Inflation will be tame, but interest rates are heading higher

Allan Robinson

From Tuesday's Globe and Mail Published on Monday, Jun. 21, 2010 8:00PM EDT Last updated on Tuesday, Jun. 22, 2010 6:18AM EDT

The Canadian inflation figures due out Tuesday are expected to be tame, but at healthy enough levels to keep the Bank of Canada on its rate-hiking schedule when it meets on July 20, economists say.

What are the expectations?

Overall consumer prices during May are forecast to have increased by 1.3 per cent on a year-over-year basis, compared with 1.8 per cent in April, according to a survey of economists by Bloomberg. The annual core rate of inflation, which excludes the eight most volatile items, is estimated at 1.7 per cent in May, compared with 1.9 per cent in April.

“There’s been little evidence the strong Canadian dollar has had any meaningful downward impact on prices,” said Benjamin Reitzes, an economist with BMO Nesbitt Burns Inc.

The muted inflation data in Canada are expected to reflect lower gasoline prices, reduced clothing prices and continued softness in mortgage interest costs, economists say. Those factors will likely be offset by rising house and car prices and higher electricity costs in Ontario.

How will the markets react?

“Inflation remains mild because of the economic slack that came courtesy of the recent recession,” but the excess capacity will decline as the economy improves, said Krishen Rangasamy, an economist with CIBC World Markets Inc. CIBC expects the inflation data will be higher than the consensus outlook, which would be positive for the Canadian dollar and negative for bonds because of the prospect of higher interest rates.

“Monetary policy isn’t about what prices were doing in May, 2010, but what the expectations are for prices in May, 2012,” said Stewart Hall, an economist with HSBC Securities (Canada) Inc.

The Bank of Canada’s policy is also not directed solely at inflation, Mr. Hall said. “I suggest that they can’t be blind to the effect of monetary policy on the economy.” The low level of interest rates instituted at the time of the credit crisis is encouraging consumers to borrow money and their debt is accelerating to very high levels, he said. “There’s a recognition monetary policy needs to encourage a change in consumer behaviour.”

Nevertheless, there are reasons to expect the pace of the Bank of Canada’s rate-hiking policy could prove to be slow, economists say. The rate-setting arm of the U.S. Federal Reserve Board, which begins its two-day meeting on Tuesday, is contending with the possibility of deflation and it is expected to hold to its zero interest rate policy. Meanwhile, governments in Europe are instituting aggressive budget austerity packages, that will likely slow the growth outlook.

---

---

 

May home sales fall 9.5% on new mortgage rules
 
 
BY GARRY MARR, FINANCIAL POST  JUNE 16, 2010 12:03 PM
 
Home sales fell by 9.5% in May across the country, according to the Canadian Real Estate Association.

The Ottawa-based group, which represents 100 boards across the county, said sales activity was down in 70% of local markets but it was the Toronto, Vancouver and Ottawa markets that pulled the national number down.

The group says new mortgage rules which make it harder to borrow and kicked in April 19 pushed people to make a purchase ahead of the spring market. Rising mortgage rates were another reason given for the decline.

“May was the first full month in which sales activity was affected by these changes,” said Georges Pahud, president of CREA. “An accompanying decline in new listings and housing starts means these changes are also affecting the supply side, which will keep the market balanced and Canadian home prices stable.”

CREA said May sales fell below April sales, calling it a “departure from the normal seasonal pattern” and proof that people who have purchased in May pushed their decision ahead by a month because of the mortgage rules and the rising rate environment.

Seasonally adjusted new listings, which been rising for eight months and creating more supply, fell 4% from April. New listings hit a four-year in September last year but have been rising since, reaching the second highest level ever last month.

Prices are continuing to rise but the increases are getting smaller. The average sale price of a home across the country reached $346,881 last month, an 8.5% increase from a year ago. It was the smallest year over year increase in nine months.

“Supply and demand has become more balanced in a number of major markets,” said CREA Chief Economist Gregory Klump. “Homebuyers now have more choice and are likely be in less of a rush to purchase than they were recently, so the amount of time it takes to sell a home is expected to rise in the coming months.”

© Copyright (c) National Post
 

---

 
 

Outrunning the bear market
by By Alexandra Twin, senior writer
Wednesday, June 2, 2010

After the Dow's worst May in 70 years, the threat of the stock correction becoming a full-blown bear market has intensified.
But this isn't new territory for long-term investors. They've faced this precipice 29 times since World War II, according to Standard & Poor's chief investment strategist Sam Stovall.
In 17 cases, they've avoided seeing a correction (a decline of at least 10% off the highs) turn into a bear market (a decline of at least 20% off the highs).
In 12 cases, they weren't so lucky. And in three of those 12 cases it became what Stovall calls a "mega meltdown," or a decline of 40% or more. In fact, the 2008-2009 stock market bloodletting sent the S&P 500 crashing 57% from an all-time high to a 12-year low.
But as the correction vs. bear market debate continues, what seems to be critical, at least on the technical side, is that the selling not surpass 15%. Historically, if that happens, the correction will become a bear market.
So far this current correction has avoided that 15%. At its worst, the S&P 500 was down 12.3% off the highs. As of Tuesday's close, the S&P 500 was down 12% from the highs.
But hovering below the 15% mark doesn't mean the selling is over by any means.
"We don't know if the market direction is going to be up or down, but we do know it's going to be up and down day to day," said Randy Frederick, director of trading and derivatives at Charles Schwab.
The increased volatility increases the likelihood of more selling, particularly with the market in a mode where it retreats on both big news and a lack of news.
The threat of the European debt crisis, the weaker euro, the BP oil spill, increased tensions between North and South Korea and signs that China's booming economy is slowing all dragged on stocks in May. But there have been numerous days in which there was little relevant news, either on the positive or negative side, and stocks sold anyway. Tuesday's market <http://money.cnn.com/2010/06/01/markets/markets_newyork/index.htm> , for example.
So correction or bear? Here's what to consider:
Correction: If the market is in correction mode, it will probably chop around for a few months, then move higher, according to Stovall.
Of the 17 times that the correction didn't become a bear market, stocks lost an average of 14% over a four-month period. Typically it took stocks another four months to get back to breakeven, and another four months of gains before another correction or pullback kicked in.
A pullback is considered a decline of 5% to 9.99%. They happen frequently and like corrections, are part of normal market functioning. Stovall estimates there have been more than 50 since World War II.
There were only two times (1955 and 1997) that the market "corrected," recovered and then turned lower right away. More often, the market gets back to breakeven and then gains an average of 10%.
Bear market: S&P research shows that when a correction becomes a bear market, it tends to stretch on for 14 months and yield a decline of 33%, on average. The recovery back to zero tends to take nearly two years.
Stocks currently appear to be in a "garden variety bear market," pushing toward a decline of 20% to 30% as the mountain of problems becomes too much for investors, according to the editors of the Stock Trader's Almanac.
Heightened investor worry: In what could be either a bad or good sign, depending on whether you're a contrarian, investor sentiment took a turn for the worse last week, according to the latest survey from the American Association of Individual Investors (AAII).
Bearish sentiment, or the expectation that stocks will fall over the next six months, jumped 17.2% to 50.9%, marking the highest level of pessimism in the survey since November 2009.
Also, AAII's monthly survey showed investors pulled money out of stocks last month and reallocated it to bonds, cash or cash equivalents, reflecting global jitters and the fear of further stock erosion.
Investors held just 50.9% of their portfolios in stocks and stock funds in May, down 9.5% from April. That's the smallest percentage in stocks since May 2009, shortly after the market bottomed. It's also below the historical average of 60%.

