A BMO survey showed that 69% of Canadians are open to the idea of a shorter amortization. 

“While the purchase of a home represents an important investment for many Canadians, those looking to get into the housing market now or in the near future should be considering financially responsible options, such as a 25-year amortization, to ensure they can pay down debt faster and begin saving more for their long-term goals,” said Martin Nel, Vice President, Lending and Investment Products, BMO Bank of Montreal. 

“Canadians should be realistic in measuring what they are able to afford when it comes to the purchase of a home. Taking on a larger mortgage with a longer amortization in order to afford a ‘faux chateau’ will mean carrying the debt load longer and ultimately paying more in interest over the full term.”

Click here to read the BMO press release.

This latest bout of concern is being fuelled, among other things, by:

1) Record consumer debt

2) Mark Carney’s debt warning

3) Concern by TD & BMO’s CEOs over 35-year amortizations 

It’s clear that debt-to-income ratios cannot be left unchecked forever. Eventually consumers will have to reign in credit or the government will do it for them. The repercussions are undeniable. Unabated debt can put Canada’s economy in peril. If macro shocks occur, high debt ratios mean people have less ability to weather income reductions or home price declines.

The nightmare scenario is runaway defaults. Defaults sparked by economic crises can create a “negative feedback loop” says Mark Carney. That occurs when desperate home sellers drive down prices and beget more desperate home sellers.

The good news is that Canada’s regulators are keenly aware of these risks. The Bank of Canada, default insurers and major lenders regularly collaborate on ways to control systemic risk. One important tool is “stress testing,” which involves creating “what-if” scenarios using dire economic assumptions.

Click here to read the CanadianMortgageTrends.com article.

“D” stands for debt, and Canada Monday reached a high-water mark: For the first time, household debt hit 148% of disposable income and, for the first time since the late 1990s, topped the US equivalent. 

Carney, the Bank of Canada Governor, warned of the rising debt burden among Canadian families, and the risks they face when interest rates inevitably rise. 

“Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks,” he said in a speech in Toronto. “Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: The greater the complacency, the more brutal the reckoning.”

Click here for the full Globe and Mail article.

Canadian economic growth will pick up the pace next year after a recent lull, to push the annual growth rate higher in 2011, according to the latest economic outlook from RBC Economics.

Economic growth slowed in the third quarter of this year, largely due to softness in the housing market and U.S. economy, the report found.

However, the report says, improving financial market conditions and lingering low interest rates will boost GDP to 3.2 per cent in 2011, slightly more robust than 2010’s projected growth of 3.1 per cent.

“The mid-year economic slowdown reflected a pullback in housing investment, which fell after five consecutive quarterly increases, and a mild downturn in exports,” said Craig Wright, senior vice-president and chief economist at RBC.

“However, financial conditions remain supportive of domestic growth which will be the main engine of the expansion going forward.”

Consumer spending, which has largely powered the economic recovery, is expected to slow. Instead, business capital spending will play a pivotal role in the economy’s growth as consumer spending slows and pressure persists on businesses to boost productivity.

RBC’s projected growth this year and next will be the fastest pace over the past four years.

“While the recovery is proving to be weaker than those previously experienced, economic growth in 2010 and 2011 is a substantial improvement from the contraction of 2.5 per cent experienced in 2009,” Wright said.

But growth will still be moderate, meaning it will be difficult to lower the unemployment rate, which is expected to close out the year under eight per cent and decline slightly to 7.4 per cent by the end of 2011.

The bank forecasts that the unemployment rate will continue to moderate slowly, reaching seven per cent by the end of 2012, while GDP is expected to rise by 3.1 per cent that year.

Saskatchewan is expected to take over from Newfoundland & Labrador as the fastest growing province. Alberta will also move ahead of that province.

Nova Scotia, New Brunswick and Prince Edward Island are projected to remain at the lower end of the scale through to 2011.

