So What ... Money News and Updates!

The Incredibly Shrinking Variable Discount

2012-01-12T16:06:00.000-05:00

Fixed or variable? Fixed or variable? Everyone wants to feel as though they had made the best choice when deciding between a fixed or variable rate mortgage. In this economy however, there is no right or wrong answer. All the research is based on historic data of what has happened with the rates and trends. The problem is that the “new norm” means tremendous volatility in our economy. Never before has the Canadian marketplace felt the repercussions of global issues as we do today. Economists are changing their predictions daily.

Sage advice would be to do what helps you sleep at night.If you choose a fixed rate, you will not have any fluctuations in your payment for the term of your mortgage. If you choose a variable rate,there will be increases in your payments at some point in time. So, if peace of mind is part of the equation, you will win even if you are paying a little more in the long run.

Canadian Mortgage Trends recently published the following article (October 17, 2011) related to fixed or variable-rate options.

“Just weeks ago you could find variable-rate mortgages at prime – 0.80% (P-.80%) or better. Consumers thought they were here to stay, but the tables turned…fast.

Economic troubles and lender profit motives have shrunken variable discounts beyond expectations. Banks are now commonly quoting prime rate, for example, with little discounting.

Once the last few holdout lenders with P-.50% [prime minus.50%] disappear, discounted variables could move towards P-.25% [prime minus .25%] or worse. Some lenders even suggest that prime or prime plus could be the new normal.

Meanwhile, aggressive brokers are selling five-year fixed rates at 3.25% or less. That’s an unusually low 50 basis point premium to a variable. A spread that tight doesn’t come around often, and it makes you rethink all of the research suggesting variables are the way to go.

Popular research indicates that people have saved money on variable-rate mortgages:

88.6% of the time:
Source: Floating Your Way to Prosperity, 2001, Moshe Milevsky, PhD; Study period: 1950-2000
90.1% of the time:
Source: Moving Mortgages, 2008, Moshe Milevsky, PhD; Study period: 1950-2008
83% of the time:
Source: Variable Rate Roller Coaster Still Hard to Beat, 2011, Douglas Porter and Benjamin Reitzes, BMO; Study period: 1975-2011

Odds like that make some people question the sanity of going fixed. But there’s a little more to the story.

While variables have cost less than 5-year fixed mortgages a majority of the time in the past, favourites don’t win every game. More importantly, assumptions are key when it comes to rate studies. Two important factors have impacted the research quoted above:

A multi-decade bias towards falling rates
Use of posted rates (instead of discount rates)

“Interest rates have been trending downward for two decades,” BMO Capital Markets Senior Economist Benjamin Reitzes told us [Mortgage Trends] in a recent interview. By default, he says, that’s tilted the table more in favour of variables than it otherwise would be.

Looking ahead, rates are no longer able to drop over one percent. The most we can realistically hope for is an extended period of horizontal rate movement. (The Bank of Canada can still cut rates slightly, but the European and American crises and sub-2% core inflation won’t delay hikes forever.)

As a result, Reitzes says, “Going forward, borrowers won’t see the same advantage to variable rates as they have in the past 25 years”

The second factor that’s largely ignored when citing rate research is the actual mortgage rates used for backtesting. Each of the three studies above uses posted rates in their historical analysis.

Reitzes states that this practice distorts the results somewhat. “Discounts off posted rates were not as prevalent historically.” Nowadays, however, “Most people get a (rate) discount if they are credit-worthy borrowers.”

That matters, because the rate discount you get obviously impacts the likelihood of your mortgage outperforming other options.

Here’s an example.

If you look at data from 1970 to 1995, the average difference (spread) between 5-year fixed and variable rates was 126 basis points. (That's 1.26%)
The average difference today is roughly 50 basis points. (0.50%).

That’s a remarkable 76 basis points lower than historical rate spreads. That makes a huge difference in research conclusions.

If you theoretically backtested with the same spreads as today (i.e., 25 bps off prime for variables and 204 bps off posted for 5-year fixeds), you’d find that fixed rates outperform considerably more often.

According to Milevsky, “…The historical probability of doing better with the floating rate mortgage…hovered around 70% to 80%” when the borrower used deep discount rates (based on a 1965-2000 study period).

Using today’s discounts, that 70-80% drops to just 53%, based on our findings from 1970 to 2006. (Obviously today’s spreads would not have applied historically but, as Milevsky maintained in his research above, that is beside the point.)

In other words, the fixed/variable decision would have been a coinflip, based on today’s spreads.

This isn’t meant to imply that fixed rates now have an insurmountable edge. If the Bank of Canada drops rates unexpectedly, a variable could easily beat all other terms over the next five years.

That said, if the BoC’s next rate move is up (which is the highest probability outcome, say economists), the boring old 5-year fixed could certainly outperform. That’s true even when compared to a variable with payments set at the 5-year fixed rate.

The nice part is this: If you go fixed and variables end up winning, you’ll likely be out far less money than in most prior years.”

What do you think? Please post a comment and/or question any time!

Source:http://tracyirwinmortgages.com/blog/ Nov 23, 2011 by tracyirwin

Why Refinance???

2011-12-22T16:57:00.000-05:00

Mortgage refinancing can provide various benefits, depending on the individual. Refinancing is usually done for two general reasons: to reduce debt or to be able to borrow more for investment purposes. Below are the most common reasons for refinancing a mortgage:

To reduce monthly payments
To reduce, or alter, risk
To consolidate debts
To take advantage of lower interest rates
To take equity out of your home for:
Education
Home Renovations
Investments
Retirement Planning
To purchase second properties

The mortgage industry is constantly changing. For that reason it is very important for you to re-evaluate your current mortgage on an annual basis. The market is continually changing and new products are being introduced all the time, so what may have been a perfect fit a short time ago may not be today. If current interest rates or other mortgage variables have changed since your original mortgage you should compare the costs of refinancing to the amount of money you could save. However, if the costs of refinancing, such as penalties, outweigh possible savings it is better to stay with your current mortgage.

Call us today to schedule your free TUNE UP appointment. Let us help your investment work for you. Call today at 416-410-6663.

Shoppers feeling frugal amid debt, global woes

2011-12-20T13:23:00.000-05:00

Shoppers feeling frugal amid debt, global woes

Published On Thu Dec 15 2011Email Print Rss Article
Raveena Aulakh/TORONTO STAR

With Christmas less than two weeks away, Canadians are still in a frugal mood, the latest surveys of shoppers’ intentions reveal.

Only 6 per cent of Canadians say they plan to spend more on gifts this year than last year, while 41 per cent say they plan to spend less, an Angus Reid Public Opinion poll shows.

The rest, 52 per cent, say they plan to spend about the same amount as last year.

“I see lots of people shopping. I don’t see lots of people carrying bags. What that tells me is people are being a little bit more careful,” said Ken Wong, a professor with Queen’s University’s School of Business. “I think you’re going to see people giving fewer gifts, maybe spending a little more time thinking about what they’re giving. Certainly I don’t see any reason to believe the fact that it’s Christmas is making people any less value conscious than they’ve been since the recession.”

The Angus Reid poll, conducted the week of Nov. 21, comes on the heels of more warnings Canadians are already carrying worrisome levels of household debt.

The average ratio of debt to personal disposable income is now 152.98, Statistics Canada said Tuesday. Households with high debt loads are move vulnerable to unexpected events, such as a job loss or interest rate hike.

Canadians feel relatively optimistic about the domestic economy, but the bad news out of Europe and the U.S. is dampening their spirits, a separate report released Wednesday said.

Canadians say they’re worried about their job prospects, personal finances and whether it’s wise to spend money, according to a survey by Nielsen, a global leader in market research.

Canadian consumers’ confidence fell in the third quarter to 96 points after fluctuating between 99 and 102 points for the past 18 months, Nielsen found. It’s now at the same level it was in the third quarter of 2008.

“We’ve been on a roller-coaster ride, with a lot of ups and downs and screaming along the way and the ride is not over yet,” said Carman Allison, Nielsen’s director of consumer insights. “We’re about to hit another turn.”

The Nielsen survey was conducted in late August and early September as the debt crisis in the European Union was heating up.

Retail sales in Canada are forecast to rise about 2.5 per cent this holiday season, according to an earlier report published by BMO Capital Markets. The forecast excludes cars and gas.

That’s slower than last year’s 3.1 per cent rise and also below the historic average of 4.6 per cent, BMO said.

Go Variable or Fixed rate?

2011-11-24T15:39:00.000-05:00

Your choice of a mortgage can save you, or cost you, a mint. Problem is that in deciding you're also gambling.

Would you pay $100,000 to sleep a little easier at night? You can crunch the numbers different ways, but that's the kind of real money at stake when you choose your mortgage.

If you select one with a variable rate - that's a mortgage when the interest rate can go up or down, in tandem with base lending rates - you could save thousands of dollars in interest over the life of your mortage.
That's because these rates tend to be the lowest on the market. But you could also lose sleep at night if rates go up and your amortization increases.

If you choose the fixed rate, you can be certain the interest rate won't change over the term of your mortgage, but you will pay more if rates are reasonably stable or go down.

There is a third option - mortgage products that blend variable and fixed rates - though consumers need to be aware of the pros and cons.

Consumers also need to be aware they can bargain, playing off banks and brokers against each other, asking for below published rates. A mortgage is a big-ticket item where sellers have leeway to discount and competition among them gives consumers leverae. By bargaining, you might be able to get a fixed rate mortgage for pretty close to a varaible rate deal.

The Toronto Star B, Madhavi Acharya-Tom Yew.

What To Do Before Buying A Home

2011-11-15T16:52:00.000-05:00

When you're buying, there is no substitute for driving and walking through neighbourhoods you're interested in. Do it at different periods of the week. For example, early Monday morning will tell you how many shcool buses are in the area and the makeup of the children on the street. How long does it take you to get to work at 7:30am? Don't be afraid to knock on doors and talk to people to get a sense of how open and friendly they are. Most people prefer talking to people in person, rather than on the phone, and people are often proud of the area they live in. If you find the people living in the area are not very friendly, ask yourself whether this is really the neighbourhood you want to move into.

Check the condition of the front landscaping on the street. If the neighbours care about their front lawns, you'll know they take pride in their homes and in the neighbourhood.

As you walk through the neighbourhood, be aware of noises and smells. Can you hear passing cars on a nearby highway? Are there odours from a nearby factory? Sellers may be less than candid about neighbourhood conditions.

You may also want to visit the local planning department at city hall to ask whether there are any plans for new developments in the area. "Developments" can include a brand new shopping mall or a large condominium tower and can have both a positive and negative effect on the neighbourhood. The developments may increase the overall market value of the properties in the area, but the increased traffic could disrupt the peaceful nature of the area.

Consider the possibility of your neighbour's home being demolished and replaced with a much larger home that changes your view and blocks sunlight. In Canada, your view, also called the "right to light" is not guaranteed in planning legislation. Keep this in mind when you're looking for a new home.

Research the schools in the area. Is there a waiting list to get in? Do they offer extracurricular activities your children are interetsed in? Do they publish the test scores of the school? If yes, how do the scores compare to the provincial average?

Does the neighbourhood have sidewalks so your children can ride their bicycles safely? Are the streets well lit at night? If front porches are closer to the sidewalk, it also makes the area safer as there are more eyes watching the street at any given time.

Are you close to churches, synagogues, doctors' offices, and libraries? Are there parks, golf courses, or skating rinks?