---

House prices have peaked for the year
By Sunny Freeman
TORONTO — Skyrocketing home prices appear to have reached their height and are expected to stabilize for the rest of the year and into 2011 as the real estate market cools significantly, economists say.
Gregory Klump, chief economist at the Canadian Real Estate Association, foresees a slight decline in year-over-year prices in the latter half of 2010 before they flatten in 2011. This will happen as new listings come onto the market faster than anticipated and balance out the dynamics between buyers and sellers.
On Wednesday, the real estate association revised its projected housing price increase for this year down from 5.4 per cent to just 1.6 per cent over 2009.
The association predicted that the national average housing price will decline by 1.5 per cent by 2011, driven down by lower prices in the strong markets of B.C. and Ontario, while prices in the rest of the country will remain stable.
Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals, said this year’s prices have likely peaked, and should remain flat for the rest of the year before falling in 2011.
“Last year there was a pattern during the year — slow at the start, strong at the finish, and it’s going to be the opposite this year, almost a mirror image,” he said.
“Somebody who’s in a position to buy can take the time to make sure they get the property they want at a price they’re comfortable with,” he added.
The real estate association also lowered its 2010 national forecast for resale transactions by nearly 40,000 from its previous forecast of 527,300 due to a weaker-than-expected start to the year in British Columbia, Ontario and Alberta.
“The biggest contributor to the downward revision in annual sales activity would be British Columbia, where affordability has begun to bite into sales activity. Their first quarter came in weaker than expected and that’s expected to carry throughout the year,” Klump said.
The association now expects 490,600 units will be resold nationally this year through the Multiple Listing Service. This is still up 5.5 per cent from 2009.
A number of temporary factors pulled sales forward to the latter part of 2009 and the first part of this year, including anticipation of higher mortgage rates, tougher mortgage lending regulations and new taxes in Ontario and B.C. that will add thousands of dollars to the final price tag of many houses starting July 1.
The association’s revision came a day after the Bank of Canada announced it was hiking its key lending rate from an emergency low of 0.25 per cent to 0.5 per cent. Many economists predict that the era of historically low interest rates has come to an end and that rates are now on an upward trend.
Although mortgage rates have gone up and are expected to rise further, the association says the higher cost of borrowing will have a minimal impact on the market this year. Instead, sharp price increases earlier in the year appear to have been the main factor for the expected decrease in demand in British Columbia and Ontario.
Dunning said while some buyers “could drive themselves crazy” trying to calculate whether it’s better to get into the market now while mortgage rates are low but prices are high, or to wait until the opposite is true, it’s so difficult to get it right that homebuyers should just buy when the time is right for them.
Rob Hafer, regional manager at Invis mortgage brokerage, agreed that market timing is tough, and generally not worth the headache since a house is such a long-term investment.
“If you’re going to buy real estate, it’s a long-term investment, so if you can afford the home now … no matter when you bought within a couple years you’re probably ahead of the game anyway,” he said.
“If you can get in now and you can hold it long term, it’s always a good time to buy,” he added.
Klump said the market adjustment will stop short of venturing into a buyers’ market as “a more challenging pricing environment” will deter some potential sellers and limit the supply of available homes.
“A lot of people who were thinking they were going to clean up on their asking price are going to be faced with a lot of competition from other sellers out there, and ultimately will take their house off the market and try again when the pricing environment becomes more to their liking,” he said
But Dunning said balanced markets don’t last very long and said he believes market conditions will soon favour buyers.
“It’s usually always one way or the other, and we’ve had this immensely powerful sellers’ market and …there could be a very rapid transition so that it now becomes a buyers’ market.”

---

---

Bank of Canada raises key interest rate to 0.5 per cent
 
 
BY PAUL VIEIRA, FINANCIAL POST  JUNE 1, 2010 10:01 AM
 
 

 
A general view of the Bank of Canada building in Ottawa July 21, 2009. The Bank of Canada held its key interest rate at a record low 0.25 percent on Tuesday as expected, and gave a rosier economic forecast while softening its language on the strong Canadian dollar.
Photograph by: Blair Gable/Reuters,
OTTAWA — For the first time in nearly three years, the Bank of Canada on Tuesday hiked its key interest rate, by 25 basis points to 0.5 per cent, as the domestic economy rebounds strongly against the backdrop of an "uneven" global recovery.

However, it signalled in its accompanying statement there is "considerable uncertainty" in the economic outlook given fiscal and financial unrest in Europe. As a result, further rate hikes "have to be weighed carefully" against global and domestic developments.

"This decision still leaves considerable monetary stimulus in place, consistent with achieving the two per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery," the central bank, led by governor Mark Carney, said.

That led some analysts to suggest there is no guarantee the central bank would raise rates again at its next scheduled meeting in mid-July.

"The July meeting is not a slam dunk," said Jonathan Basile, an economist at Credit Suisse in New York. "The downside risk is causing policy-makers to lower the hawkish sails."

