rose the strongest in Ontario and the Prairies. Quebec registered a modest increase and British Columbia and Atlantic Canada were slightly less optimistic than they were in December.

The Canadian finding is based on the result of over 2,000 interviews conducted between Jan. 6 and 17. The margin of error is estimated at plus or minus 2.2 percentage points.

24 Jan

Tighter Mortgage Rules May Yet Save Us From Ourselves

General

Posted by: Steven Brouwer

People who remember the days when there was only one type of mortgage — with interest fixed at five per cent annually for the entire 25 years — will also remember the cartoon character Pogo saying: “I have met the enemy, and he is us.”

Indeed, there are times when we need to be saved from ourselves.

Two years ago, when Trevor Hamon was branch manager with Dundee Private Investors, he warned of serious peril by banks offering home-equity lines of credit and by people taking debt into retirement. I’ve since seen people go $100,000 into their HELOC, lose it investing on penny stocks and essentially wind up paying for their home twice.

In fact, Canadians currently owe $1.48 for every dollar of their disposable income, which is more household debt per capita than in the United States. And the argument that household debt is immaterial as long as the value of the house increases is no longer comforting. TD Economics expects existing home sales in Canada to drop about eight per cent in 2011 and prices to slip one per cent.

So the government faced two options — raise Bank of Canada interest rates, which would soon increase mortgage rates, or tighten mortgage lending rules, which was wisely done for the third time since 2008.

Effective March 18, the maximum amortization period is reduced from 35 to 30 years for government-backed mortgages with loan-to-value ratios greater than 80 per cent; and the maximum Canadians can borrow to refinance their mortgage falls from 90 to 85 per cent of the value of their homes.

In addition, effective April 18, the government will no longer insure lines of credit with homes as collateral, such as home-equity lines of credit.

The Canadian Association of Accredited Mortgage Professionals said in a news release that it “supports measures that strengthen owners’ equity in their homes and encourages the reduction of their mortgages. CAAMP is also pleased that there was no change made to the down-payment requirement as it recommended.”

Less enthusiastic was Randall McCauley, vice-president of government relations at the Canadian Real Estate Association, who said in a release: “We’re not sure the government needed to take this step now.”

Much has been made about how reducing amortization periods from 35 to 30 years on a $300,000 mortgage at four-per-cent interest will cause monthly payments to go up $105. Instead, people should be thankful that the change will save them $42,288 in interest.

Adrian Mastracci, portfolio manager with KCM Wealth Management in Vancouver, has shown that paying off a $240,000 mortgage at 5.75 per cent costs you $65,165 in interest if paid off in 10 years, but $313,410 in interest if paid off over 35 years.

Said Mastracci after the latest mortgage changes were announced: “The repayment of debt is a best investment for many, particularly in jittery times, and it’s risk free.”

Two rules of thumb are not to go into debt for consumer purchases using either home equity because the value of the home could drop, or retirement savings because you might not be able to fund living expenses once employment income ends. The exception is when you combine the two by taking out the $25,000 allowed from your registered retirement savings account under the Home Buyers Plan, which makes sense because you have to pay it back or be taxed on the withdrawal, and because you’re not paying interest on the loan.

The concept of home ownership is often founded on three beliefs: that interest rates won’t spike, making payments unbearable to maintain; that the homebuyer will remain employed; and that property value will continue to rise and build up equity.

But in the U.S., after prolonged near-zero interest rates lured people to buy houses, interest rates rose, the financial crisis boosted unemployment and people used their homes as automatic-teller machines, refinancing them to buy depreciating assets like gas-guzzling cars and flat-screen TVs. The result was a deluge of houses for sale, which lowered prices and in many cases wiped out home equity completely.

The Canadian government saw housing become a sinkhole in the U.S. and has decided to Sherpa us around that crevasse.

In 2006, mortgage insurers, including Canada Mortgage and Housing Corp., began extending amortization periods from 25 to 30 years, then 35 and even 40. There was even talk of 50-year mortgages. At the same time they began insuring interest-only loans that essentially required no down payment.

When more than half the mortgages taken out during the first six months of 2008 had 40-year amortization periods, the federal government started putting speed bumps on the road to ruin. It reduced mortgage maximums to 35 years and eliminated interest-only loans by requiring a minimum five-per-cent down payment.

Last year came a second round of changes, making borrowers meet the standards for five-year interest rates, lowering maximum mortgage refinancing from 95 to 90 per cent of home value and requiring a 20-percent down payment for government-backed mortgage insurance on rental or investment properties not lived in by the owner.