Salespeople can also help you understand governmental programs for buyers; the government will assist with your purchase if you qualify. For example, you may be able to borrow money from your RRSP to make the down pyament, or you may be able to use a mortgage program if you don't have a lot of money available for a down payment. There are also land transfer tax programs and federal income tax credits for first time home buyers.

Here's another simple technique: list the top three things you like about your current location. This could include your proximity to shcools, parks, and public transit. Then list the top three things that would be on your wish list, perhaps a large backyard for your children, a home office, or four bedrooms instead of three. Show your lists to the real estate salesperson you decided to work with. These lists will help you focus on what is really important to you; it will keep you from getting carried away by the in-ground pool that may turn out to be more bother to maintain than it's worth. Try not to focus too much on the "features" of a particular home, such as granite countertops and fancy doors. Think about the space you need, both inside the home and in the yard. When you have features and no space, you may need to move again. And don't buy into a home just because you can fit all your existing furniture into it. It is better to buy the house that fits your budget, and get rid of the furniture.

What to do before buying a home....
1. Check the internet to find demographic information about the area.
2. Look at the websites of local real estate salespoeple for infomration about the neighbourhood.
3. Walk the neighbourhood you're interested in.
4. Talk to the people who live there
5. Go at different times of day and different days of the week.
6. Check for nosie and smells.
7. Check the landscaping on the front lawns.
8. Ask at city hall about any planned new developments.
9. If you see a house you like, try to envision it after the neighbours replace their exiting home with a larger new home.
10. List what you like best about your current location; write a wish list for your new location.
11. Don't focus on your existing furniture or on the features of a house you might buy; make sure your new home is the right size for your needs.

Source: "Put the Pen Down" Mark Weisleder, ECW Press 2009.

12 Questions To Ask Before Selling Or Buying A Home

2011-11-10T16:57:00.000-05:00

Sellers think the home they are selling is special. Buyers want to fall in love with a home before they buy. Yet remember, when you are looking at the real value of a home, it is still going to be about supply and deamnd. Here are some questions to help buyers and sellers determine whether the area they're looking at will be in demand.

1. Is your area's average income increasing faster than the provincial average?
2. Is your area's population growing faster than the provincial average?
3. Is your area creating jobs faster than the provincial average?
4. Does your area have more than one major employer? Real estate values in entire towns and cities can devaule overnight because a major automobile plant closes.
5. Are real estate values rising faster in regions far away from you?
6. Have the local political leaders created an environment that is assisting growth? Look at the land transfer tax policy change in the City of Toronto, introduced on January 1, 2008; it had a negative effect on real estate values all over the city.
7. Are you expecting a new major development?
8. Is your area considering a major transportation improvement? Better roads make it easier for people to commute to and from your area.
9. Is the area attractive for baby boomers as well as young families?
10. Is your town experiencing short term layoffs?
11. What are the demographics in your area?
12. What is the crime rate, and how does it compare to the provincial average.

You can find answers to many of these questions by searching the internet and by reading the statistics published by your municipality and local police departments. Good real estate salespeople who market in your area may include a lot of this information on their own website. The more information you have at your fingertips about a neighbourhood you are interested in, the less likely you'll have an unpleasant surprise after you purchase your property.

Source: "Put the Pen Down!" by Mark Weisleder, ECW Press 2009.

Canada’s economy goes on a slower path

2011-10-27T10:44:00.000-04:00

Canada’s economy goes on a slower path
jeremy torobin
OTTAWA— From Wednesday's Globe and Mail

Europe’s debt quagmire, a flagging U.S. rebound and slowing growth in China are taking the steam out of Canada’s economic outlook.
Canada's top policy makers said the country’s prospects for this year and next have deteriorated as a slowing global economy weighs on exporters and cuts into confidence at home.
Consumer and business spending is expected to slow and unemployment is expected to hover close to the current 7.1-per-cent level for years, factors that will likely keep interest rates near emergency levels until as late as 2013.

Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty insist Canada and its top trading partner, the United States, won’t slide back into another recession. However, both suggested that outlook depends on European leaders to contain a debt crisis before it pushes the region into a serious slump.

Mr. Carney on Tuesday left the Bank of Canada’s key interest rate at 1 per cent for a ninth consecutive decision. Canada will feel the effects of weak U.S. growth that will persist until mid-2012, and a “brief recession” in the euro zone, he noted.

The bank chopped its forecasts for 2011 and 2012 and said the Canadian economy will not return to full capacity until the end of 2013, 18 months later than policy makers had projected in July. And Mr. Flaherty said the economic projections that underpinned his latest budget face a “significant downgrade.”

The gloomier outlook comes ahead of a crucial gathering of European leaders on Wednesday and a Group of 20 summit next week in France, both aimed at stemming the euro zone debt mess before it engulfs the continent’s banking system and tips the world economy back into recession. The slowdown is already affecting Canadian financial conditions, consumer and business confidence, and trade, the central bank said, also warning that while its forecast assumes the European crisis will be contained, that notion is “clearly subject to downside risks.”

Even if the European situation doesn’t worsen, through the end of 2012 Canada will see “very modest” growth that’s just enough to “keep the unemployment rate treading water,” said Leslie Preston, an economist at Toronto-Dominion Bank.

The Bank of Canada said the economy will grow 2.1 per cent this year instead of its July call of 2.8 per cent, and 1.9 per cent in 2012, down from 2.6 per cent. In 2013, the economy will grow a healthier 2.9 per cent, roughly equal to the average for the two decades before the crisis.
In the meantime, household spending will “grow relatively modestly,” the bank said Tuesday, as lower commodity prices and volatility in markets weigh on Canadians’ sense of financial well-being. Business investment will continue to grow but will also be “dampened” by the global outlook.
All of which means the bank will likely leave interest rates untouched for much of 2012 and possibly into 2013, economists said. Indeed, despite hotter-than-expected inflation readings in recent months, bank policy makers said Tuesday that the drop in energy prices since the summer and a slowdown in big emerging markets like China will tame inflationary pressures everywhere.

Some Canadian companies say they’ve come to accept that their traditional markets will be lukewarm as governments and consumers unwind the massive debt they incurred in recent years.

“These are marathon issues, they’re not sprint issues,’’ said Tom Schmitt, president and CEO of Purolator Courier Ltd., Canada’s largest courier company. “We’re probably talking about years of a little bit of bumpiness along the road.”

Similarly, Don Lang, executive chairman of CCL Industries Inc., a Toronto-based specialty packaging company, said a “pullback” in orders through much of the developed world is still better than a downturn.
“From our perspective, it’s business as usual,” Mr. Lang said. “Positive growth is positive growth, so there are still lots of opportunities for businesses that are well-placed.”

Source: http://www.theglobeandmail.com/report-on-business/economy/interest-rates/canadas-economy-goes-on-a-slower-path/article2212610/

How self-employed can easily get a mortgage

2011-10-25T15:19:00.000-04:00

According to Industry Canada, about 16 per cent of the workforce was self-employed workers in 2010, about 2.7 million people. Some are likely looking at low mortgage interest rates and thinkning about buying a home.

It can sometimes work against you in a mortgage application to be self-employed. Marcy Berg, a mortgage broker at Mortgages For Women, says the main reason isn't what you do for a living, but the lack of proof of income in the form of tax records.

“It’s not anymore difficult to get a mortgage when you’re self-employed. The basic rules still apply for getting a mortgage,” said Berg. “But if you don’t declare your freelance income, then you may have a problem.”

When I was applying for my mortgage this past spring, my mortgage broker asked me to produce three years of declared freelance earnings in the form of my Tax Return Summary. Even though I was on pace to make well over $20,000 in freelancing for 2011, I was not allowed to count that income when it came to qualifying for a mortgage.

The declared income in the tax years of 2008, 2009, and 2010 only averaged out at $3,903 – a far cry from the freelance income that I currently make – but it was the data they had to use.

“There are two basic methods that freelancers can show income,” Berg said. “The first is ‘declared income,’ and the second is ‘stated income.’ Declared income is provable. It usually averaged over your last two income tax years. If you have been self-employed for a certain length of time, you may be able to use stated income. This is reasonable income based on the type and size of your business.”

Because I ended up purchasing a home well below the mortgage amount I qualified for, it didn’t matter that the real amount of my freelancing income wasn’t taken into consideration.

If you are a freelancer, and looking to qualify for financing, here are a few things to consider:

• Many banks are now offering mortgages specifically geared towards freelance and self-employed individuals. Check out CIBC, RBC, and Scotia Bank, among others.

• If you don’t have a 20 per cent down payment, or third party income validation, you will have to pay a higher CMHC Mortgage Loan Insurance premium. For example, a home buyer with a stable job who puts down 10 per cent on a property would only have to pay a 2 per cent mortgage loan premium. If a self-employed person without income validation puts down the same 10 percent on a property, they would have to pay a 4.75 per cent premium.

• If you have a healthy amount of money in your savings account, it can boost your chances of getting approved for a mortgage, and may even help you qualify for a lower rate. Self-employment can often times cause severe income level fluctuations from month-to-month, so if you don’t already have an emergency fund, consider getting one before you try to qualify for a mortgage.

“Self-employed workers who are looking to get approved for a mortgage should always keep their personal tax returns up-to-date and filed on time,” Berg advised. “Pay all income tax owning on time, and keep your credit repayment history clean. If you do this, you will be able to demonstrate to lenders that you are serious about your business, and serious about home ownership.”

October 07, 2011 By Krystal Yee
Source: http://www.moneyville.ca/blog/post/1066322--how-self-employed-can-easily-get-a-mortgage

CIBC Lawsuit for miscalculating penalties...

2011-10-20T15:04:00.000-04:00

October 12, 2011
Class Action Lawsuit Filed Against CIBC Mortgages on Prepayment Penalties

Consumers hate mortgage prepayment penalties, largely because they don’t understand them.

CIBC-BankNow, there is about to be a high-profile challenge of how mortgage penalties are calculated.

CIBC Mortgages Inc., a subsidiary of CIBC bank, has just been named the subject of a pending class action lawsuit.

The intended suit claims that CIBC improperly calculated penalties for customers who broke their mortgages from 2005 to date.

The claim alleges that:

“CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.”

“…the quantification of prepayment penalties applied by CIBC are in breach of the mortgage contracts.”

“Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated,” says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.

“That language, in legal terms, is called unenforceable. The net result is that they cannot collect penalties with a clause like that.”

(If you’re interested, you can see some the penalty language CIBC Mortgages has used here—on page 13)

“Even if [part of the language] is enforceable,” says Bridge, the penalties should be “capped at three months interest.”

In addition to the above, the suit claims that CIBC charges the future value of monies owed in its interest rate differential calculation, whereas it should “adjust for present value,” asserts Bridge. “They 'present-value' all of their own assets and liabilities. Any actuary or accountant will tell you, you have to present value or you’re not talking about actual value received.”

Bridge says the lawsuit applies to most CIBC mortgages, including many of those originated in CIBC branches and through its related entities, such as FirstLine Mortgages and President’s Choice Financial.

CIBC Mortgages Inc. is one of the largest residential lenders in the country. Bridge estimates it has about 500,000 mortgages on the books, of which 5-10%—25,000 to 50,000 people—prepay every year. (We’re unable to confirm those stats.)

In terms of value, Bridge estimates this case is worth “into the tens of millions (of dollars).” These types of cases are usually settled out of court, however, and don’t usually make it to full trial.

He adds that there is plenty of precedent with respect to mortgage prepayment contracts and “uncertain contract provisions.”

“You don’t start a class action lightly,” states Bridge, adding that his firm has “literally spent hundreds of hours” researching this case before filing it. (Funny enough, we noticed a Siskinds lawyer collecting evidence on Ellen Roseman’s blog back in July.)