The statement's ambiguous, cautious tone led to a pullback in short-term bond yields and a one cent drop in the Canadian dollar against the U.S. currency. Douglas Porter, deputy chief economist at BMO Capital Markets, said it was as if the central bank was "almost bending over backward to indicate that this is not necessarily the start of a relentless campaign to crank rates higher."

Still, the Canadian central bank is the first among its Group of Seven peers to raise rates, and one of the few industrialized countries to do so. The last time the Bank of Canada raised its benchmark rate was in July of 2007.

The move signals higher borrowing costs for households and businesses that have loans tied to prime rates charged by chartered banks. (Prime tends to move in unison with the central bank's benchmark rate.)

The decision emerged a day after Statistics Canada reported the domestic economy reported its strongest quarterly performance in over a decade, as GDP expanded by a robust 6.1 per cent in the three-month period ended March 31. The economy benefited from strong consumer spending, a robust goods-producing sector and an aggressive rebuilding of inventories by businesses.

There was a tug of war of sorts in the marketplace in the days leading up to Tuesday's decision about whether the Bank of Canada would pull the trigger and raise rates. A set of stronger-than-expected economic data, from retails sales to inflation, suggested a rate hike was warranted. Countering that, however, was market uncertainty over the spillover of fiscal problems in certain southern European nations, and the health of that continent's banking system.

In the end, the central bank opted to raise its key rate, and begin the process of withdraw extraordinary stimulus from the economy. But the Bank of Canada's statement explaining the rate hike went to some length to acknowledge the present risks to the global and domestic outlook.

The Bank of Canada's statement explaining the rate hike went to some length to acknowledge the present risks to the global and domestic outlook.

"The global economic recovery is proceeding but is increasingly uneven across countries," the central bank said, noting the strong momentum in emerging economies and the "possibility" of renewed weakness in Europe.

The recovery in "most" developed economies remains "heavily dependent" on low interest rates and government spending, it added.

"In general, broad forces of household, bank and sovereign deleveraging will add to the variability, and temper the pace, of global growth," the statement said.

In Europe, rising yields on bonds issued by mostly southern European economies are likely to result in higher borrowing costs and "more rapid fiscal tightening" in some countries, the bank said.

As of now, the spillover into Canada from events across the Atlantic have been "limited," in the central bank's view, to a "modest" drop in commodity prices and "some tightening" in financial conditions.

Nevertheless, the recovery in Canada is unfolding as the central bank envisaged, led by housing and consumer spending. But the bank said it expects household spending — up 4.4 per cent annualized in the first quarter — to slow down, and business investment to pick up the slack. Increased activity from the business sector would be crucial, the central bank said, to achieve "a more balanced recovery," which has to date relied heavily on highly indebted households.

The central bank sets its key interest rate with the goal of achieving and maintaining two per cent inflation. Data for April showed inflation is nearing the target, with the headline inflation rate at 1.8 per cent as six of the eight broad categories were up in the month. Meanwhile, the core rate, which strips out volatile-priced items, was at 1.9 per cent in the month.

As a result of Canada's vigorous pace growth, the output gap — or a measure of the amount of economic slack in the economy — has shrunk considerably over the past year, to 2.3 per cent from nearly four per cent. As the gap shrinks, inflationary pressures tend to increase.

Meanwhile, in a related development linked with its interest-rate hike, the Bank of Canada said it was re-establishing the normal operating band of 50 basis points — whereby its benchmark rate is halfway between the rate it pays chartered banks that hold deposits at the central bank, and the amount it charges private-sector lenders for loans.

© The Financial Post
 

 

 

---

 
 
Friday, May 28, 2010

Canada won't fall victim to foreclosure wave: Report
John Shmuel,  Financial Post

Canada's housing market is expected to cool off this year and next, but isn't at risk of falling victim to a U.S.-style foreclosure crisis anytime soon, according to a new report by debt-rating firm DBRS Ltd.

DBRS said in the report that Canada will continue to fare well in comparison to its neighbour to the south when the Canadian housing market corrects itself and interest rates are tightened. That is because lending practices here are much more sound than in the U.S.

"The likelihood of us having the kind of situation they had in the U.S. is extremely low," said Jerry Marriott, managing director of structured finance at DBRS . "It's a combination of the lending practices prior to the peak in 2007 - they were more restrained, so there were better underwriting practices in Canada. We also think there are a number of factors in the Canadian market which have lent themselves to more prudent lending."

Those factors includes less aggressive lenders in the market, as well as systems designed to keep people paying their mortgages.

Mr. Marriott said that a cooling effect is gradually taking hold in the housing market as credit availability begins to tighten, and the HST factors into home buying decisions in Ontario and British Columbia.

That means there's a greater likelihood this year that there will be a correction in housing prices rather than a continued increase. Mr. Marriott said the DBRS expects the market to cool throughout the year and continue to cool into 2011. That echoes analysts expectations, who also expect prices to drop as well. A recent report by TD Bank predicts prices will fall by 2.7% in 2011.

"If you add up the factors you would look at as to whether there's going to be further price increases or the potential for a correction, we don't see there's a lot of factors supporting further price increases," Mr. Marriott said. "But there are a number of factors that show there might be some moderation in housing prices."

That may bode well for potential buyers after a report by CIBC this week said that on average, Canadian home prices are currently 14% over their "fair" value - that represents about 1.5 million homes, or 17% of all dwellings.

The report also highlights that Canadian households continue to have a particularly high level of debt, something that the DBRS notes is part of an ongoing trend. But it tempers that by adding that household debt is not as worrying as some analysts have suggested.

"We think the measurement of household leverage is subject to a fair amount of interpretation," said Mr. Marriott.

For instance, the debt-to-disposable income shows Canadians are generally more indebted than Americans - however, the report outlines that this doesn't reflect certain differences between the two countries that affect income, such as the fact that the U.S. has lower taxes but that Americans pay more money toward their health-care bills.

"At the end of 2009, Canadian households remained financially less leveraged by 10% to 45% compared with U.S. households," the report said. Overall, after adjustments, Canada had a household liabilities-to-total gross income ratio of 116.8% at the end of 2009, while the United States's ratio was 161.5%.

But Canadian household debt is growing faster. Household liabilities increased by 29.5% in Canada between 2007 and 2009. In the use, household debt grew just 5.3% during the same period.

Overall, mortgage lending in Canada reached $958.8 billion at the end of 2009. That's more than double the $414.1 billion ten years ago. When including home equity lines of credit, outstanding mortgage-related credit was more than $1 trillion.