Meanwhile, the bank expects U.S. GDP to improve in 2011 moving from an estimated 2.7 per cent this year to 3.3 per cent in 2011.

“The downdraft in U.S. growth in the middle of the year appears to have come to an end with the number of upside surprises in the economic data solidly outpacing the downside recently,” the report said.

The fixed-income market, considered among the best of forward-looking indicators, suggests the economic recovery is picking up steam in Canada and the central bank may deliver another rate hike as early as March of next year.

Yields across the curve have reached levels last seen in June and July when the Bank of Canada commenced a short-lived rate-hike campaign. And at that time, there was no talk of the U.S. Federal Reserve needing to inject hundreds of billions of dollars of additional liquidity into the U.S. economy to jump-start the recovery.

Two-year bond yields, a great indicator of where the Bank of Canada’s benchmark rate might be headed, have jumped nearly 40 basis points in barely a month since the last central bank decisions.

Meanwhile, yields on five- and 10-year government of Canada notes have moved upward 46 and 33 basis points, respectively, since the beginning of November, which mirrors activity in the U.S. Treasuries market.

“We have seen a heavy-duty selloff in recent weeks, right up and down the yield curve in Canada,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

Experts say this is a combination of heightened inflation expectations and this week’s stronger-than-expected consumer price data in Canada, signs of an improving U.S. labour markets, and a realization among investors that yields are just too low.

And whereas most Bay Street economists had forecast that the Bank of Canada rate wouldn’t resume movement until July, the fixed-income market has now priced in 50-50 odds of a rate increase of 25 basis points, to 1.25%, in March.

The rise in yields also emerges as the Fed kicks off its US$600-billion asset purchase plan — designed to pull down borrowing costs — and Europe’s debt woes re-emerge, perhaps prompting investors to park cash in safer government debt, such as Canada’s.

“Clearly, the bigger issue of where the market believes the U.S. economy is going and, ultimately, Fed rate policy is going seems to have had much greater pull on bond yields — and it is higher,” Mr. Porter said.

Eric Lascelles, chief Canadian strategist at TD Securities, said Canadian bonds have, like their U.S. counterparts, sold off in recent weeks after investors bought debt in the preceding weeks leading up to Fed’s decision to pursue further easing.

“But in fairness, that sell-off in the United States has not been as large, so there certainly is a made-in-Canada phenomenon at play as well.”

In its last rate statement, in which the benchmark rate was left unchanged, the Bank of Canada made significant downward revisions to its growth outlook, and pushed back the date, by a year, as to when economic slack is absorbed and inflation is set to hit the preferred 2% target.

But October inflation data indicated consumer prices rose on 2.4% on a year-over-year basis, much stronger than expectations, while core inflation — which strips out volatile-priced items — rose 0.3% month over month, the biggest such increase since February. Core inflation now stands at an annual rate of 1.8%, which is just below the Bank of Canada 2% target and above the central bank’s forecast.

Other fixed-income watchers, meanwhile, indicate traders are growing more confident about the global recovery based on better U.S. data. There have been five straight months of private-sector job creation above the 100,000 level — with November expected to continue the trend — and U.S. initial jobless claims dropped this week to their lowest level in two years.

On top of that, annual growth in corporate profits is set to hit 30% this year, and third-quarter GDP growth, at 2.5% annualized, was above expectations.

“Housing remains a serious Achilles heel, but the U.S. consumer is in increasingly better shape in terms of wage growth and confidence, and corporations are starting to use the trillions they had set aside for the double-dip recession that never came,” said Hank Cunningham, fixed-income strategist at Odlum Brown. “So the bond market decided yields were too low.”
Read more: http://www.financialpost.com/news/features/Bonds+tell+tale+sound+recovery/3885352/story.html#ixzz16fujO52L

North American consumers are showing signs of emerging from hibernation in time for Christmas, pushing up inflation in Canada to a new two-year high and improving growth prospects for both economies.

Canada’s inflation rate rose a surprising half-point to 2.5 per cent in October, a sign the economy is not facing the imminent risk of a deflationary slump.