Bridge is not a rookie in class actions. He says he brought another prepayment-related class action against RBC where the class members were “paid 100 cents on the dollar” for their claims, plus legal fees.

“That was a very favourable settlement. It’s about the best you could possibly do.” (Although, that case had a very different fact pattern than this one.)

This particular class action all started with a single parent in B.C. whose marriage ended. That individual had to sell the family home and was stuck with a $47,000 interest rate differential penalty from CIBC.

Bridge has reviewed other banks’ practices and hasn’t yet found other lenders that are calculating IRD penalties improperly.

Our take: Mortgage penalty language is notoriously cryptic at the Big 6 banks. It would be interesting to see if a court ruled that CIBC is calculating its IRD penalties in a materially different way than its peers. One thing is for certain, few banks go out of their way to make penalty calculations intuitive. Maybe this lawsuit will change their thinking.

(Incidentally, RBC is one of the best big banks when it comes to IRD disclosure. They outline the formula they use, try to explain it and base their penalty calculations on present value, according to sources at the bank.)

Mortgage penalties remain a top consumer banking complaint, according to the Financial Consumer Agency of Canada. The Finance Department was expected to have new penalty calculation and disclosure regulations in effect by now, but they have continually been delayed. Most would agree, it’s time for the government to stop dragging its feet and move the ball on that.

Note: As a reminder, it has not been established at this point that CIBC has done anything wrong with respect to how it calculates mortgage penalties. Also, the defendant in this case is CIBC Mortgages Inc., not CIBC. “CIBC” is used in a standalone capacity above only as an abbreviation.

Rob McLister, CMT
Source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/10/class-action-lawsuit-filed-against-cibc-mortgages-on-prepayment-penalties.html#more

“Early Warning” on Mortgage Lending

2011-10-06T18:08:00.001-04:00

OSFI Issues “Early Warning” on Mortgage Lending

Julie-Dickson-OSFICanada’s lending industry is witnessing rock-bottom interest rates and unrelenting competition.

The former has fuelled borrowing volumes. The latter has been known, on occasion, to encourage looser lending criteria.

Together, the two can be destructive to a banking system and economy.

That’s why OSFI (Canada’s banking regulator) is being proactive. In a speech today, OSFI head Julie Dickson laid it out like this for financial institutions:

Low rates have likely “increased the incentive for consumers – again – to borrow. Banks also have an incentive to lend, given low margins and the need to compete.”

As a result: “…We, at the OSFI, have been very focused on home equity lines of credit, and mortgage lending by institutions – both insured and uninsured books.”

“The message from OSFI to financial institutions is that…institutions should guard against loosening historical underwriting standards – for example, by moving to higher loan-to-value ratios or waiving any due diligence requirements.” FIs must protect against imprudent lending “more so than they have historically.”

After her speech, Dickson told reporters:
“I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen [lending] standards." As a result, OSFI is “stepping in to increase the monitoring” of lender portfolios. “I think it's prudent to increase [FI] capital levels as soon as we can."

OSFI Dickson also noted that OSFI is presently cooperating with the international Financial Stability Board to develop global guidelines "for what constitutes safe mortgage lending." That includes down payment, loan-to-value and income verification parameters.

Despite the warning, Dickson acknowledged that Canadian banks have “managed risk” well to date, adding that Canadian FIs are in “a position of strength”.

Source:htttp://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/09/osfi-issues-early-warning-on-mortgage-heloc-lending.html#more 09/29/11

The Bank of Canada's changing language

2011-09-08T11:24:00.000-04:00

CBC.

On Wednesday September 7, 2011, 4:51 pm EDT

Watching the Bank of Canada's language on the economy change over the past year is like seeing a healthy, upbeat person gradually come around to the idea that a serious illness is overtaking them.

A year ago, the central bank was continuing the slow process of raising its key interest rate toward familiar levels, as the western world began to put the financial cataclysms of 2008 behind it. On Sept. 8, 2010, the target rate for overnight loans between banks rose to one per cent.

And here's how the world economy looked to the Bank of Canada — getting better, but though not steadily: "The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies," the Bank of Canada said in September of 2010.

And Canada's economy — buoyed by demand for commodities like oil, gas, uranium and fertilizer — was recovering: "The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity," the central bank's statement read at the time.

It was canny, however, about forecasting any further increases in rates, sensing possible trouble ahead: "Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook."

That was code for don't get too excited, folks: a lot could still go wrong — and it did.

Remember that for more than a year, from April 2009 to June 2010, the central bank's key rate had been 0.25 per cent — effectively zero, or maximum stimulus, as a rising Canadian dollar did some of the bank's inflation-cooling work and the world began to recover its appetite for Canadian commodities.

The bank had gradually increased its key rate over the next few months to 0.75 per cent. Then came the bump to one per cent exactly a year ago.

Since then, as Europe's debt problems have flared in Greece, Ireland, Portugal and Spain, and in some people have taken to the streets to protest government attempts to curb spending and remain solvent, the Bank of Canada's key rate has been rock steady at one per cent.

Now watch how the language has moderated, as central bank economists saw the economy flattening:

On Oct. 10, leaving the rate at one per cent, the bank said: "In advanced economies, temporary factors supporting growth in 2010 — such as the inventory cycle and pent-up demand — have largely run their course and fiscal stimulus will shift to fiscal consolidation over the projection horizon .… The combination of difficult labour market dynamics and ongoing deleveraging in many advanced economies is expected to moderate the pace of growth relative to prior expectations. These factors will contribute to a weaker-than-projected recovery in the United States in particular."

By Dec. 7, it saw recovery "largely as expected," but sounded the first note of bigger trouble ahead: "At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets."

On Jan. 18, 2011 — happy new year! — there were signs the economy was rebounding all too well, with government spending in the U.S. and Canada showing up in growth all over. As well, Canadian commodities remained hot sellers, pushing up the value of the Canadian dollar.

In fact, the bank said, "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."

Translation: "No need to raise interest rates."

On March 1, the recovery kept pushing ahead, driven by exports, but the bank left rates unchanged, and stuck with this now-boilerplate paragraph at the end of its release: "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."

On April 12, the bank forecast 2.9 per cent gross domestic product growth in 2011 and 2.6 per cent in 2012 — all good, with robust spending and business investment leading investors to "become noticeably less risk-averse."

And yet, searching the horizon for clouds, the bank saw enough to stick with its boilerplate: "This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of material excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered."

By May 31, however, the bank began to see some of its more horrible imaginings coming true, and the boilerplate was dropped. Again leaving the key rate at one per cent, the bank said global inflation might be growing, but "the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices."

Stimulus might be "eventually withdrawn," it said, but "such reduction would need to be carefully considered. "

On July 19, the bank's language noted slower-than-expected U.S. economic growth, Japan recovering at a lower-than-expected pace from its nuclear disaster, and said "widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets." In other words, investors were getting jumpy about how Europe might pull itself together without major defaults and weakened currency."

And on Wednesday, laying out all the factors that are besetting global growth and the Canadian economy, the bank finally sounded a doctor facing a sick patient.

It didn't explicitly suggest returning to more stimulus (lowering interest rates), as some economists had forecast it might, but the bank no longer expected to withdraw economic stimulus:

"In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term."

Should I buy a Resale or New Home?

2011-08-02T15:51:00.000-04:00

It can be a difficult decision whether to purchase a resale home or a new home from a builder.

Although new homes typically have a higher sales price than comparable existing homes, buyers are willing to spend more up-front with an understanding that part of what they are paying for is assured low maintenance costs. A builder's warranty, along with brand-new roof, appliances, furnace, and other operating systems that make major repairs unnecessary, work together to counteract possible slower appreciation initially.

Buying New Versus Resale

In today's highly competitive market there is a vast array of choices to be made when deciding on the type of dwelling you wish to reside in. Below is a comparison of the advantages and disadvantages of buying a new home versus a resale home.

Advantages of a New Home

One of the primary advantages of buying a new home is the ability to decorate your home from the beginning exactly the way you want. You can pick all the colors, which range from paint to carpet. You can also make the tile and cabinetry selection for the kitchen and bathrooms.

Often, new homes will have more modern conveniences, better insulation and can be more energy efficient.

Disadvantages of a New Home

Unfortunately, with a new home purchase you should be prepared for the on-going construction you will find around you. Chances are that your grass and lawn will not be in, your driveway will be gravel and your street will turn into a sea of mud whenever it rains or snows. If things are going to go wrong with a newly constructed house, they will appear in the first one to two years. As the house settles you may find cracks appearing in the walls of the basement, especially near any windows in the basement, make sure you get them fixed right away. Also, you should not finish your basement in a new home for at least a couple of years, just in case cracks and leaks develop.

There are additional expenses associated with new homes that you will not typically find in a resale home. For example, you may have to spend additional money for appliances, curtains, drapes, central vacuum, humidifiers, decks, fencing, electric garage door openers, finishing the basement, walkways, outdoor lighting, indoor light fixtures, trees, shrubs, gardens and landscaping, children's play sets, swimming pool, air conditioning, etc.

Closing costs are typically higher for new homes. The purchaser will pay for such additional costs as the New Home Warranty Program, tree planting, utility hook ups and paving of the driveway.

Usually, when you buy a new home, you don't have an opportunity to see the actual layout. All that is provided is a blueprint and in many cases the end product may be a disappointment to the purchaser because of changes that the builder or sub-contractor does not follow or does themselves. Additionally, there is the uncertainty as to who will be your neighbours.
Advantages of a Resale Home

The major advantage of buying a resale home is that you are moving into an established neighborhood. Your lawn is green, your shrubs are growing, your driveway is paved and your trees are well enough established to give your street a feeling of permanence. Often, most extras are already present, such as appliances, curtains, drapes, central vacuum, humidifiers, decks, fencing, electric garage door openers, finishing the basement, walkways, outdoor lighting, indoor light fixtures, trees, shrubs, gardens and landscaping, children's play sets, swimming pool, air conditioning, etc.

In terms of investment, a resale home will often give you far more value than a brand new home. Many owners put tens of thousands of dollars into home improvements ranging from small items, such as landscaping, to major projects, such as a finished basement or any of the items above. Although these improvements will make the home more attractive to potential buyers, they may not increase the market value of the home. A $35,000 swimming pool or a $15,000 finished basement or even $5,000 worth of landscaping may make the home very attractive. However these additional costs incurred may not necessarily increase the market value of a home, especially if you have to sell it at a time of year where these major items add little or no perceived value. The buyer gets the home at its real fair market value, which is based on comparable homes for sale or sold in the neighborhood. All those expensive extras may be included in the home with benefit to the buyer at little or no extra cost. This can be a substantial savings over buying a new home.

With a resale, the vendor's asking price is almost always negotiable downwards unlike the builders list price which is usually firm. Any extras or changes are added to the list price of a new home and add up quickly.

Disadvantages of a Resale Home

A small percentage of homes in the marketplace are not considered to be in move-in condition. If both live-in partners happen to be working at full time jobs, a move-in condition home is by far the best alternative. If the property is being under "power of sale" or the property has been rented for many years the home may require a lot of work. If the buyer is not handy or does not have the additional up front capital then the purchaser would be better off buying a home in move-in condition or a brand new home. Additionally, as a home gets on in age certain systems such as heating, cooling, roofing, and/or windows need to be upgraded.

Although some perceive the paragraph above as a disadvantage, some consider it as an advantage. A home that needs some fixing up can in fact present some clear cost advantage to a buyer. Usually, it can be purchased below the going market value, while at the same time providing an opportunity to have it decorated to suite your specific tastes.