Financial Post

© 2010 The National Post Company.

---

Home foreclosures don’t add up
Andrew Allentuck,  Financial Post

Why do people default on mortgage and other loans? It turns out that it's not so much the amounts they owe, but that they are unable to do the math that tells them exactly what their financial situation looks like. Lack of ability to add turns out to be a cause of many consumer insolvencies.

The damage caused by failure to do sums becomes evident when people find themselves in credit counselling.

"The common characteristic of people in serious debt is that they don't know how to budget or track expenses," says Sandra Sherk, executive director of the Credit Counselling Service of Ontario's Durham Region. "They let what they owe and incidentals get ahead of them."

The problem is not limited to Canada.

In a Federal Reserve Bank of Atlanta working paper published in April 2010, economists Kristopher Gerardi, Lorenz Goette and Stephan Meier found, "a large and statistically significant negative correlation between financial literacy and measures of mortgage delinquency and default."

Translation – folks who can't add up their obligations are more likely to default on them than those who can do their sums.

The researchers asked a series of questions to test responders' financial fluency.

For example: "a second hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?"

Gerardi and his Fed colleagues connect lack of financial fluency to the U.S. mortgage meltdown. Their argument – soaring house and condo prices in 2004 to 2008 led some people to think that finance cost did not matter and therefore did not need to be tracked or even understood. All that followed is history, but as Gerardi noted, low levels of saving are correlated with inability to do simple calculations. When income, which is correlated with education, is statistically removed from the analysis, the conclusion remains – if you can't add up what you owe, you can be in big trouble. And that's how innumeracy, the lack of ability to cope with numbers, became one of the causes of the mortgage meltdown.

What happened to arithmetic? In many schools, the three Rs – readin', ‘writin' and ‘rithmetic – have had to make way for the teaching of social skills and community values. According to Statistics Canada, high school dropout rates, 12.2% for young men and 7.2% for young women in 2004-2005, have declined from the level in 1990-1991 when the rates were 19.2% and 14.0%, respectively. The dramatic improvement in school retention rate reflects students' awareness that education is the ticket to employment and a good income. It also reflects grading standards that allow those with poor academic skills to advance rather than be stigmatized by flunking out. The consequence of this shows up when graduates can't handle questions such as another asked in the Atlanta Fed survey:

"In a sale, a shop is selling all items at half price. Before the sale, a sofa cost $300. How much will it cost in the sale?"

Lack of basic arithmetic skill compounds a serious and growing problem. The days of a farmer or shopkeeper with one debt to one bank are long gone. As Brock Cordes, a lecturer in marketing at the Asper School of Business at the University of Manitoba notes, "people are baffled by the many credit obligations they may have. A few decades ago, a person might have one credit card and one mortgage. Today, he may have seven credit cards, a few lines of credit, and a mortgage. There are different payment options. And there is ever more fine print on credit card disclosures and other documents. People have lost the ability to add. They let little calculators do it for them. It is no wonder that innumeracy is a problem."

Inability to add shows up in Canadian bankruptcy data. Bill Courage, a Chartered Insolvency Restructuring Professional in the Owen Sound, Ont., office of BDO Canada LLP says, "lack of numeracy is a contributing factor in personal bankruptcy. People don't keep track of what they are doing. ‘No money down and $27.95 per month starting next year, is something that they can understand, but they don't use their common sense. Many people just don't add up what they owe."

This casual attitude toward debt shows up when snowballing debts become an avalanche of obligations. "People who get into credit trouble don't watch the cost of loans They go from 5% on a mortgage to 15% to 19% on standard credit cards like Visa, then they load up on credit on store plastic that may have 28% interest rates, then borrow from payday loan stores at rates that may work out to 58% per year," Ms. Sherk explains. These rates, to which they agree, trap them in debt forever, she explains. "If you owe $3,000 on a major credit card and you pay $60 per month, which is a minimum, and the interest rate is 17%, it will take 7 years and 4 months to pay if off."

What to do? "We prepare people for budgeting, even if we turn them down for a loan," says Laura Parsons, area manager for specialized sales at the BMO Financial Group in Calgary. "It is not so much that people don't know that they should sharpen their pencils, it's not knowing what to do with them."

© 2010 The National Post Company.

---

---

Inflation May be the Key to drive the Bank of Canada Interest Rate

Inflation rose in March from 1.4% to 1.7%. Stats Can will release April data on Friday of this week. Many economists predict that inflation will be even higher in April. This could lead the Bank of Canada to raise interest rates on June 1st. Maybe you want to lock in your rate before interest rates rise in June???

This article is from the Financial Post and it gives a strong argument pointing to Bank of Canada raising interst rates.

OTTAWA - Inflation is the highlight of the coming week's economic calendar, and it could be among the key elements in helping the Bank of Canada decide when to begin raising interest rates from record low levels.

Economists anticipate inflation was higher on a year-to-year basis in April, rising to 1.7% from 1.4% in March, still staying below the central bank's 2% target. The core rate, which excludes volatile items such as energy and certain foods, is expected to rise to 1.8% from 1.7%.

Statistics Canada will report inflation data for April this coming Friday, which will be the last consumer price report before the Bank of Canada's next scheduled rate decision on June 1.

The central bank has recently eased off on its conditional pledge to keep its overnight target rate at a historic low of 0.25% until at least July, given the surprising strength of Canada's economic recovery.

"This is going to be a key [inflation] report," said Millan Mulraine, senior strategist at TD Securities, when asked about how it will effect the Bank of Canada's movement on rates. "In fact, it will more important than the GDP report [for the first quarter and March], which will come the following week."

Inflation was looking strong when the February data rolled in, with core inflation exceeding 2% for the first time since December 2008. The central bank previously did not anticipate price growth that strong until the second half of 2011.

However, much of February's inflation was thought to be a temporary condition prompted by the Winter Olympics held in Vancouver that month, and the numbers subsequently eased the following month.

Mr. Mulraine is expecting April's overall rate to be 1.9%, which is slightly higher than the consensus, and core at 1.8%, which is in line with other economists.

Surprisingly high numbers could cement the Bank of Canada's decision to raise rates in June, Mr. Mulraine said. However, he said a mitigating factor is the government-debt crisis in Europe. If that creates enough uncertainty over the global economic recovery, it could be an issue pushing the central bank to hold off on raising rates, he said.