In conjunction with price firmness, Statistics Canada also reported Tuesday that retail sales jumped 0.6 per cent in September as consumers bought more cars and spent more on sporting goods, clothing, books and music.

The strength of the consumer was also evident south of the border, where the third-quarter gross domestic product was revised to 2.5 per cent from a previously reported two per cent.

The three data points are positive indicators for the North American economy — which had been under pressure over the past few months — and for retailers with Christmas shopping season approaching, said Douglas Porter, deputy chief economist with BMO Capital Markets.

“Today’s numbers do suggest the economy had a little more underlying momentum than previously believed,” he said. “The consumer spending numbers are not rock-and-sock’em, but they are solid.”

TD Bank’s chief economist Craig Alexander also doubted the better consumer spending data signalled a return to “booming” sales, saying the increase should be kept in context.

But the improvement was welcomed in Canada given recent soft data in other sectors of the economy, particularly manufacturing, exports, housing and employment.

Analysts were bracing for a potential drop in gross domestic product in September, but the retail numbers now suggest the month will come in positive.

And analysts now think Canada’s third quarter will see the economy advancing at about 1.5 per cent, below the two per cent growth of the second quarter but in line with the Bank of Canada’s expectations.

While that is one percentage point less than the U.S., CIBC chief economist Avery Shenfeld cautioned Canadians against making the comparison, since the American economy is starting from a much deeper hole.

“We have not had as deep a disinflationary trend as the U.S. and that’s a sign we’re not as many miles below full employment as the U.S.,” he said.

“They have a lot more catching up to do,” he added.

The key difference, say analysts, is that while Canada has recouped all the jobs lost during the 2008-09 recession, the U.S. has only brought back about 15 per cent of the almost nine million jobs that vanished.

Still, nothing in Tuesday’s numbers changes the established picture that the recovery will continue to be a long, arduous slog before the conditions return to the robust growth and strong job creation levels that existed prior to the crisis.

“Given all the concerns that continue to swirl around the global economy, I don’t think we should let down our guard just yet,” Porter said.

Analysts said it is unlikely the one-month consumer price jump will scare Bank of Canada governor Mark Carney into raising interest rates in the near future, in part because inflation is expected to moderate.

Breaking down the numbers, Statistics Canada said higher energy costs were responsible for about half of the inflation increase, but most things were noticeably higher in October.

Transportation costs rose 4.6 per cent, while shelter costs increased 2.8 per cent. Other gains included food, up 2.2 per cent, electricity 8.1 per cent, cars 4.9 per cent, car insurance 4.6 per cent, and property taxes by 3.5 per cent.

There were still some bargains, however. Clothing and footwear edged down 0.1 per cent from last year, mortgage interest costs retreated by three per cent, the price of computer equipment and supplies dropped 12.5 per cent, and air transportation and furniture were also lower.

Regionally, the two harmonized sales tax provinces continued to have among the highest inflation rates in the country, with Ontario leading the way at 3.4 per cent, half-a-point higher than in September, and British Columbia at 2.4 per cent.

My husband and I are pretty competitive, always trying to one-up each other.

It was to my chagrin, therefore, when I learned that although my credit score is excellent, his is better. I have never missed a bill payment, never carried a balance, so what could be holding me back?

According to author and former financial adviser Kelley Keehn, there are lots of innocent things that can affect your score. For example, most people don’t realize there are two important dates when it comes to paying off certain credit cards: the due date and the statement date. The statement date is when the card issuer reports your balance to the credit bureau, not the due date. So even if you pay your balance in full and on time each month, your credit score may not reflect that.

“Let’s say my due date is Dec. 8 and I have a $10,000 limit. I pay it in full before the 8th and won’t be subject to any interest,” Ms. Keehn says. “But, let’s assume my statement date is Nov. 15 – that’s a very important date as it’s the date the credit card company reports to the credit bureau, not the due date. Let’s assume I make a big purchase on the 14th, say for a reno at my home, not thinking anything of it, and pay for some hardwood costing $9,000. The next day the credit card company would report that I’m 90 per cent extended on my credit card.”