Ask the builder as many questions as you can, Learn the Questions to ask and what to look for when buying a new home.

Neighbourhood: Known or Unknown Factor

When you buy a resale home, you can find out a lot more about the property and the neighbourhood before you buy than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches, and schools. Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighbourhood, if not strictly residential, will not begin sprawling out of control.

Buying into a new-home community may seem riskier than purchasing a house in an established neighbourhood, but any increase in home value depends upon the same factors: quality of the neighbourhood, growth in the local housing market and the state of the overall economy. One survey by the National Association of Realtors shows that resale homes do have an edge over new homes when it comes to appreciate. The trade group's figures show the median price of resale homes increased 3 percent between 1994 and 1995, compared to 0.8 percent for new homes in the same period.

More Questions and Items to Consider

There is a major decision early in the process of purchasing a new home and that is whether to build a new home or purchase a resale home already on the market. The following provides some considerations that may help you make an informed decision.

Location, location, location. Are new homes being built in the area you desire? Do you know the surrounding zoning and what will be constructed in the area? How far away are services (schools, stores, hospital, doctors, etc.) that you need? How long is the commute to work?

Investment. Typically, due to the continual addition of features, rising labor and material costs, new homes cost more than similar resale homes. Are you having to pay significant impact or lot levies or taxes and fees that are imposed on the builder? Are the taxes on the new home much higher than a comparable resale home? Will you be in the new home until the area is built out so you will not be competing with the builders should you need to sell the home? Is the home going to be high priced compared to other homes built or going to be built in the area?

Features. Are the style and features that you desire only available in a new home? Can you find a resale home with most of the features and amenities you desire? Can you add the features you desire to a resale home? Are newer resale homes available that meet your needs?

Risk. Is the new home builder or developer financially stable? Is the builder a large well known company with a good reputation? Is the builder asking for significant down payments or advance payments? Are there complaints lodged against the builder for shoddy work or not making repairs? Has the builder been delivering homes when promised? Check with your Better Business Bureau, the town or the city and talk to homeowners that have purchased a home from the builder.

In summary, a resale home can cost less, be more conveniently located, you know the area and amenities and have less risk involved. A new home can be constructed to have the exact style and features you desire, but usually with much higher costs, limited locations, and more risk.

In today's market place both new and resale homes are selling briskly. Once you've evaluated the pros and cons of each alternative, you can make an intelligent, educated decision as to which option is best suited for your particular needs.

Ultimately, the decision should be based on your needs and wants, your family and/or children, your tolerance for risk and the unknown and ultimately your budget.

source:http://www.mississauga4sale.com/new-or-resale.htm

INTEREST RATES - FIXED VERSUS VARIABLE

2011-07-28T13:49:00.000-04:00

So which rate is better?

A fixed rate is where the interest rate is fixed for a specific period of time. Generally known as the mortgage term, the average term is 5 years. As time goes on, more of the mortgage payment goes towards the principal and less of the payment goes to the interest. A variable rate is where the interest rate fluctuates with any changes in the prime rate. The prime rate is set by each lender independently, and typically follows the pattern of the prime rate set at The Bank of Canada. The variable rate will always be based on prime plus or minus a discount. For example, prime minus 50 would be whatever the prime rate is minus 0.50%. If prime is 3.00%, then this variable rate would be 3.00 - 0.50 = 2.50%. This rate is always subject to change, and will fluctuate.

Determining which one is better is as simple as looking at your ability to handle risk, if you dont like to take risk then you should take the fixed rate. This will give you the peace of mind of knowing what your payments will be over the term of the the mortgage.

Here’s an easy test…
If you loose sleep worrying about the possibility of a .25% increase in the interest rate or get stressed thinking about the impact on your monthly budget if your mortgage payment changes, then a fixed rate mortgage is for you.

Another point to keep in mind is that most mortgages will allow you to choose a variable rate, and will let you lock in to a fixed rate at any time throughout the mortgage. There is no cost to do this.

Currently the variable rate is low, however so are the fixed rates. Granted the variable rate is lower, but the fixed rate is even more attractive to those risk adverse clients who will still get a good deal compare to previous fixed rates in the past.

The decision to choose a Fixed or Variable Rate mortgage is as personal as choosing the home that's right for you. Feel free to ask us for more details and we can help you make the right decision.

Do you have something to say? Feel like leaving your two cents on this topic? We would like to hear your opinion, please comment below.

The best way to save for a house

2011-07-26T12:44:00.000-04:00

The Globe and Mail - What’s the best way to save for a house: RRSPs or TFSAs?
ROB CARRICK,From Tuesday's Globe and Mail
Published Monday, Jul. 18, 2011 6:23PM EDT

Add RRSPs versus TFSAs to the list of decisions you have to make as a prospective home buyer.

Some serious saving is going to be required to meet the minimum 5-per-cent down payment for buying a home, not to mention the 20-per-cent threshold for avoiding costly mortgage default insurance. Two ideal vehicles for saving are registered retirement savings plans and tax-free savings accounts. Which is best?

Tax-free accounts make saving a snap for Canadians
The great rent-versus-buy debate: Readers weigh in
Watchlist: You ask, we answer

Here’s the case for the TFSA. It lacks one of the flashy benefits of using an RRSP to save for a home, but it compensates by offering more real-life flexibility.

RRSPs have been the go-to source of money for house down payments since the early 1990s, when the federal government introduced the Home Buyers’ Plan. Today, the plan allows first-time buyers to withdraw up to $25,000 from their RRSPs to put toward the cost of a house.

TFSAs have only been around since 2009, which means the thinking on how best to use them is still evolving. The general principal with a TFSA is that people 18 and older can contribute $5,000 annually and pay no taxes on whatever type of investment or savings gains they generate.

Money invested in RRSPs compounds tax-free as well, but you have to pay taxes on money withdrawn from a plan. Not with the Home Buyer’s Plan, however. A $25,000 withdrawal under the plan is $25,000 in cash for your down payment.

The best argument of all for using RRSPs to save for a home? It’s the tax deduction you get when you contribute to a plan. Invest the tax deduction in your RRSP and you’ve got an extra savings boost.

No, you don’t get a tax deduction when you contribute money to a TFSA. What you do get is freedom from the rigid requirements for repaying money withdrawn from an RRSP to pay for a house.

“You have to pay yourself back when you use the Home Buyers’ Plan,” said Carol Bezaire, vice-president of tax and estate planning at Mackenzie Financial. “But with the TFSA you don’t.”

The point of the Home Buyers’ Plan is to help people afford to buy homes without permanently damaging their retirement savings. That’s why you have to start repaying what you withdrew through the plan in the second year after the year you made your withdrawals.

The default repayment schedule is one-fifteenth of the withdrawn amount for 15 years. Ms. Bezaire said your annual RRSP contribution is automatically reduced by the amount of your required repayment. This means your tax deduction will be for the net amount of money you put in your RRSP.

You can take money out of a TFSA at any time and pay it back if and when you want, subject to certain restrictions. It’s also a lot quicker and simpler to withdraw money from a TFSA as opposed to using the Home Buyers’ Plan. There’s little or no paperwork to fill out with the TFSA – in many cases you can just go online and transfer money from your TFSA to your chequing account.

Using a TFSA to save for a home has another more subtle benefit as well. It allows the money in your RRSP to more effectively do what it’s supposed to do, which is grow into a source of income you can use when you leave the work force.

The big benefit of contributing to an RRSP early on in your adult years is that you put your money to work generating compound growth over the decades ahead. By withdrawing money to buy a home, you’re giving your retirement savings a vacation that could last as long as 15 years.

The biggest flaw with TFSAs right now is that you’re limited to contributions of no more than $5,000 per year. You can carry unused room forward, which means the most you can now put in a TFSA if you haven’t used one before is $15,000. Remember, you can withdraw up to $25,000 through the Home Buyers’ Plan.

If you’ve got a three- or five-year plan to save for a home, TFSAs could still serve you well because of the additional contributions you’ll make. If you’ve got a shorter timeframe, you’ll likely have to augment your TFSA home savings plan with other savings or an RRSP withdrawal using the Home Buyers’ Plan.

The Home Buyers’ Plan is a nice, neat program that you’re going to hear a lot about if you’re getting into the housing market because it’s a major factor in helping people afford homes. TFSAs are a better way to go, though.

The Globe and Mail
ROB CARRICK
Monday, Jul. 18, 2011

Trouble in overheated housing market once interest rates rise...

2011-06-21T12:04:00.000-04:00

Canada's housing market is entering overheated territory and many Canadians could be financially hurt once interest rates begin to rise, Bank of Canada governor Mark Carney is warning.
The central banker on took his case for moderation on Wednesday to Vancouver, the epicentre of Canada's hot housing market where he says home prices are now on par with Hong Kong and Sydney, Australia, as they relate to average incomes.
And some sectors of the market, like condos in big cities, could overshoot because of speculation from foreign investors.
The housing market is still expected to moderate, he said, but recent signals have been mixed.
Carney has been cautioning Canadians for about two year against getting overextended on mortgage borrowing, but Wednesday's speech to the Vancouver Board of Trade suggested some frustration that his words have mostly fallen on deaf ears.
The governor said he has been expecting the housing market to slow, but besides some stuttering signals, it has picked up again of late along with borrowing and mortgage credit.
Once again, Carney repeated his warning to Canadians about becoming overextended.
"It is important that it's emphasized, because it can be forgotten, that we are living in extraordinary times with interest rates that are unusually low, that the outlook for the Canadian economy, the strength of the Canadian economy, the expectations both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels," he said told a later news conference.
"And so Canadians in taking on debt, or Vancouverites, more specifically, in taking on debt, need to...ensure that they can continue to service those debts comfortably in a higher-rate environment."
Carney' speech came on the day the Canadian Real Estate Association released new data showing that average resale home prices rose 8.6 per cent in May from a year ago, and that in Vancouver prices were up 25.7 per cent to $831,555.
At those levels, Carney said Vancouverites are paying 11 times family household income for a home, a multiple similar to global housing hot spots Hong Kong and Sydney, Australia.
When asked if he had any advice to young people who hope to buy a house in Vancouver, Carney responded, "Well, get a good job. That would probably be a good one. Study hard, stay in school and get a good job. How's that?"
The situation is not as dramatic in the rest of the country, but it's bad enough, he said.
He noted that it took nearly 12 years for real estate investment to regain its peak after the 1990s recession. It has taken a year and a half this time and, in fact, average home prices are now 13 per cent higher than where they stood before the 2008-2009 slump.
Carney takes some of the blame for the unprecedented run-up in prices, since the key difference between the two eras is that he drove interest rates down to historic lows in order to salvage the economy. The policy succeeded, but at a cost of driving investment from more productive outlets of the economy to housing.
But he also lays some blame on home buyers, who he implies should know better. He said some Canadians are taking on mortgages as if they believe current ultra-low rates will last forever. They won't, he warns.
"Rates will not remain at their current levels forever," he said. "(And) the impact of eventual increases is likely to be greater than in previous cycles."
A four per cent real mortgage interest rate would see home affordability in Canada fall to the worst level in 16 years, he said. The current real mortgage interest rate, which excludes inflation, is about 2.4 per cent.
Other than issuing a general alert, Carney gave few hints what he can do about it and implied that the ball is in the federal government's court to tighten borrowing requirements again if necessary.
Carney refused to comment when asked whether the government should restrict home ownership to those with Canadian citizenship.
"Obviously, if one restricts demand and takes an important element of marginal demand out of the equation there's going to be an adjustment to price," he said.
"But those type of decisions are decisions for communities to make, and they're complex decisions, and nothing should be read into our commentary about the current environment and housing, whether it’s in Vancouver or across the country."
"We're not weighing into that issue at all."
Finance Minister Jim Flaherty this week also expressed concern with household debt — now amounting to a record $1.5 trillion in the aggregate — and noted he has tightened mortgage requirements three times in the past three years.
Carney suggested in his speech that he will use monetary policy, or interest rate setting, to impact the inflation rate and not exclusively the housing market.