CIBC World Markets economist Krishen Rangasamy has the same forecast numbers as Mr. Mulraine on April inflation, and said that should be enough for the Bank of Canada to move ahead with a rate hike in the coming weeks.

"With the headline and core inflation rising towards the BoC's midrange 2% target, and the negative output gap expected to narrow further in Q2, the bank can easily justify starting its tightening cycle in June," Mr. Rangasamy said in a research note.

Another report coming from Statistics Canada on Friday will be retail sales from March. The median estimate among economists is for flat numbers in comparison to February, when sales were up 0.5%.

However, TD's Mr. Mulraine is expecting a rise in retail sales for March equal in proportion to February's gain as a result of consumer activity and higher prices for gasoline.

"With a fairly robust domestic economy and strong labour market conditions, Canadian households are continuing to hold their side of the bargain, with consumer spending declining in only one of the last 14 months," he said.

But Mr. Rangasamy is calling for a 0.6% decline in March's retail numbers, largely as a result of weak vehicle sales.

 

Monday, May 10, 2010

Homeowners face hardship if rates rise: Report
Garry Marr,  Financial Post
Reuters

A new report from the country's mortgage brokers suggests up to 375,000 Canadians with home loans are "challenged" by current rates and that figure will more than double if interest rates climb to 5.25%.

The report comes on the same day Canada Mortgage and Housing Corp. said builders continue to ramp up their activity with new home construction surpassing the 200,000 level in April on an seasonally adjusted annualized basis - levels not seen since 2008.

"I think overall the message is that we are being prudent and doing well. There are a lot of stats to support that," said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals, whose study done in April found an additional 475,000 mortgage holders would have trouble making payments if rates rose to 5.25%.

According to the group, there are 9.3 million homeowners in Canada and about 5.55 million have mortgages. Of particular concern is the number of consumers with variable rate mortgages, now as low as 1.75%, who could be impacted if rates rise.

Last month, the government moved to push people into fixed-rate mortgages by requiring anybody borrowing for a term of less than five years to qualify based on the posted rate - now 6.1%. Consumers who lock in for a term five years or longer can qualify based on the rate on their actual contract.

The CAAMP survey found that while 65% of those borrowing have gone to a fixed rate, 29% still remain variable with the rest having a mixed mortgage. Of the 475,000 who could be vulnerable if rates rise, 275,000 are in variable rates.

"They have the option to lock in," said Will Dunning, CAAMP chief economist, who added that in a rising rate environment their option to get a rate below 5.25% could be fading.

Mr. Murphy said other information in the report doesn't paint a picture of a reckless consumer. The survey found 13% of borrowers made a lump sum payment over the past year, totalling $7.8-billion, about 1% of the total mortgage debt outstanding.

Consumers have also been more cautious about tapping into their home equity. About 11% of borrowers withdrew $20-billion of equity from their home in the past year, a drop from the $34-billion for the same period a year earlier.

The survey also found 93% of mortgage holders have never missed a payment. Of the 7% who failed to make a payment, the majority did so in the last year.

"The very high percentage of Canadians who have never missed a payment confirms that Canadians take their mortgage obligations seriously," said Mr. Murphy.

The rising rate environment may soon hit the new home market. "The recovery in housing markets through the past year has likely been buoyed by still-low interest rates and pent-up demand built-up over the first half of 2009, resulting in very tight resale markets," said Nathan Janzen, an economist with Royal Bank of Canada.

The housing market also continues to get a boost from consumers hurrying to buy homes in Ontario and British Columbia before new taxes kick in. "A rush to contract - and in some instances build - before the July 1st implementation of the harmonized sales tax in Ontario and British Columbia will lead to some payback in activity after the deadline passes," said Pascal Gauthier, an economist with Toronto-Dominion Bank.

 

---

© 2010 The National Post Company.

Rate hikes: Who wins and who loses
 
 
BY TERRY MCBRIDE , FOR CANWEST NEWS SERVICE   MAY 11, 2010

An interest rate hike is good news for some people. For most Canadians, it’s bad news.

Helps some retirees

If you are retired and rely on income from Guaranteed Investment Certificates (GICs) and bonds, rising interest rates are good news. Weary of the meagre returns from GICs with rates as low 2%, you will probably want interest rates to go higher. Your lifestyle should improve thanks to increased cash flow once your GICs renew at higher interest rates.

If you are a retiree who transferred your employer pension account to a Prescribed RRIF or Life Income Fund (LIF), you might begin to consider converting to a life annuity with fixed monthly payments. Suppose interest rates spike. Should you convert some or all of your PRIF/LIF to an annuity at the peak to lock in relatively high rates?

Hurts borrowers

For borrowers, on the other hand, an interest rate hike is bad news — especially with consumer debt at record high levels in Canada. The average household owes $96,000.

Do you have a variable rate mortgage, home equity line of credit or a short-term mortgage coming up for renewal? You would have to tighten your belt to afford higher monthly payments due to rising interest rates. Cutting expenses is hard if you are living from paycheque to paycheque. Hopefully you have an emergency fund to help you cope.

Mortgage borrowers who have locked in low interest rates for five years, for example, are protected from rising rates — for a while.

Anyone using borrowed money to invest could see their profit margins shrink. They may decide to liquidate investments to pay down debt. If too many investors unwind their debts at the same time, the stock market indices can take a tumble.

Landlords who borrowed to invest in rental properties may need to raise their rents to cover higher mortgage interest costs. If a landlord has a big mortgage, those renters may be just as vulnerable as new home buyers to the rising cost of servicing debt.

If you made a family loan with a 1% interest rate during the past year, you are lucky. You can keep that extremely low loan interest rate in place indefinitely.

Bond prices drop

Bond investors would see the price of their marketable bonds and bond funds drop. In general, whenever interest rates jump, the value of bonds, particularly long term bonds, decline as a result. Indeed, almost any income-oriented investment such as an income trust or preferred share can also drop in value when interest rates climb.

To minimize their risks, bond investors can diversify by bond duration. They can buy a ladder of bonds. For instance, you could have one-fifth of your bond portfolio maturing in one year; one-fifth in two years; one-fifth in three years and so on.

When the shortest term bonds mature, the proceeds can, in turn, be reinvested for five years. When bonds have staggered maturities rolling into new bonds each year, you have less risk than someone who has all their bonds coming due at once. Diversifying by duration helps you cope with the risk of rate fluctuations.