And now, a third wave of changes, to save us from ourselves.

Read more: http://www.edmontonjournal.com/business/Tighter+mortgage+rules+save+from+ourselves/4142963/story.html#ixzz1ByqpkuYN

20 Jan

Lending standards may already be too tight: mortgage professionals

General

Posted by: Steven Brouwer

The risk of mortgage rates rising to unaffordable levels in the near future is “negligible” and recent measures taken by Ottawa to clamp down on housing loans may be too harsh, says Canada’s mortgage industry association.

Due to the effect of tightened lending rules “housing demand at present and for the near future is probably lower than it needs to be,” according to the Canadian Association of Accredited Mortgage Professionals, which represents brokers and others in the industry.

In fact, the group suggested in a report Wednesday that the rules may need to be relaxed.

CAAMP said that a vast majority of borrowers studied had left themselves room to absorb a hike of as much as one percentage point on fixed-rate mortgages and even more on variable-rate mortgages.

“Canadians — lenders and borrowers — have been highly prudent in the mortgage market,” Will Dunning, the association’s chief economist, wrote in the report.

“There have been some calls for mortgage lending criteria to be tightened further. This analysis concludes that Canadian lending criteria are already tight enough. In fact, some might argue that with the changes implemented in April 2010, Canadian criteria are currently too tight.”

The report came two days after federal Finance Minister Jim Flaherty further altered lending rules to curb higher-risk borrowing in the housing sector. Changes coming into effect in March include reducing the maximum amortization period to 30 years from 35 for insured mortgages and limiting how much money Canadians can borrow using their homes.

It was the third time mortgage rules have been tightened in the past three years, a period in which historically low interest rates have been fuel for rampant borrowing.

On Tuesday, Bank of Canada governor Mark Carney left the key overnight lending rate untouched at one per cent, but with a renewed warning that household debt is mounting.

Both Carney and Flaherty have warned repeatedly over the past several months that Canadian consumer debt is rising too rapidly and threatens the future health of the economy.

Flaherty dismissed the CAAMP report Wednesday, noting that the group has a vested interest in seeing the housing and mortgage markets remain robust.

“My concern has been to strike the right balance between the availability of credit in the residential housing sector and the danger of developing any sort of bubble in the housing sector,” he told reporters, adding that he doesn’t believe further tightening will be necessary at this time.

John Andrew, a professor at Queen’s University School of Urban and Regional Planning, said it’s unlikely mortgage reforms would put a significant chill on the housing market because the changes are aimed at the highest-risk borrowers, who are already unlikely to qualify for insured borrowing from most lenders.

“I dispute their claim that the housing market is slowing down,” he said.

“I don’t see (mortgage changes) really affecting the market that much because there really aren’t that many lenders that are going to be lending … to that type of a borrower anyway.”

But CAAMP said changes made by Flaherty last April had already disqualified a significant number of potential borrowers, thereby curbing debt growth.

Last April, the government introduced changes that forced borrowers to meet the standards for a five-year fixed-rate mortgage even when applying for a lower interest, shorter-term loan.

That slimmed average gross debt service ratios, a measure used by banks to test how much housing debt will eat into income, by about one per cent to 19.3 per cent in the second half of the year, the CAAMP report said.

The study also tested the impact of higher mortgage interest rates, assuming a rate of five per cent by the end of 2012. That would raise the cost of a fixed-rate mortgage by about one percentage point but would have a bigger impact for those with variable rates, about 2.5 per cent.

It found that expected increases in income levels should more than offset increases in interest rate payments and most borrowers would be able to absorb the shock.

“Recent mortgage lending, in an environment of very low interest rates, results in some risk of financial difficulties if and when interest rates increase in future,” Dunning wrote in the report.

“However, the degree of risk does appear to be extremely small.”

Still, the CAAMP report found the amount of outstanding mortgage debt in Canada surpassed $1 trillion in August and stood at $1.08 trillion in October — about 57 per cent higher than five years earlier.

That represented a debt growth rate of 9.4 per cent per year. The figure is slightly lower than the average over the past decade, but troubling because it far surpassed income growth.

Mortgage defaults also remain higher — at about 0.43 per cent — than they were before the recession, when the rate stood at less than 0.30 per cent, the report found.

However, CAAMP said that as the housing market slows, debt growth is already decelerating and as of October stood closer to seven per cent, below the 10 per cent average for the decade.

The report was based on 59,000 insured mortgages for home purchases and 26,500 for refinancing that were funded in 2010. The vast majority of those included in the data — 97 per cent —were considered high risk, meaning the loan-to-value ratio exceeded 80 per cent.