Source - http://ca.finance.yahoo.com/news/Carney-warns-trouble-capress-560228003.html?x=0

What is the best variable???

2011-06-16T19:12:00.001-04:00

The question of the day, "so what's your best variable rate?". It's a valid question, but it isn't easy to answer.

Really, it depends on your definition of "best". If you mean cheapest, as in the lowest interest rate out there, I have seen it as low as 2.05%. But we all know that you get what you pay for.

When shopping for a mortgage remember to make informed decisions. This is one decision that will cost you thousands over the next five years, so it is worth the time and effort to educate yourself on the options.

Yes, let's face it, the bottom line is MONEY. But just because a mortgage product has a low rate doesn't means that it will cost you less in the long run. There are other factors to consider when deciding which option to take.

One issue to think about when choosing your mortgage is "portability". Even though you may get a good rate, you need to know if the mortgage can be transferred to another property OR to another lender down the road. Can it be done easily and without penalties or legal fees?

Another point to consider with variable mortgages is what interest rate will you get if you choose to lock in to a fixed term . For example, if you take a varaible mortgage today while rates are low but decide it is too risky as rates start to climb in the future, you have the ability to lock in to a fixed rate contract. However, some banks will NOT offer you the best fixed rate at that time. They already have your business, so why would they give you the best discount. You could end up paying 1.5% more than needed.

Another catch to watch out for are the fees involved with breaking the mortgage contract. If for any reason you want to end your mortgage early some lenders do charge more than others. Just something to watch out for.

The list goes on and on. This is why your knowledgable mortgage broker can help you determine which mortgage product is best for you. A variable mortgage is a great choice, but let's make educated decisions and realize that it's not always about the interest rate.

Pre-Approved for a mortgage and ready to go? I think not.

2011-06-09T12:00:00.000-04:00

What is a Pre-Approved Mortgage?

A pre-approved mortgage is a "tentative" promise from a lender that it will loan you a certain amount of money for the purchase of real estate, for a certain term and at a certain interest rate. In a pre-approved mortgage process, the lender will base its decision upon your income and credit score.

A pre-approved mortgage is a tentative determination by the lender to loan you a certain amount of money. It is NOT a final decision and is usually only valid for 90 to 120 days. The final decision may depend upon whether the appraisal of the real estate is high enough to protect the lender in the case of default, whether the title is clear, whether the property meets inspection standards, among a number of other factors. Typical pre-approvals will have some fine print that states the mortgage is subject to a final approval.

So why bother? If a pre-approval does not mean that you are approved, then what is the point in getting pre-approved?

There are two main benefits of getting pre-approved for a mortgage. The first, is a 120 day rate hold. The pre-approval protects the buyer in case interest rates go up while they are out looking at properties. The lender offers a 120 day rate hold, that states they will honour the rate at the time of the pre-approval provided the purchase closes before the 120 day window.

The other advantage of the pre-approval is to have a ball park figure of how much you are qualified for. Though it sounds basic, knowing how much you are able to spend before purchasing a home is always a good idea. If you know you are pre-approved for $200,000 and you have $35,000 for a down payment and closing costs, it makes little sense to be shopping for $400,000 houses. With a pre-approved mortgage, you know exactly where you stand before shopping for a home. In fact, many realtors will want to see a pre-approval before they will begin to help you look for a home.

Since your pre-approval is subject to a final approval once you make an offer to buy a property, we always suggest that clients make their offer conditional upon financing. This gives you five day window to get an approval from the lender which guarantees you the mortgage financing as long as you meet their conditions, such as proof of incoem, proof of down payment, etc.

If you or someone you know is looking to purchase a property make sure they know about pre-approvals. Perhaps we can help!

Three ways we can help save your mortgage

2011-06-07T15:32:00.001-04:00

Money troubles are one of the main reasons that couples split up. Perhaps your trusted mortgage professional can help. Here are three suggestions that we have to keep peace within your relationship.

1) Try the new 50/50 mortgage.
Growing with popular demand, some lenders are now offering a mortgage product that offers the best of both worlds. Half of your mortgage is fixed, and half of it is variable. Which provides security and stability and at the same time can take advantage of a lower variable rate.

2) Consolidate to improve your cash flow.
If money is tight, why not look into lowering your monthly payments by cosolidating them into one loan. Mortgage rates are historically low which makes financial sense to tranfer your debts.

3) Buy within your budget.
When couples are looking to buy, one has ideas of what they want the house to look like while the other partner has ideas on what the pocket book should look like. It can be tough to balance these two sides, however the house can be changed/renovated. Your monthly payment cannot. Before you make a new home purchase amke sure to discuss how much you are willing to spend per month, then we can work backwards to calculate how much mortgage you can afford and therefore how much of a house you should buy.

Just some food for thought.

Low interest rates seen sticking around

2011-05-26T17:54:00.000-04:00

MARTIN MITTELSTAEDT
Tuesday's Globe and Mail

Interest rates have recently being going somewhere unexpected: DOWN.

At their trough last week, the yields on 10-year U.S. Treasuries, the benchmark North American rate, touched 3.11 per cent, the lowest level in six months and more than half a percentage point below their February peak.

Yields on 10-year Government of Canada bonds have fallen, too, and are now virtually identical to their U.S. counterparts.

The sliding rates have surprised many market watchers. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.

While predicting the future for rates is notoriously difficult, some observers believe that the current low-rate environment may continue for a while. If so, it will mean pain for savers, but good news for borrowers.

A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they’re in no immediate need of funds. A case in point is Google Inc., which has $37-billion (U.S.) in cash and marketable securities on its balance sheet, but raised $3-billion from a bond issue last week anyway. Mortgage rates have fallen, too – good news for homeowners looking to refinance.

But lower rates have not turned out so well for some of the market’s savviest players, including Bill Gross, the founder of Pimco, the world’s biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds.

It’s difficult to fault his logic: only a few months ago, the case for higher interest rates seemed so compelling.

Governments around the world are carrying bloated deficits and massive borrowing needs. In the United States, politicians have yet to agree on any clear path to deficit reduction, despite more than $1-trillion in annual red ink. Meanwhile, oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative.

And the U.S. Federal Reserve is no longer putting its thumb on the scale. In less than six weeks, it is going to end its program of quantitative easing, under which it is buying $600-billion in Treasuries to goose the economy. Many bond-market followers believe the Fed’s massive buying binge has been propping up Treasury prices and keeping yields artificially low.

So what has been pushing rates lower in recent months?

A weaker-than-expected recovery is the major culprit. “The global economy, and the U.S. economy in particular, is not on quite as solid a recovery track as people were imagining in the very optimistic days of six months or so ago,” observes Peter Buchanan, senior economist at CIBC World Markets.

A slew of recent statistics underlines that weakness, ranging from the poor state of U.S. home sales to the slowing pace of U.S. manufacturing growth. Meanwhile, the Japanese economy, the world’s third-largest, is shrinking and creating a further drag on global commerce, although few foresee a double-dip recession.

“We’re looking ahead toward a bit of a cooling in economic growth,” said Paul Dales, senior U.S. economist at Capital Economics, who foresees output in the U.S. rising about 2 per cent this year.

That level of growth won’t be “anything to celebrate but it’s nothing like the recession we saw previously,” he said.

Another factor driving rates lower has been the early May rout in commodities, which dampened some of the worry on the inflation front. In addition, the recent sluggish performance of the stock market suggests that investors are getting nervous and growing more willing to buy super-safe government bonds.

Mr. Dales believes the current trends have room to run, and that rates will surprise to the downside.

He predicts U.S. 10-year Treasury yields could slip to 2.5 per cent in the low-growth, less inflation-spooked environment he foresees ahead.

If growth continues to be slow, lower rates might be staying around for a while.

Mr. Buchanan says the most likely scenario, given the poorer economic outlook, is for the Fed to hold off on raising rates until 2013. He believes the yield on Treasuries will rise gradually, instead of falling further, getting back to 3.4 per cent by the end of this year and to 4 per cent by the end of 2012. http://www.theglobeandmail.com/report-on-business/economy/interest-rates/low-interest-rates-seen-sticking-around/article2032075/

What's In The Fine Print Anyway???

2011-05-24T11:36:00.001-04:00

Mortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print or ask a mortgage professional.
Some examples:

- Restrictions on breaking your mortgage before the term is up
- Restrictions on breaking your mortgage for the first 3 years
- Penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
- “Reinvestment fees” (on top of mortgage penalties)
- Interest rate differential (IRD) penalties based on an onerous bond yield calculation
- IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
- IRD penalties based on a costly posted vs. discounted rate formula
- Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
- A poor conversion rate guarantee
- No refinances during the first year
- No free switches (for transfer-eligible mortgages)
- Amortization limits of 25 years
- Minimum amortizations of 15-18 years
- Restrictions on converting from a variable rate to a fixed rate for the first six months
- No ability to break your “open” HELOC without a penalty
- No pre-payments within 30 days of discharge
- Inability to port across provincial lines
- High administrative fees when porting
- 100% clawback of cash-back if the mortgage is broken before maturity
- Requirement for a full banking relationship with the lender
- No lump-sum pre-payment privileges
- No annual payment increase allowance
- Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…
Keep a lookout for restrictions like this when comparing different mortgages. It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted. Just some food for thought.

source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/09/the-devil-in-the-fine-print.html

Five steps to scoring a mortgage

2011-05-19T11:24:00.001-04:00

Five steps to scoring a mortgage

A variety of factors can keep you from qualifying for a mortgage. The big ones include a low credit score, insufficient income for the size of the loan you want, insufficient down payment and excessive debt. All of these factors are within your control, however. Let's take a look at your options for overcoming any liabilities you may have as a borrower.

1. Repair Your Credit and Increase Your Score

To lenders, your credit score represents the likelihood that you will make your mortgage payments in full and on time every month. Therefore, with most loans, the lower your credit score, the higher your interest rate will be to compensate for the increased risk of lending you money. If your credit score is below 620, you will be considered subprime and will have difficulty getting a loan at all, let alone one with favourable terms. On the other hand, if you have a credit score above 800, you'll easily be able to get the best interest rate available (also known as the par rate). (Find out how your borrowing activities affect your credit rating in The Importance Of Your Credit Rating.)

Measures you can take to improve your credit score relatively quickly include paying down revolving consumer debts, such as credit cards or auto loans, using your debit card instead of your credit cards for future purchases, paying your bills on time every month and correcting any errors on your credit report. However, some flaws, like seriously late payments, collections, charge-offs, bankruptcy and foreclosure, will only be healed with time. (Read How To Dispute Errors On Your Credit Report to find out how to address reporting mistakes.)

In addition to managing your existing credit responsibly, don't open any new credit accounts. Applying for new credit temporarily lowers your credit score, and having too much available credit is also considered a warning sign. Lenders may be afraid that if you have a lot of available credit, you'll take advantage of it one day and adversely affect your ability to make your mortgage payments. (For more tips and techniques to help you rebuild your ruined credit rating, read Five Keys To Unlocking A Better Credit Score.)