Bond Exchange Traded Funds (ETFs) provide another easy way to hold a diversified bond portfolio.

Be debt-free

Becoming debt-free is the best way to make yourself less vulnerable to interest rate hikes. Start paying down debts with the highest interest rates, such as credit cards and unsecured personal loans.

Postpone the purchase of a new home or new car until you have saved enough money to keep your loan payments to an easily manageable level, despite interest rate hikes.

If you aim to retire soon, become debt-free. You will be much more financially secure as a lender earning interest rather than a borrower paying interest.

Terry McBride is a member of Advocis (The Financial Advisors Association of Canada). This article provides general information and should not be considered personal investment or tax planning advice.

Saskatoon StarPhoenix


© Copyright (c) National Post

---

 
 
  Banks lower five-year mortgage rate
 
 
BY SEAN B. PASTERNAK, BLOOMBERG   MAY 7, 2010
 
Toronto-Dominion Bank, Canada’s second-largest lender, lowered some of its mortgage rates after government bond prices rallied.
Photograph by: National Post, National Post
Toronto-Dominion Bank, Canada’s second-largest lender, lowered some of its mortgage rates after government bond prices rallied.

Toronto-Dominion cut the rate on its five-year fixed mortgage by 0.15 percentage points to 6.1%, the Toronto-based lender said in a statement sent by Canada NewsWire. It also lowered a five-year closed “special” rate by 0.15 percentage points to 4.7%.

Bank of Montreal followed suit Friday, also lowering its five-year fixed mortgage rates by 0.15 percentage points to 6.1%. Its five-year closed "special rate" also went to 4.7%.

The mortgage rate cuts follows two increases by Toronto-Dominion and other Canadian lenders last month to reflect rising bond yields. Since Toronto-Dominion’s last cut on April 26, Canada’s benchmark two-year note maturing in June 2012 has risen seven of nine sessions, driving its yield down to 1.798%.

© Copyright (c) National Post

---

 
 
  Debt, sweet debt
 

BY LEOMARD STERN, OTTAWA CITIZEN   MAY 5, 2010
 
Governments continue to want Canadians to buy houses despite the rising costs.

During the month of March, some 1,300 single detached homes were sold in Vancouver, for a total of $1.35 billion. This was the subject of news reports because it meant the average selling price of a home in that city hit $1 million.

Home ownership has long been considered an act of responsible citizenship, associated with middle-class values such as independence and personal stability. But $1 million for a house? That's hardly the road to independence or stability for anyone in the middle class. The weight of the mortgage would be more oppressive than any feudal arrangement between lord and serf.

The Vancouver real-estate market is not very representative of North America. Even so, homes are expensive enough in most urban centres that some people have begun to argue that the ideal of home ownership - traditionally embodied in the single family dwelling - has been oversold.

This is a radical proposition in North America where the availability of land led to the ethos that all citizens must have their own pieces of it. People who are young and uncommitted can rent for a while, just as they are permitted to play the field in their romantic lives. But the expectation is that all of us are supposed to grow up, get married and take out a stake in our community by becoming property owners.

The idealization of home ownership is both an American and Canadian phenomenon. Both countries had frontiers to settle and homesteading movements. Today our home-ownership rates are identical. About 69 per cent of Americans and Canadians are homeowners - or were homeowners, because those numbers are pre-recession and, at least in the U.S., many have lost their homes.

Indeed, it was the recession that prompted critics to ask whether, after all these years, governments should continue to pursue policies designed to increase homeownership.

Yale economist Robert Shiller, writing in The New York Times, noted that homeownership violates the central tenet of personal finance - that people should diversify their wealth. Because a home usually represents a disproportionate chunk of a family's capital, the family is in trouble if the house value collapses. As Shiller puts it, "Why should housing consumption be better than other consumption, or investments that people might choose?"

Writing in the journal National Affairs, Vincent Cannato of the University of Massachusetts traces the increase in U.S. homeownership over the past 80 years, showing how the rise was orchestrated by government elites who believed that a citizenry of homeowners made for a more civilized nation.

The unintended but invidious consequence was to normalize personal debt. The most notorious pro-ownership policy is the one allowing Americans to deduct the interest on their mortgages, thereby encouraging them to borrow more money. "Saddling people on the economic margins of society with large mortgages turned out to be a bad idea for borrowers, lenders, and the country as a whole," writes Cannato.

As the waters of last year's economic tsunami receded, they revealed the wreckage of all those homes bought by Americans who couldn't afford them.

Canada, thankfully, has never had a mortgage deduction, though we came close. In 1979 Joe Clark promised to introduce one but he never had the chance. No Canadian government has revisited the idea, knowing that it would only inflate house prices and cause families to take on more debt than they can manage.

Yet, for years, Canadian governments have been as obsessed as their U.S. counterparts with raising home-ownership rates. In 2006 the Canada Mortgage and Housing Corp. decided to allow interest-only mortgages, and Canadian lenders began selling mortgages amortized over 40 years. There was even talk of 50-year amortizations next.

In 2008 the government realized that this could end badly - namely, in a housing bubble - and cracked down, insisting that home-buyers need to make at least a five-per-cent down payment and limiting amortizations to a maximum 35 years. Last February, the Department of Finance further tightened the rules on government-backed mortgages.

These restraints mean that Vancouverites who are determined to own a single family home have to live an hour or two away in Abbotsford or Chilliwack, though this means they aren't Vancouverites anymore. The other option is to surrender the idea that every Canadian is entitled to a detached family dwelling. To be sure, Vancouver has the country's highest percentage of homeowners (31 per cent) for whom "home" is a condo unit.

And then there's always the unmentionable - rental apartments. It's true that renting has traditionally held low status in North America, but anti-renting prejudice is misplaced. As Yale's Shiller points out, Switzerland seems to be a country of renters - the homeownership rate is a measly 34.6 per cent - yet it's a successful and stable society.

Answering to a landlord is not necessarily worse than answering to a bank, and not all that much different when you've put just five per cent down on a house worth 10 times your income.

