Pension shortfall hits middle class

About 20 to 25 per cent of Canadians are not saving enough to provide an adequate retirement income, says the chief economist of TD Bank Financial Group.

One of the ironies of that statistic is that these pension laggards fall into the middle class group of those who earn $30,000 to $80,000 a year, Craig Alexander said Thursday in Kitchener.

Every Canadian should have a pension that replaces 60 to 70 per cent of their employment income, Alexander said in an interview. Canadians earning more than $80,000 can generally take care of themselves, while those earning below $30,000 can replace much of that with a variety of government pension supplements, he said.

It’s that middle group that poses one of the biggest challenges, he noted.

Alexander was in Kitchener to attend a roundtable discussion chaired by Ontario Finance Minister Dwight Duncan on ways to improve Canada’s retirement income system. About 30 business, labour and pension experts met with Duncan behind closed doors.

It’s the last of a handful of meetings Duncan is holding across the province in preparation for a meeting of finance ministers in Prince Edward Island on the weekend of June 12-13 to look at Canada’s retirement income system.

While Canada’s pension system is not in crisis at the moment, issues such as pension solvency, volatile financial markets, inadequate savings by some individuals and a decrease in the number of workers with defined benefit plans that provide a fixed source of income all mean we can’t afford to be complacent, Alexander said.

A variety of options have been trotted out, such as raising Canada Pension Plan contributions, supplementing CPP benefits, raising the age at which retirement savings plans can be cashed in, offering better protection for defined benefit plans or more incentives to set up defined contribution plans, he noted.

“I don’t think there is a black and white answer to this one,” he said of the retirement income dilemma.

In any case, politicians need more data, and people need more access and knowledge about how to improve their pension coverage, Alexander said. Solutions could come from either the public or private sectors, he added, noting “I am an agnostic on that issue.”

He would like to see financial literacy courses on such issues as savings, debt, mortgages and pensions taught in school as early as Grade 8.

In an interview prior to the roundtable meeting, Duncan said that with only about 30 per cent of Canadians covered by private pension plans and more baby boomers heading into retirement, governments need to act so that pension obligations don’t cut into health-care spending and other public-sector needs.

The province has already passed one bill on pension reform that addresses some of the less contentious issues, but Duncan said he is planning more legislation in the fall to address more serious issues such as the regulation of defined benefit plans. http://news.therecord.com/Business/article/722251

House prices have peaked for the year

By Sunny Freeman

TORONTO — Skyrocketing home prices appear to have reached their height and are expected to stabilize for the rest of the year and into 2011 as the real estate market cools significantly, economists say.

Gregory Klump, chief economist at the Canadian Real Estate Association, foresees a slight decline in year-over-year prices in the latter half of 2010 before they flatten in 2011. This will happen as new listings come onto the market faster than anticipated and balance out the dynamics between buyers and sellers.

On Wednesday, the real estate association revised its projected housing price increase for this year down from 5.4 per cent to just 1.6 per cent over 2009.

The association predicted that the national average housing price will decline by 1.5 per cent by 2011, driven down by lower prices in the strong markets of B.C. and Ontario, while prices in the rest of the country will remain stable.

Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals, said this year’s prices have likely peaked, and should remain flat for the rest of the year before falling in 2011.

“Last year there was a pattern during the year — slow at the start, strong at the finish, and it’s going to be the opposite this year, almost a mirror image,” he said.

“Somebody who’s in a position to buy can take the time to make sure they get the property they want at a price they’re comfortable with,” he added.

The real estate association also lowered its 2010 national forecast for resale transactions by nearly 40,000 from its previous forecast of 527,300 due to a weaker-than-expected start to the year in British Columbia, Ontario and Alberta.

“The biggest contributor to the downward revision in annual sales activity would be British Columbia, where affordability has begun to bite into sales activity. Their first quarter came in weaker than expected and that’s expected to carry throughout the year,” Klump said.

The association now expects 490,600 units will be resold nationally this year through the Multiple Listing Service. This is still up 5.5 per cent from 2009.

A number of temporary factors pulled sales forward to the latter part of 2009 and the first part of this year, including anticipation of higher mortgage rates, tougher mortgage lending regulations and new taxes in Ontario and B.C. that will add thousands of dollars to the final price tag of many houses starting July 1.

The association’s revision came a day after the Bank of Canada announced it was hiking its key lending rate from an emergency low of 0.25 per cent to 0.5 per cent. Many economists predict that the era of historically low interest rates has come to an end and that rates are now on an upward trend.

Although mortgage rates have gone up and are expected to rise further, the association says the higher cost of borrowing will have a minimal impact on the market this year. Instead, sharp price increases earlier in the year appear to have been the main factor for the expected decrease in demand in British Columbia and Ontario.

Dunning said while some buyers “could drive themselves crazy” trying to calculate whether it’s better to get into the market now while mortgage rates are low but prices are high, or to wait until the opposite is true, it’s so difficult to get it right that homebuyers should just buy when the time is right for them.

Rob Hafer, regional manager at Invis mortgage brokerage, agreed that market timing is tough, and generally not worth the headache since a house is such a long-term investment.

“If you’re going to buy real estate, it’s a long-term investment, so if you can afford the home now … no matter when you bought within a couple years you’re probably ahead of the game anyway,” he said.

“If you can get in now and you can hold it long term, it’s always a good time to buy,” he added.

Klump said the market adjustment will stop short of venturing into a buyers’ market as “a more challenging pricing environment” will deter some potential sellers and limit the supply of available homes.

“A lot of people who were thinking they were going to clean up on their asking price are going to be faced with a lot of competition from other sellers out there, and ultimately will take their house off the market and try again when the pricing environment becomes more to their liking,” he said

But Dunning said balanced markets don’t last very long and said he believes market conditions will soon favour buyers.

“It’s usually always one way or the other, and we’ve had this immensely powerful sellers’ market and …there could be a very rapid transition so that it now becomes a buyers’ market.”

The Canadian Press http://news.therecord.com/Business/article/721499

Carney plots cautious rate path

Jeremy Torobin Globe and Mail

Mark Carney is taking a cautious approach to raising interest rates, weighing Canada’s powerful economic rebound against the uncertainty of an “increasingly uneven” recovery across the globe.

The Bank of Canada Governor became the first central banker in the Group of Seven to raise borrowing costs since the financial crisis and recession, increasing the benchmark overnight rate Tuesday by one-quarter of a percentage point to a still exceptionally low 0.5 per cent.

Policy makers will keep an eye on Europe’s troubles, and won’t move more aggressively than they see fit, the Bank of Canada suggested, even though the economy is rebounding rapidly and inflation will likely exceed its 2-per-cent target this year. Much like in 2008 when the U.S. financial crisis pulled Canada into recession, the country’s economic health depends in large part on policy makers in other countries successfully containing homemade problems.

“Interest rates are incredibly low, given the strength of the domestic economy, but the global story is where it’s at right now,” Eric Lascelles, chief economic strategist at TD Securities in Toronto, said in an interview. “The level of uncertainty suggests there’s not a lot of confidence in the forecasts.’’ The open-ended nature of the announcement sparked a fall in the Canadian dollar and yields on two-year government bonds as investors pulled back their bets on what they had expected might be a series of uninterrupted rate hikes going forward.