2. Get a Higher-Paying Job

If lenders say your income isn't high enough, ask them how much more you need to earn to qualify for the loan amount you want. Then try to find a new job in your existing line of work where you'll be able to earn that much money.

Because lenders like to see a steady employment history, you'll have to stay in the same line of work for this strategy to be successful. This can be disappointing news for borrowers, as switching professions entirely might offer the best chances for a salary increase. However, switching companies can also be a good way to get a significant boost in income. Significant raises from existing employers aren't that common, but a new employer knows he'll have to offer something special to get you to make the switch. (Read Negotiating For Employment Perks for tips on reaching an agreement with your boss.)

If switching companies right now won't be enough to get the raise you need, think about things you can do relatively quickly to make yourself more valuable to employers. Is there a continuing education program that you could complete? If you're a legal secretary, could you become a paralegal? If you're a receptionist, could you become a secretary? A career counselor or headhunter might be able to give you some guidance specific to your situation about how to improve your marketability and how to reach your income goals. (Read Six Steps To Successfully Switching Financial Careers to learn how to make adjustments without starting over.)

Unfortunately, getting a part-time job on top of your full-time job may not provide what lenders consider qualifying income. The part-time job may be viewed as temporary, and since it will probably take you at least 15 years to pay off your mortgage, lenders are looking for you to have long-term income stability. (Increase Your Disposable Income gives you ideas on how to make more money now, which can make a big difference down the line.)

3. Save Like Crazy

The larger your down payment, the smaller the loan you'll need. In addition, the lower your loan-to-value ratio (LTV ratio), the less risky lenders will consider you. Both of these factors will make you more likely to qualify for a loan. Be aware that you may have to reach a certain down payment threshold, like 10 per cent or 20 per cent (with 20 per cent being the most conventional), before a larger down payment will help you qualify for a loan. (Learn more in Mortgages: How Much Can You Afford?)

4. Don't Pay More Than the Bank's Appraised Value

The bank will not want to lend more than the house is worth because they could be on the losing end of the deal, should you foreclose and owe more than the bank could get for it. A 20 per cent down payment also becomes much less valuable if the house is worth 20 per cent less than the purchase price. Collateral value is important to lenders, so it should be kept in mind when making an offer to purchase a property. (Read 10 Tips For Getting A Fair Price On A Home and learn how to make sure your house is worth the price you pay.)

5. Reduce Your Debt

To a lender, what constitutes excessive debt is not a set number - it's a total monthly debt payment that is too high for you to be able to afford the monthly mortgage payment you're asking for. When deciding how much loan you qualify for, lenders will look at what's called the front-end ratio, or the percentage of your gross monthly income that will be taken up by your house payment (principal, interest, property tax and homeowners insurance), and the back-end ratio, or the percentage of your gross monthly income that will be taken up by the house payment plus your other monthly obligations, such as student loans, credit cards and car payments.

The more debt you're required to pay off each month, whether it's “good debt” like a student loan or “bad debt” like a high-interest credit card, the lower the monthly housing payment lenders will decide you can afford, and the lower the purchase price you'll be able to afford. Decreasing your debt is one of the fastest and most effective ways to increase the size of loan you're eligible for. (Learn what to watch for before you find yourself drowning in debt in Five Signs That You're Living Beyond Your Means.)

Playing to Win

Qualifying for a mortgage isn't always easy. Lenders require all applicants to meet certain financial tests and guidelines and allow a limited amount of flexibility within those rules. If you want to score a mortgage, you'll have to learn how to play the game, and you're likely to win if you take the steps outlined here.

Source:Amy Fontinelle,Investopedia.com,Published Thursday, May. 12, 2011 7:02AM EDT
Last updated Thursday, May. 12, 2011 8:26AM EDT,http://blogs.forbes.com/investopedia/2011/03/02/5-steps-to-scoring-a-mortgage/

Buyer Beware

2011-05-17T12:25:00.001-04:00

TD Mortgages To Become Collateral Charges

TD is making a big change with respect to how it registers its mortgages.

Effective October 18, all new TD mortgages will be registered as “collateral charges.”

A collateral charge is a different way to secure a home loan than a standard mortgage. "The terms of a collateral mortgage are outlined in a loan agreement that's not registered," says Invis's Gary Siegle. "With a regular mortgage, the terms are in a 'registered document'."

Effectively, collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing, without involving a lawyer.* That saves the borrower legal costs if he/she needs to withdraw equity from their home.

In TD’s case, customers will now be able to register their mortgage for up to 125% of the value at closing. Hence, if one’s property value goes from $200,000 to $250,000, qualified borrowers will be able to withdraw most of that new equity without refinancing.

"If I'm a consumer and I'm told that I can get more money in the next few years without extra cost, I would think most consumers would find that appealing," says Siegle.

The downside comes at renewal. For consumers who want to keep their options open at maturity, this is an unfriendly change. That’s because TD customers will now have to pay legal fees to switch lenders.

Obviously, people switch lenders for many reasons, not the least of which is better rates or features. And, with most other lenders, you can switch your mortgage for free, save for the discharge fee or other minor charges.

From our own informal polls, many industry observers we’ve spoken with view this change largely as a strategy to retain customers at renewal. If this is TD’s intention, they’re definitely not the first lender to think this way. There are various credit unions, for example, that register all of their mortgages as collateral charges. There are also banks that push readvanceable mortgages (which also use collateral charges), for similar reasons. TD itself has used collateral charges with its variable and HELOC products for a while.

For now, it’s difficult to assess the impact of this change. Everyone needs to renew, but not everyone needs to refinance. So TD’s move will benefit some while hurting others.

On the other hand, most mortgagors renew with their existing lender anyway, so the number of TD customers who refinance may be higher than the number of people leaving TD at renewal.

That depends on the term, of course. Someone in 1-year fixed has a low probability of refinancing. So, other things being equal, TD will now be a less attractive option for standard 1- to 3-year terms.

In any event, TD customers need to be aware of both the pros and cons of this move.

source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/td-mortgages-to-become-collateral-charges.html

Nine signs you can't afford a mortgage

2011-05-03T12:28:00.003-04:00

Nine signs you can't afford a mortgage

Michele Lerner
Investopedia.com
Published Monday, May. 02, 2011 6:56AM EDT
Last updated Monday, May. 02, 2011 10:11AM EDT

While plenty of individuals live from paycheque to paycheque, most consumers know they should be saving money and reducing debt. The recession has drummed that concept into everyone's head as people have watched their neighbours and friends lose jobs and sometimes their home.

Many people say that money worries keep them awake at night, but that doesn't necessarily translate to imminent bankruptcy. How do you know when you are truly teetering on the edge of a financial disaster versus simply needing to do a little belt-tightening?

Here are nine signs that indicate you are heading for trouble and may be unable to pay your mortgage in upcoming months:

1. Late Fees
If you missed a payment or let your bill go past due because you didn't have the money to pay your mortgage or another bill on time, you need to reevaluate your budget. Not only does this indicate an imbalance between your income and expenditures, but it will also ruin your credit score, potentially causing your creditors to increase your interest rate.

2. You Can't Pay All of Your Bills
Every month, you are forced to decide which bills to pay and which bills to ignore. A lot of people opt to pay their credit card bill to stop harassment from the credit card company and to make sure they have available credit. But it is far more important to pay the bills that protect your home first. Always pay your mortgage first so that you will have a place to live. Next, pay for your car so that you can get to work and keep your job.

3. Making Minimum Payments on Credit Cards
In your mind, paying the minimum due on each bill may mean you are keeping up with your financial commitments, but financial experts know that minimum-only payments are a key indicator of financial distress. While this may mean that you carry too much debt, this also means that all your income is barely covering your spending. Take a careful look at your mortgage payment, other debts and your income to get back on track. Paying only the minimum on credit cards will extend your debt for years and amass expensive interest payments.

4. No Emergency Savings
While amassing six to 12 months of funds to cover you expenses, as many financial planners now recommend, may be a monumental task, every homeowner should have at least one month's worth of expenses in the bank. At the very least, you need to have enough money in a savings account or a money market fund to pay your mortgage for one month if your income drops or disappears. If you cannot save that much money you need to seriously evaluate your overall household budget.

5. You Can't Afford Maintenance
Your home needs to be painted and your dishwasher broke two months ago. If you are ignoring basic maintenance because you cannot afford to buy paint or call a repairman, this is a significant indication that you are in financial trouble. Not only does this show that you don't have any emergency savings or a home maintenance budget, but this will also reduce the value of your home.

6. Reduced Income
Money is already tight and now your work hours have been reduced or you have been laid off. If meeting your monthly budget depends on every dime you earn, then even a small reduction in income can be a disaster. Search for a new job or a second job and, at the same time, start slashing your budget as much as you can.

7. Using Credit or Cash Advances to Pay Bills
You are using your credit cards or, even worse, cash advances on credit cards to pay other bills such as a utility bill or to buy groceries or just to have cash in your pocket. This is a strong indication that your spending is outpacing your income and it is extremely expensive. You need to put yourself on a debt management program or perhaps meet with a credit counselor to straighten out your finances.

8. Using Your Retirement Fund
You have borrowed money from your retirement account for your mortgage payment or other debt. This could seriously jeopardize your future financial security.

9. You're Maxed Out
One or more of your credit card balances has reached or, worse, gone over the limit. If you are transferring your balances to new accounts in order to avoid paying the debt, this is a sign of a financial imbalance. If you are applying for new credit cards because your other cards have reached their limit, you are in serious danger of a financial meltdown. While you may be making your mortgage payments just fine, if you cannot control your use of credit cards it can be an indication that housing payments are too high.

While these financial woes can mean that you cannot afford your home, they may also be a sign that your spending is out of control. For most people, the mortgage payment is the largest monthly bill, so they often assume that the size of their mortgage is the problem. If your housing payment fits into that budget but you are having difficulty making your payment, then the issue may be that you have taken on too much other debt. Whether the problem is your mortgage or your other debt, you need to find a way to reduce your spending and/or boost your income before the situation gets worse.

The Bottom Line

Handling financial problems is never easy, but the first step is always to know what you owe. Solutions can only become clear once you have every bill written down with the amount owed, the monthly payment and the interest rate you are being charged. Pencil and paper work just fine, or you can create a spreadsheet or invest in some personal finance software. The important thing is to know where you stand so you can create a plan that will get your money under control.

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/nine-signs-you-cant-afford-a-mortgage/article2003996/singlepage/#articlecontent

Five expenses that will consume 50 per cent of your lifetime earnings

2010-08-12T15:10:00.001-04:00

by Manisha Thakor, Forbes.com
In these recessionary times, financial tips are flowing fast and furious about how to save money and stick to a budget. Facing a sea of information, many people are asking, “Where do I start?” For most of us, five areas of spending will consume over 50% of the money we earn during our lifetime, so that’s the best place to begin.

The five areas are: Home, car, children, education and retirement. Here’s what you need to know about each:

* Don’t bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It’s also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interest rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.

* Don’t let your CAR drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a car that is one-third of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low – now you know why so many people are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There’s insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income.

* Don’t let your KIDS kick you in the wallet. Kids are expensive. From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18. And that figure is before you add in the cost of college or university! Deciding to be a parent is a major financial obligation. Don’t make it worse by over-indulging your love bundles.

* Don’t forget to ask “How high is too high for higher EDUCATION?” It used to be good debt was defined as mortgage and student loan debt… and bad debt was everything else. Not any more. We’ve now learned that too much of a good thing can indeed be bad. Rough rule of thumb, don’t take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college/university or grad school). In plain English, if you think you’ll make $50,000 a year, don’t take out more than $50,000 in loans. The logic behind this is that if it takes you more than 10 years of paying 10% of your income a year in student loan repayments, it’s going to be tough to meet your other financial obligations.