If you’re not sure of your credit rating, you can get a free report from Equifax.ca or Transunion.ca that will include your credit history and current credit outstanding. For a small fee, they will include your credit score as well. A good score is 760 or higher, and anything less needs work to improve it, Ms. Keehn says. (To order a free credit report from Transunion, click here. To order from Equifax, call 1-800-465-7166.)

She advises taking these steps to protect and improve your credit score:

1. Know your score. The score range in Canada is 300 to 900 – the higher the better – and reflects a person’s credit history over the past six years. Only 5 per cent of Canadians have a score of 850 or better. Checking your score periodically can alert you to mistakes as well as credit fraud.

2. Pay your bills on time. Making a credit card payment even one day late will hurt your score. If you’re paying online, send the payment at least three banking days before it’s due to allow enough time for the transaction to be processed. Setting up a small automatic payment to your card issuer each month will ensure you never forget to pay at least the minimum.

3. Never exceed your credit limit. If you’re close to being maxed out, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and will hurt your score each month it happens.

4. Don’t apply for store credit cards. Even if you’re just after a one-time discount for signing up, these cards, with interest rates as high as 29 per cent, are viewed negatively by the credit bureau and drag down your score.

5. Spread out your spending. The percentage of available credit you’re using each month affects your score, so it’s better to have two charge cards at 50-per-cent capacity each than one that is maxed out.

6. Prioritize your payments. Important as they are, mortgage payments generally are not reported on Canadian credit reports, so it’s more important to make your credit card, loan and lease payments on time.

7. Beware of closing accounts. Even if you’re in a dispute with a lender, make your payments. A missed payment will show up on your credit report, can really hurt your score and is very hard to fix. When closing an account, get it in writing that it was closed with a zero balance.

8. Don’t close unused credit cards. If you have a low-interest card you don’t use, keep it open and use it periodically. Having a zero-balance credit card actually helps to improve a low score.

9. Don’t apply for too much credit at once. Don’t lease a car, sign up for a new cellphone and apply for a loan all in the same month or two. The credit bureau sees this as a sign of financial trouble. Beware, also, of being preapproved by several lenders before you’re ready to buy. Although you can check your own credit rating without penalty, preapprovals from lenders count against your score.

 Consumer confidence in Canada is on the upswing, but it may not be enough to benefit retailers for this Christmas shopping season.

The Conference Board of Canada’s latest survey of households shows overall confidence rose 3.9 points to 83.6, the second monthly uptick and sufficient to wipe out declines during the summer.

But on the question of whether now was a good time to make a large purchase — such as a home, car, or major appliance — almost half of respondents said no, and the balance of opinion on the question shifted negatively.

The finding is consistent with a new report by the Bank of Montreal, also released Wednesday, that nearly half of Canadians plan to cut back on holiday spending this year, and 48 per cent expect to spend less than they did two years ago.

The majority of respondents in the BMO survey estimated their holiday spending will peak at $1,300, with gift purchases outdoing entertaining family and friends in the size of outlays.

Only 20 per cent said they planned to spend more than two years ago.

“Despite low interest rates, the holiday shopping season this year will be a somewhat more subdued affair than last year, though sales growth should remain healthy,” said BMO economist Sal Guatieri.

Statistics Canada reported this week that retail sales rose 0.6 per cent in September, a relatively healthy gain after a slow summer.

In the latest consumer confidence survey, which was conducted in early November, Canadians said they were more hopeful about their future finances and job prospects.

After a series of declines, the share of respondents who said they expected future job opportunities to increase completely reversed, with the balance of opinion turning positive for the first time since July.

As well, the number of households who thought their finances would improve over the next six months rose to the highest level in six months, although at about 25 per cent the portion remains below what it was at the beginning of the year.