© Copyright (c) The Montreal Gazette

---

 
  Huge mortgage scam hits BMO
 
Bank sues hundreds of people after scheme costs exceed $30 million
 
CANWEST NEWS SERVICE  MAY 6, 2010
 
Bank of Montreal is suing lawyers, brokers and some of its own employees for an alleged $140-million mortgage scam that may have involved hundreds of people, CBC News reported on Wednesday.
Photograph by: Reuters, Reuters
The Bank of Montreal is suing hundreds of people -- lawyers, mortgage brokers, its own employees and even a member of Parliament -- over what the bank says is a mortgage fraud involving $120 million in property.

In a lawsuit filed by BMO, the bank said it lost over $30 million during the real estate boom in fraudulent mortgages given to properties all around southern Alberta.

"This one is horrendous," said Al Rosen, a Toronto-based forensic accountant who has investigated a number of high-profile fraud cases. "There's just so many people involved in the thing. It's not a small-time operation."

No criminal charges have been laid in the case, but the RCMP has received a complaint and is weighing the evidence before deciding whether to launch a criminal investigation.

The court documents allege that various businesses, in some cases working with BMO employees, set up a "straw-buyer" fraud.

According to those documents, the scheme worked through finding houses with lower values than others in their communities. The straw-buyers, people who were paid $3,000 to $8,000, were the mortgage holders of record and were paid to sign paperwork.

In some cases, their incomes were distorted to make them look more likely to be approved for the mortgages, BMO is alleging.

The house prices were inflated and the excess proceeds of $40,000 to $60,000 were paid to the alleged perpetrators, the bank claims.

All of these are allegations made by the bank and have not been proven in court. Statements of defence have not yet been filed.

Calgary Northeast Conservative MP Devinder Shory is named in the lawsuit for his role as the lawyer of record in at least four of the mortgage transactions. His executive assistant said he has not been served with papers.

"If he is, he will defend himself vigorously, as he has done nothing wrong," said Kenton Dueck.

BMO spokespeople did not respond to interview requests, but issued a statement about the case.

The bank said no customers were directly affected.

The Mounties say they are looking into the case.

© Copyright (c) Canwest News Service

---

 
 
 

Mortgage rates on the rise again
Third increase in a month

Grant Ellis, Financial Post
Brett Gundlock/National Post

Royal Bank of Canada is leading the charge to higher mortgage rates, boosting the cost to new homebuyers for the third time in less than a month.

The country's biggest bank said Monday it is lifting the rate on most mortgages by 15 basis points.

After hikes of 60 basis points and 25 basis points respectively, Monday's hike brings the rate on Royal's five-year closed fixed-rate mortgage to 6.25%.

TD Canada Trust wasn't far behind, raising rates Monday afternoon on some mortgages between 15 and 25 basis points. The rate for its five-year closed fixed-rate mortgage is now 6.25%

When Royal hiked rates in late March and earlier this month, the other big banks followed suit soon after.

The banks say they are raising mortgage rates because their own cost of funding is going up ahead of expected rate increases from the Bank of Canada and U.S. Federal Reserve this summer.

Homebuyers are facing higher costs on other fronts as well, with more stringent mortgage-lending rules which took effect April 19 and the looming introduction of the harmonized sales tax in Ontario and B.C. Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.

Canada's real estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the cheapest mortgage rates in decades.

© 2010 The National Post Company.

---

---

Canadians may be hit with half-point rate rise
 
 
BY PAUL VIEIRA, FINANCIAL POST  APRIL 20, 2010
 
 

 
In a surprisingly hawkish decision that sent the Canadian dollar soaring more than US1.5¢, the bank ditched its conditional pledge to keep rates at 0.25% until July.

OTTAWA -- Canadians could be facing higher borrowing costs as early as June and may even be hit with half-point rate rises after the Bank of Canada signalled Tuesday it was bringing its era of record-low interest rates to a close.

In a surprisingly hawkish decision that sent the Canadian dollar soaring more than US1.5¢, the bank ditched its conditional pledge to keep rates at 0.25% until July, saying the recovery was proceeding more rapidly than expected, housing activity was “very strong” and that inflation was expected to move above its 2% target over the next year.

“With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus,” the bank said in its statement.

In the depths of the financial crisis a year ago, the bank pledged to keep rates at 0.25% until July, conditional on the outlook for inflation.

While most Bay Street economists expect the bank to begin raising rates with a traditional quarter percentage point increase, some said a half-point hike was a possibility.

“Removing the conditional commitment … [is] as good as cementing a June 1 hike,” said Derek Holt, vice-president of economics at Scotia Capital. “That leaves open the debate over whether 25 basis points or 50 basis points is likely.”

Sébastien Lavoie, economist at Laurentian Bank Securities, said an initial 50-basis-point increase is the most likely outcome if the central bank “really wants to move away from unconventional policy. The bank doesn’t want to fall behind the inflation curve.”

A Reuters poll of Bay Street dealers forecast the overnight rate would range from 1.25% to 2%. That reflects either a “steady diet” of 25 basis point increases until the end of the year, as HSBC economist Stewart Hall expects, or one-shot 50 basis point moves later in the year.

In its statement, the bank upgraded its growth forecast for this year to 3.7%, above the Bay Street consensus. And it expects inflation, which guides rate decisions, to be “slightly higher” than the bank’s preferred 2% target over the next 12 months.

A hike in June would position Canada as the first among Group of Seven countries to begin raising rates.

Markets reacted by pushing up the loonie by about 150 basis points to above parity with the U.S. dollar, while bond yields climbed across the board -- meaning recent hikes in mortgage rates are likely to stick and other increases are potentially in the offing for a series of loans and lines of credit.

The bank’s decision to lay the groundwork for a return to more normal interest rates indicates it believes the global financial crisis is no longer the biggest risk to the economy.

“This is an abrupt and sudden change of tone from the bank,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “They are moving away from viewing the financial risks as being the biggest threat to the economy, to shifting their sights on what pace of tightening will have to unfold.”

The bank’s conditional pledge was established a year ago, and was meant to take the place of so-called quantitative easing -- pumping billions into the marketplace through the acquisition of securities -- that other central banks in developed economies were engaging in. There was talk that the bank would fulfill its conditional pledge or risk losing credibility.

However, one foreign-exchange analyst said the central bank’s credibility is likely stronger as a result of its shift in direction.

“The Bank of Canada is not only demonstrating credibility in fighting inflation and managing sustainable growth but also leadership in global financial markets and among international policy makers,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

While the statement acknowledges recent economic strength, some analysts say bank does highlight risks to its outlook, most notably the low-level of U.S. consumer demand, the country’s relatively poor productivity performance, and, of course, the elevated level of the Canadian dollar.