* Don’t underestimate the need to feed your RETIREMENT nest egg. How much will you need to retire? A simple rule of thumb is to multiply your current income by 25. So if you make $50,000 a year and want to maintain that standard of living in retirement, you’ll need a nest egg of at least $1,250,000. Understanding early on in your working life what “your number” is… will help you see just how important it is to plan for this major savings goal. http://ca.finance.yahoo.com/banking-budgeting/article/forbes/83/five-expenses-that-will-consume-50-per-cent-of-your-lifetime-earnings

Canada sees ‘dramatic’ housing slowdown, global report says

2010-08-11T17:03:00.001-04:00

Canada sees ‘dramatic’ housing slowdown, global report says

Julie Fortier, Financial Post · Tuesday, Aug. 10, 2010

OTTAWA — Canada led in the global housing recovery in the first quarter of 2010, but moderating global growth, heightened financial market volatility and sluggish job creation have led to a “dramatic” slowdown in Canada, according to the Global Real Estate Trends report released Tuesday from Scotia Economics.

“Global real estate markets entered 2010 with a renewed sense of optimism, piggybacking on the broader economic recovery underway,” Adrienne Warren, senior economist at Scotia Economics said in the report. “Housing demand and pricing improved in the first quarter of the year in the majority of the advanced nations we track, benefiting from ultralow interest rates, improved affordability, and in some cases, government purchase incentives.”

Australia and Canada, with inflation-adjusted average home prices rising at double-digit rates, led the pack, echoing their relatively favourable employment and lending conditions. Sweden, Switzerland and the U.K. also saw home price increases, while U.S. and French markets reported small declines.

However, the global trend has reversed itself in recent months and Canada has seen home sales activity begin to fall.

“The recent slowdown has been most dramatic in Canada,” Warren noted. “Average home prices in (the second quarter) were up just 6.8 per cent year-over-year, compared with 16.6 per cent year-over-year in (the first quarter). Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand.”

For instance, figures from the Canadian Real Estate Association released last month showed seasonally adjusted national home sales activity via the Multiple Listing Service Systems fall 8.2 per cent in June from the previous month. Sales fell in almost 70 per cent of local markets.

The Scotia report said hard-hit markets like the U.S., Spain and the U.K. are expected to take years to recover, while “in higher growth nations such as Canada and Australia, housing activity should prove much more subdued than in recent years.”

Loonie's rise 'makes sense,' Flaherty says

2010-08-06T11:46:00.001-04:00

Jack Reerink and Jeffrey Hodgson, Reuters · Thursday, Aug. 5, 2010

OTTAWA -- The rise in Canada’s currency “makes sense” because investors are snapping up the country’s assets and the economy is growing nicely, Canadian Finance Minister Jim Flaherty said on Thursday.

It’s a different world from the heady days of 2007, when the Canadian dollar zoomed up to a high near US$1.10, Mr. Flaherty said. Then, speculators were at the heart of the rise, he said, while this time he credits the strong economy.

“There’s more demand for Canadian investments. So the upward pressure on the dollar to me makes sense,” said Mr. Flaherty, who previously voiced concerns about the “loonie’s” rapid rise.

The currency was trading just above 98 U.S. cents on Thursday.

“It would have to go significantly above parity. And that would be a concern for Canadian business, and therefore a concern of mine,” Mr. Flaherty told Reuters in his Parliament Hill office.

Mr. Flaherty, the “eminence grise” among finance ministers of the Group of Seven big economies with four years on the job, also is focused on prodding China and other Asian economies to let their currencies rise — a perennial discussion point at finance minister meetings.

“We feel that there’s room to move ... more flexibility in the Asian currencies,” said Mr. Flaherty, who treated his G7 colleagues to a dog sled ride and meal of seal meat at a February conference in Canada’s Far North.

“At the same time, I’m pleased to see a restoration of a degree of flexibility with the Chinese currency,” he said. “We’ll continue to press on the subject.”

Mr. Flaherty’s Asia focus fits with Canada’s drive to stimulate trade with emerging markets, particularly resource-hungry China.

“We know that the world trade picture is changing. You can see it in the countries that sit around the table at the G20 summits,” he said, his voice almost drowned out by the stand-alone air-conditioning unit cooling his office in the Gothic Revival building.

The share of Canada’s exports going to the United States has steadily declined in the past decade, but still stands at three-quarters. Mr. Flaherty sees it going down to as little as 60% in the next five to 10 years on more Asia business and a possible trade deal with the European Union.

All the same, the state of the U.S. economy is always front of mind. And Mr. Flaherty, who mostly uses job figures and consumer confidence to gauge economic conditions, is pretty upbeat.

“My two significant worries about the American economy are the relative weakness of the job recovery ... and weak U.S. consumer confidence,” he said, adding the risk of the U.S. economy sliding back into recession is “modest”

“The more likely course is a modest gradual recovery,” said Mr. Flaherty, who studied at Princeton University before getting his law degree in Canada.

The “track is good” for Mr. Flaherty’s own budget, due early next year, as analysts are ratcheting up expectations of economic growth to 3.5% this year. One issue clouding the picture: how to account for payments to provinces adopting the harmonized sales tax, or HST, which combines federal and provincial sales taxes rather than collect them separately.

Number crunchers are now figuring out whether to take the hit in one go or spread it out over several years, Mr. Flaherty said, adding: “We don’t have fun with figures here.”

Weak Canadian GDP puts BoC on the spot

2010-07-02T10:38:00.001-04:00

Eric Lam, Financial Post · Friday, Jul. 2, 2010

With Canada's economy stumbling in April, adding fuel to speculation the country's roaring recovery that began in September 2009 was coming to an abrupt end, economists warned Canada's central bank will have to tread carefully on its plan to raise interest rates for the rest of the year.

Derek Holt and Gorica Djeric, economists with Scotia Capital, said the Bank of Canada "was not likely to be swayed" by Wednesday's economic data. The pair maintain a forecasted 1.25% benchmark rate by the end of the year.

"There should be enough strength in the underlying economic momentum to dismiss the drag on GDP in April as something that does not portend the start of a new trend," the pair say in a note.

In April, Canada's gross domestic product neither expanded nor contracted, compared with 0.6% growth in March. Economists surveyed by Bloomberg had been forecasting 0.2% growth in GDP for April.

This is the first time in eight months Canada's economy did not expand.

In its report, Statistics Canada blames the stagnant April on a "large decline" in retail trade of 1.7%, after a 1.9% gain in March. Declines in manufacturing and utilities also contributed to the underperformance while advances in mining, wholesale trade, the public sector and construction helped to offset the decreases.

Krishen Rangasamy, economist with CIBC World Markets, said it was too soon to jump to conclusions.

"It's too early to conclude from this GDP report that the recovery is already waning," he said in a note on Wednesday. "The excellent handoff from March means that we're starting the second quarter from a higher base, which sets Canada up for a decent quarter despite a slow start."

Michael Gregory, senior economist with BMO Capital Markets, said that while the 3% growth now expected is respectable, it is a bit of a letdown compared with the 5% to 6% growth figures seen earlier.

"It's kind of like driving on the highway at 100 kilometres an hour, then getting off and going 50," he said in an interview. "But 3% growth is still all right and where we see it for this year."

The second half of the year will likely move quite sluggishly, however, as a lot of spending in housing, renovation and other big-ticket items was "pulled forward" due to the HST, introduced in July in Ontario and British Columbia. Mr. Gregory expects growth of about 2% on average in the fall and winter months.

Canada's economy also faces headwinds from the sovereign debt crisis in Europe, an even worse slowdown in the United States, and possible fallout in China, he warned.

Warren Jestin, chief economist with Scotia Economics, said in a note on Wednesday that Canada's position as a resource leader should help keep it afloat in the face of other developed countries, although "this won't be a hard race to win."

The situation in Europe is troubling for Mr. Gregory, but he suspects the combination of weakening housing, high unemployment and zero credit growth will hurt the United States.

"That buzz you hear about a possible double-dip recession is legitimate and will remain a worry for markets the rest of the summer and into the fall," he said. "It's why we think the Bank of Canada will be on hold for a while after July."

Mr. Gregory figures the central bank will raise rates 25 basis points at its next meeting in July, then go on hold to see how things play out in Canada the rest of the year. It is likely the BoC will push rates to 1% by the end of 2010 and add another 1 percentage point to 1.5 percentage points in 2011.

"An environment of 3% growth is still something that requires higher interest rates," he said. "Rapid buildup in household debt is a long-term risk."

Pension shortfall hits middle class

2010-06-04T08:18:00.000-04:00

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

2010-06-03T10:18:00.000-04:00

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

2010-06-02T08:29:00.001-04:00

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.

Carney's big call

2010-05-31T10:51:00.000-04:00

Paul Vieira, Financial Post

Ottawa -- Bank of Canada governor Mark Carney has had a busy time of it since taking over as the country's central banker 27 months ago, mostly tackling the financial crisis, mapping out the road to recovery and reassuring Canadians that at the end of the day the bank's extraordinary policies would work.

The one thing he has yet to do during his term, however, is raise interest rates. That might be about to change on Tuesday. If he does pull the trigger - and that is what most analysts expect - it won't be after grappling with competing forces that convey two starkly different messages about the economic outlook.

"We are at point where it is a tug of war between structural issues that are facing the eurozone and a very strong economic cyclical backdrop," says Stéfane Marion, chief economist at National Bank Financial.

Weighing on the governor are the economic data, which call out for a rate hike - as much as 50 basis points, some reckon. The data have been consistently strong and surprising to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target. The sterling fundamentals prompted the central bank last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July, leading traders to price in a nearly 100% chance of a rate hike on June 1.

That was until sovereign debt worries exploded in Europe, once Greece formally asked for international help days after the last Bank of Canada rate decision. That sparked an across-the-board retreat in global equity markets, down 9.3% since the beginning of May, as traders sold stocks and poured into risk-averse U.S. treasuries and other government securities on fears that another credit crunch was at hand. Mr. Carney is likely aware of this better than most, given his capital markets background from Goldman Sachs.

The most worrying sign on Mr. Carney's radar screen might be the small but steady increases in the cost of borrowing among banks, a signal European lenders are finding it tough to access cash from their peers on concern over how much Greek, Portuguese and Spanish debt they hold.

In the end, the consensus is Mr. Carney is leaning toward a rate hike - a modest one, though, of 25 basis points. The thinking is, an ounce of prevention now is worth a pound of cure later.

"We can't look at things in a vacuum, because there are so many other factors besides Europe's issues" says Jonathan Basile, an economist with Credit Suisse in New York who closely watches Canadian markets. "The truth is the macroeconomic evidence is outweighing the financial risks right now."

The last time the Bank of Canada raised its benchmark rate was in July 2007, by 25 basis points to 4.5%. At the time, former governor David Dodge said the economy was operating above its production potential, and inflation was likely to stay above its 2% inflation target for longer than forecast.

Little did Mr. Dodge know that the U.S. subprime crisis would morph into the worst financial crisis since the Great Depression, roiling markets and economies around the world. This is why Europe's recent fiscal woes have triggered a case of nerves, and might prompt Mr. Carney to rethink any rate move.

"The Bank of Canada wants to raise rates, but it doesn't have a crystal ball," CIBC World Markets said in a note to clients. "It can't be certain that the recent financial market downturn isn't going to morph into something more severe that would make a rate hike look out of place."