On a regional basis, opinions diverged.

British Columbia, Ontario and Atlantic Canada all registered increases in consumer confidence, while Quebec and the Prairie Provinces showed marginal decreases.

The survey was conducted between Nov. 4 and Nov. 14 and is said to have a margin of error of plus or minus 2.2 per cent.

You have to be a real clown not to have a financial plan and be saving for your retirement. Right?

Not really, you would just be among the approximately 80% of Canadians who don’t have any sort of comprehensive financial plan, according to the Financial Planning Standards Council.

Who are these people? They are people such as the 51-year-old rodeo clown I met this past week who goes by the name Shorty Leggs — and has no RRSP and isn’t too interested in starting one.

“I’m about to the retire,” he told me between his assignments at the Royal Agricultural Winter Fair, where his job is to entertain the crowd and also to distract the bulls if a rider is in danger.

In the past year he suffered major injuries in two separate incidents that resulted in a total of six cracked ribs. “I didn’t have any insurance so I kept on working. Insurance companies won’t even touch me.”

And he’ll keep working, just not as a clown. He plans to start training race horses. “I don’t think about it,” he says, referring to retirement.

The FPSC’s data will tell you’s he’s probably not as content and happy as he would be if he had a financial plan. I have to tell you I didn’t sense a trace of sadness in that clown about his financial choices.

I have a few friends, some of whom I might describe as clowns, who conduct their lives the same way. They haven’t contributed to an RRSP in years and they don’t bother with Registered Education Savings Plan for their kids. I’m not sure they’ve even heard of a tax-free savings account.

Are they really in that much trouble as they live for the moment?

According to a study done for FPSC, about 60% of people with no financial plan worry about their financial situation, compared with 44% who have a comprehensive plan. About 13% of those with no plan said they expected to retire to the lifestyle they want versus 44% for those with a plan.

“A big part of this is the focus on instant gratification. People’s concept of living for today has been skewed to meaning to not even give any consideration to the fact that at some point in their future they might not have a job and at some point there will be other demands on their pocketbook,” says Cary List, FPSC chief executive.

He thinks there is a fear factor to financial planning because most people think it means giving something up and they don’t want to do that. But who says you can’t have a selfish financial plan — I wouldn’t — that is designed to make sure you die with as little cash as possible and use as much of it as you can in your own lifetime?

“Financial planning is not just about retirement planning,” says Mr. List, adding it can be used for other life goals, including some short-term gratification. “Planning is not synonymous with saving and having X million dollars when you die.”

All that’s true but there is a certain percentage of the population that doesn’t bother to plan because they have no disposable cash to plan with, says Benjamin Tal, a senior economist with CIBC World Markets. “You can’t ask people making $20,000 to contribute to an RRSP,” says Mr. Tal. “The focus should be how many that make a reasonable amount money and still don’t contribute [to RRSPs and other investment vehicles]. That’s really a lack of planning.”

Moshe Milevsky, a finance professor at the Schulich School of Business at York University, says there might me some method to the madness of people who are not saving any money for retirement.

“There is 20% to 30% of the population whose standard of living will actually go up once they retire,” says Mr. Milevsky, adding Statistics Canada data supports the notion that if you are earning median wage or lower and you retire, the Canada Pension Plan and Old Age Security might provide a better standard of living than you had before.

Those people find themselves retired but without the expenses that involve going to work and the costs of a mortgage and kids. “Relative to what you experienced at 55, 65 is better,” Mr. Milevsky says.

But if you want more? You can always keeping working, as least as long as you’re able. It’s at that point when no financial plan might have the biggest impact on your life. “What do you want the last 18 months of your life to look like? Are you willing to live in a nursing home provided by the province or do you want something better,” Mr. Milevsky asks.

Is that something you want to clown around about or are these clowns having the last laugh because they live for today?
http://www.financialpost.com/news/many+clowns+with+financial+plan/3814594/story.html#ixzz15GeJeQ5L