19 Jan

The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market

General

Posted by: Steven Brouwer

The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Minister Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

“The economy continues to be our Government’s top priority,” continued Minister Paradis. “Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”

The new measures:

  • Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
  • Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
  • Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Our Government’s ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

19 Jan

Bank of Canada maintains overnight rate target at 1 per cent

General

Posted by: Steven Brouwer

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding at a somewhat faster pace than the Bank had anticipated, although risks remain elevated. Private domestic demand in the United States has picked up and will be reinforced by recently announced monetary and fiscal stimulus. European growth has also been slightly stronger than anticipated. Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. In response to overheating, some emerging markets have begun to implement more restrictive policy measures. Their effectiveness will influence the path of commodity prices, which have increased significantly since the October Monetary Policy Report (MPR), largely reflecting stronger global growth.  

The recovery in Canada is proceeding broadly as anticipated, with a period of more modest growth and the beginning of the expected rebalancing of demand. The contribution of government spending is expected to wind down this year, consistent with announced fiscal plans. Stretched household balance sheets are expected to restrain the pace of consumption growth and residential investment. In contrast, business investment will likely continue to rebound strongly, owing to stimulative financial conditions and competitive imperatives. Net exports are projected to contribute more to growth going forward, supported by stronger U.S. activity and global demand for commodities. However, the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.  

Overall, the Bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012 – a slightly firmer profile than had been anticipated in the October MPR. With a little more excess supply in the near term, the Bank continues to expect that the economy will return to full capacity by the end of 2012.

Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the Canadian economy. Core inflation is projected to edge gradually up to 2 per cent by the end of 2012, as excess supply in the economy is slowly absorbed. Inflation expectations remain well-anchored.  Total CPI inflation is being boosted temporarily by the effects of provincial indirect taxes, but is expected to converge to the 2 per cent target by the end of 2012.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. 

30 Dec

Got five minutes to cut costs on your bills?

General

Posted by: Steven Brouwer

Another year has come and gone and you’re wondering how to improve your finances. You’ve relinquished your latte habit and given your shoe fetish the boot, yet you don’t seem to be able to save as much as you’d like. It’s too hard to trim expenses, you say. It takes too much time to budget. And, blech, comparison shopping for the best prices zaps your strength.

1. Mortgage

If you do nothing else to save money in the new year, take five minutes to see how increasing or accelerating your mortgage payments can save you thousands of dollars in interest. Grab your latest mortgage statement, plug your numbers into Industry Canada’s online mortgage calculator, then play around with the figures.

See how much you could save if you switched to biweekly payments or increased the amount by 5 per cent or more.

The site can also show you what would happen to your payments if interest rates changed or you refinanced your mortgage. That should provide all the incentive you need to plan your mortgage-burning party.

2. Insurance

If you have a house and a car, you’re likely spending thousands of dollars a year on insurance. Kanetix.ca is an excellent one-stop resource for comparing home, auto, health, travel and life insurance policies. Fill out a simple form about your driving history, for example, and you’ll get free quotes from more than 40 auto insurance providers. Use those quotes to find a cheaper policy or negotiate a lower rate with your current provider.

And while you’re reviewing your rates, take a few minutes to think about whether your home insurance is adequate. If you’ve recently inherited grandma’s jewellery, notify your insurance provider to make sure it’s covered.

3. Banking

Considering how much profit the big banks make from consumer fees, you owe it to yourself to spend five minutes trying to reduce your piece of the pie. Pull out a recent bank statement and use it to fill out a personal profile at the Financial Consumer Agency of Canada’s online comparison tool. Answer a few questions about your average balance and how often you do certain transactions, and you’ll get a list of the financial institutions with the lowest-fee banking packages that best meet your needs.

4. Mobile

Do you really need that unlimited wireless plan? You won’t know unless you do your research. A Billshrink.com survey found eight out of 10 people are paying an average of $300 more than they need to each year on their wireless bills because their plans do not suit their needs. Spend five minutes at a cellphone comparison site such asCellPlanExpert.ca, answer a few questions about your talking and texting habits, and you’ll get a list of cellphone plans, complete with prices and features.

5. Credit cards

According to RateSupermarket.ca, nearly half of Canadians have not changed their credit card company in the past five years. If you’re part of that complacent group, it’s time to do some comparison shopping. You can find online comparison tools at many sites, including the FCAC. Answer a few questions about your spending habits and what type of card you’d like and voilà: a table of credit cards appears with all the fees and features compared. Spending five minutes to find a better credit card deal: priceless.