There's another school of thought, though, that suggests markets have overreacted to a regional problem. In this context, it is key to remember the Bank of Canada didn't expect the eurozone to contribute much to global growth, envisaging only 1.2% expansion this year and 1.6% in 2011.

"The European picture will calm down and people will realize it is not as dramatic as being played out," says Carlos Leitao, chief economist at Laurentian Bank Securities.

Yes, he acknowledges, the debt-ridden southern European economies have tough years ahead. But other countries, led by Germany and France, are going to capitalize on the lower euro and boost their exports to emerging economies and North America, which will help offset the drag from the so-called Club Med nations.

Besides Europe, Mr. Carney has other factors to consider.

Canada's sovereign debt levels are indeed much better than the industrialized world, as our politicians like to remind us. But the amount of debt held by households, measured as a percentage of disposable income, stood at a historical high of 146% - of which 98% is mortgage related - at the end of 2009, rating agency DBRS estimates. That would put Canadian households ahead of the United States but behind Britain on this measure. A rate hike would signal it might be time to live more modestly and refrain from too much debt-financed consumption (which helped fuel those nasty asset bubbles that central banks may want to pay more attention to in the aftermath of the subprime debacle).

Mr. Carney's other challenge is to explain why, and what's ahead. He has come off a period where he provided extraordinary guidance to markets. Don't expect similar language from the governor.

If anything, Mr. Marion warns the central bank should refrain from using the type of guidance the U.S. Federal Reserve deployed in 2004, when it signalled a period of "moderate" rate hikes were in the offing.

In retrospect, the Fed's use of the word moderate "encouraged more financial excesses," leading to the subprime bust, Mr. Marion says. "Carney doesn't have to be brusque about it. He has the luxury to start slowly, and leave his options open," from pausing should Europe deteriorate to hiking aggressively, by 50 basis points, if conditions warrant.

Mr. Carney reminded us recently that "nothing is pre-ordained" at the Bank of Canada. He's likely to drive home that point on Tuesday, rate hike or not.
Read more: http://www.financialpost.com/news-sectors/story.html?id=3084621#ixzz0pVYuP0cD

Rate hike not guaranteed….Global financial chaos could override domestic factors

2010-05-25T13:58:00.000-04:00

Emily Mathieu Business Reporter Toronto Star

Higher than expected rates of inflation and reports of record breaking retail sales means interest rate hikes will likely go ahead, according to a top economist with BMO Capital Markets. But domestic strength might not be enough to justify increases if the upheaval in global markets continues, said Porter.

“If the (Bank of Canada’s) decision was based solely on domestic factors, then this would be no questions asked, no debate,” said Doug Porter, deputy chief economist.

The central bank has long predicted rates would rise on June 1, but Porter said doubt over the future of global economic stability could cause them to go off course.

“It would take a very brave central bank indeed, I think, to raise interest rates in the face of the turmoil we are seeing in global financial markets right now.”

According to Statistics Canada’s Consumer Price Index, the core index advanced 1.9 per cent during the 12 months leading up to April, following a 1.7 per cent increase in March.

The boost in April was due mainly to a rise in prices for the purchase of passenger vehicles, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants, the report showed.

The seasonally adjusted monthly core index rose 0.2 per cent in April, following a 0.3 per cent decline in March.

Consumer prices across the country rose 1.8 per cent in the 12 months leading up to April, following a 1.4 per cent increase in March. In Ontario, prices rose 2.2 per cent.

Porter said BMO has no plans to alter their position that rates will rise on June 1, but said that position could change if market upheaval continues into next week.

“If Canada were an island there would be no debate,” said Porter. “There is a very compelling domestic case for higher interest rates.”

Statistics Canada reported a 2.1 per cent increase in retail sales dollars in March, to $37 billion. Porter said earlier reports had predicted sales would be close to flat. “Instead we get one of the best gains on record.”

National energy prices rose 9.8 per cent between April and the same time the previous year, following a 5.8 per cent increase during the 12 months between March 2010 and the same time the previous year. Excluding the increase in energy the index rose 1.1 per cent, compared with a 1 per cent increase in March.

For the sixth month in a row, gas prices exerted the strongest upward pressure on the index. In April, Canadians paid 16.3 per cent more at the pump than they did the same time the previous year. That change follows a 17.2 per cent increase between March of this year and the same time in 2009.

Natural gas prices were up 3.3 per cent in April than the same time the previous year. Between March 2010 and the same time the previous year prices had dropped 22.4 per cent.

The cost of transportation was up 6.2 per cent in the 12 months to April and consumers paid a 5.6 per cent more for insurance premiums in April compared to the previous year.

Housing costs were up 0.8 per cent, after declining 0.7 per cent in March, with household utilities exerting the most upward pressure. The mortgage cost index fell 6.1 per cent, the report showed.

Food prices were up 1 per cent, following a 1.3 per cent increase in March. The 1 per cent rise, largely related to prices for food purchased in restaurants, was the smallest since March 2008.

Health care prices rose 3.3 per cent, the report showed. http://www.thestar.com/business/article/812567--rate-hike-not-guaranteed

Friday's inflation rate expected to open door to interest rate hikes: economists

2010-05-19T10:44:00.000-04:00

By Julian Beltrame, The Canadian Press

OTTAWA - Canadians likely have only two weeks left to enjoy historically low interest rates.

With global markets beginning to stabilize following the recent fears over a Greek debt default, economists say the pieces are falling into place for the Bank of Canada to move off its emergency 0.25 per cent rate on June 1.

Economists — and markets — have already pencilled in a doubling of the policy rate in two weeks. But that is only a beginning say analysts who believe governor Mark Carney will keep on hiking rates through the rest of the year.

Even the TD Bank, which only a few months ago was advising Carney to wait until at least the third quarter of 2010, is now calling for an incremental hike beginning in June.

The reason, says the bank's director of forecasting Beata Caranci, is that the Canadian economic recovery is well ahead of schedule with what looks like two consecutive quarters of five per cent and beyond growth, a jobs recovery more robust than predicted with another 109,000 added in April, and inflation — the key indicator for the central bank — heading toward two per cent.

"The bank is looking a year or year-and-a-half out, and they are looking at an output gap that is not going to be there anymore, so they've got to start adjusting now to get the interest rate at what would be considered more neutral," she explained.

"And if they don't go now, it could mean we see bigger adjustments down the road," she added.

Higher rates are meant to slow down excessive borrowing and head off asset bubbles like an overheated housing market, which the central bank has already highlighted as a risk. Cheap money is also seen as destabilizing in the long term, much as happened in the United States in the early part of the decade and eventually led to the most recent crisis.

Economists caution that the anticipated hikes by the central bank should not be seen as an attempt to slow down activity, but merely as moving to a more traditional posture. With inflation at near two per cent, the current 0.25 per cent level is actually a negative interest rate, they note.

The TD Bank and many others believe Canada's policy rate will hit 1.5 per cent by year's end, more in line with inflation.

Carney gave a strong hint last month that he was preparing to move, surprising observers by dropping his year-long conditional pledge not to hike rates until at least July.

He has since added an element of doubt into expectations by noting that he considered the very act of removing the conditional commitment to have been a policy tightening measure. The rate-hiking narrative took another detour earlier this month with the recent turmoil in equity and financial markets over government debt issues in southern Europe — that added new uncertainty to the global recovery scenario.

But unless Europe again flares up in a major way, the only question remaining for Carney will likely be answered Friday with the release of April inflation data by Statistics Canada, say economists.

The consensus is that headline inflation will rise to 1.6 per cent and core underlying inflation — the index the central bank closely watches — will edge up to 1.8 per cent.

Those numbers are still below the bank's two per cent target but economists say they are worried because inflation is digging in at a time when the economy is still operating far below capacity, and at a time when the Canadian dollar is near parity.

That is not the case in the U.S., where inflation is actually heading south and could once again approach zero by year's end.

"Even with the current volatility in financial markets, the Canadian story remains intact as underlying fundamentals continue to improve alongside strong corporate and household balance sheets," write Scotiabank economists Derek Holt and Karen Cordes Woods in forecasting an interest rate hike.

Bank of Montreal economist Douglas Porter says there is still a chance Carney will wait until July 20, or even later, especially if the European crisis threatens to leak into North American credit markets, or if there's a big downward surprise in underlying inflation Friday.

Increasing rates in Canada, especially since the U.S. is likely to keep its policy rate at zero until 2011, will put added upward pressure on the Canadian dollar, which will further depress the country's manufacturing and exporting sectors.

But Caranci believes the dollar impact will be minor, because markets have already priced in several moves by Carney ahead of the U.S. And the loonie's recent dip below parity to about 96 cents US has partly removed an important impediment to act on rates for the Bank of Canada, she adds. http://ca.news.finance.yahoo.com/s/18052010/2/biz-finance-friday-s-inflation-rate-expected-open-door-interest.html

Housing prices jumping

2010-05-13T11:53:00.001-04:00

Market shows signs of recovery

Canwest News Service May 13, 2010

Prices for new homes in Canada rose 0.3 per cent in March, following a 0.1- per-cent increase the previous month and extending gains that began in July 2009, Statistics Canada reported yesterday.

The increase was in line with economists' forecasts.

Statistics Canada said its new house price index also was up 1.6 per cent in March from a year earlier, compared with an annual increase of 0.9 per cent in February.

"The growth in March was mostly due to higher prices in Vancouver," the agency said.

The new housing price index measures changes over time in the selling prices of new houses.

Higher material costs helped boost the index in Montreal and the Ontario cities of Kitchener and London, where prices saw the biggest month-to-month jump.

In Charlottetown and Hamilton, which saw the biggest decreases between March and February, "some builders negotiated lower selling prices," StatsCan said.

Of the 21 metropolitan regions included in the index, the agency reported that Victoria, Edmonton and Charlottetown were the only ones to report year-over-year declines.

On Monday, Canada Mortgage and Housing Corp. reported home construction rose 1.3 per cent in April as the real-estate market continued to show signs of recovery.

Housing starts were up by a seasonally adjusted annual rate of 201,700 units last month, up from a revised 199,200 units in March.

Feds want tighter rules to ground fly-by-night movers

2010-05-12T10:57:00.000-04:00

By Dean Beeby, The Canadian Press

OTTAWA - The federal government is putting the moves on movers.

Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they've been ripped off by crooked operators.

Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.

"Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging," says an internal document.

"In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings."

The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.

"This work is in the very early stages of development and findings are not yet available," department spokesman Michael Hammond said.

Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.

Many provinces also have consumer protection laws, as does the federal government.

But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.

The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.

And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.

An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.

The head of Canada's largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.

"You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged," president John Levi said in an interview from the group's Mississauga, Ont., headquarters.

But even with tougher regulations "there's no government agency out there that can help you in a timely fashion."

Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.

"There's sufficient legislation and regulation in place — if it were enforced."

The best defence is to do some research, he said.

The mover's association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.

The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers' association and the business bureau.

Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.

Even recession didn't slow down Canadian's spending, report finds

2010-05-12T10:56:00.000-04:00

By Julian Beltrame, The Canadian Press

OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.

A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.

That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.

"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.

"The concern is do they understand the full cost of paying later?"

The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.

Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.

But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.

The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.

The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.

The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.

The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.

Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.

BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.

"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."

But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.

Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike. http://ca.news.finance.yahoo.com/s/11052010/2/biz-finance-recession-didn-t-slow-canadian-s-spending-report.html

Feds want tighter rules to ground fly-by-night movers

· By Dean Beeby, The Canadian Press