Brian Bethune, chief Canadian economist at IHS Global Insight, said the Canadian dollar’s strength is likely to limit the Bank of Canada to one “token” rate hike of 25 basis points, and then wait until the U.S. Federal Reserve begins to bump up rates.

“I think the reality is they aren’t going to need to raise rates that much,” he said, “because with the Canadian dollar shooting to parity again, that’s a significant deflationary force.”

pvieira@nationalpost.com

© Copyright (c) National Post
 

---

 

 
 


Bank of Canada sets stage for rate hike
 
Dollar soars above parity
 
BY PAUL VIEIRA, FINANCIAL POST APRIL 20, 2010 10:02 AM

OTTAWA — The Bank of Canada on Tuesday scrapped its conditional commitment on interest rates, setting the stage for a June hike if it so chooses.

The Canadian dollar surged above parity to the U.S. currency shortly after the central bank's monetary statement was released.

The bank's decision is based on a new hawkish inflation forecast that envisages consumer price increases hovering above the key two per cent level over the next 12 months. In its previous forecast, the central bank did not expect inflation to hit two per cent until the third quarter of 2011 at the earliest. The central bank sets its key policy rate to achieve and maintain two per cent inflation.

Further, the economic recovery "is proceeding somewhat more rapidly" than anticipated as consumers took advantage of record-low rates, the central bank said. As such, it has revised upward its growth projection for this year, to 3.7 per cent expansion from its previous 2.9 per cent forecast, and moved up the timing at which time the Canadian economy is expected to hit full potential — now scheduled to happen in the second quarter of next year, as opposed to the third quarter.

These developments led the central bank's governing council to ditch its conditional commitment on rates, issued roughly a year ago. The pledge was to keep its key policy rate at its lowest-possible level, 0.25 per cent, until July in an effort to pump up the economy. But the commitment was conditional on its forecast on inflation — which has exceeded expectations.

"With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus," the central bank said in its statement. "The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the two per cent inflation target."

In another stimulus-removing move, the governing council also announced it would cease undertaking special liquidity operations that pump cash into the marketplace. The last such undertaking happened on April 12, and no more are planned. These financing activities were launched at the onset of the financial crisis, to ensure there was enough cash in the system to flow to creditworthy households and businesses.

"The Bank of Canada statement is more hawkish than we thought," said Jonathan Basile, vice-president of economics at Credit Suisse in New York. "Dropping the conditional commitment opens the door for a June rate hike."

Andrew Pyle, wealth adviser and markets commentator with ScotiaMcLeod, said the statement indicated there's no reason to keep rates at emergency levels any further. "The big question now is how far rates can move before the bank has to release its foot from the brake pedal."

In its last rate statement, on March 2, the central bank took its first steps toward returning the country to more normal rates by signalling a more hawkish tone on inflation and acknowledging the stronger-than-anticipated economy. A few weeks later, Bank of Canada governor Mark Carney delivered a speech in which he emphasized that his rate commitment "expressly conditional," leading analysts to revisit their outlook and pencil in the possibility of a June increase.

Prior to the Tuesday morning rate announcement, the market had priced in a 33 per cent chance of a June rate hike — down from the 50 per cent-plus odds built into bankers' acceptance futures last week, according to BMO Capital Markets in a note. Traders had also anticipated increases in the central bank benchmark rate of up to 125 basis points for the remainder of 2010.

The statement provided some details regarding the revised central bank's outlook, to be released on Thursday. The forecast period now extends out to the end of 2012, and the biggest change relates to inflation.

Headline inflation is now expected to be "slightly higher" than two per cent over the coming year before returning to the two per cent target in the second half of 2011. The previous expectation was for inflation to hover below two per cent until slowly reaching that mark in the third quarter of 2011.

Meanwhile, core inflation, which strips volatile-priced items such as food and energy, is expected to ease slightly this quarter but remain "near" two per cent through to the end of 2012.

Recent data for February suggested core inflation surpassed the two per cent level.

Economic growth in 2010 has been bumped up, to 3.7 per cent from 2.9 per cent, but then downgraded to 3.1 per cent in 2011 from the previous 3.5 per cent estimate. The Canadian economy is benefiting from noticeable "momentum" in the emerging markets, whereas the recovery the developed economies remains "relatively subdued" due to overextended household and government balance sheets.

"Despite recent progress, considerable uncertainty remains about the durability of the global recovery," the statement said.

The Bank of Canada has pencilled in 1.9 per cent growth for that year — a level at which the bank had warned about unless Canadian productivity improved.

"The persistent strength of the Canadian dollar, Canada's poor relative productivity performance and the low absolute level of U.S. demand will continue to act as significant drags on economic activity in Canada," the central bank said.

© Copyright (c) Canwest News Service

---

 
 
 

---

Most Canada dealers see first rate hike in July
 
 
REUTERS APRIL 15, 2010 1:06 PM
 
 

 
Most of Canada’s primary securities dealers predicted on Thursday that the Bank of Canada will raise interest rates in July as the high-flying Canadian dollar gives it some wiggle room even as the economy picks up steam.
Photograph by: Daniel Acker/Bloomberg , Daniel Acker/Bloomberg
TORONTO -- Most of Canada’s primary securities dealers predicted on Thursday that the Bank of Canada will raise interest rates in July as the high-flying Canadian dollar gives it some wiggle room even as the economy picks up steam.

In a Reuters poll conducted on Thursday ahead of next week’s interest rate decision, all 12 of Canada’s primary dealers said they expect the bank to leave rates unchanged on April 20, its next policy announcement date.

All of the dealers also said the Bank of Canada will raise rates sometime this year. Three of them said that will be in June, before the expiration of the central bank’s conditional pledge to keep its key rate at its current ultra-low 0.25% level.

Eight expected the central bank to begin raising the overnight rate in July. One sees the first move in September.

In April 2009, the bank pledged to keep the rate at the low level until at least the end of June as long as inflation remains in check.

Recent data showed Canada’s annual core inflation rate unexpectedly rose above 2% in February, which pushed the Canadian dollar higher and put pressure on the Bank of Canada to raise rates.

The strength in the Canadian currency is also giving the central bank some flexibility to refrain from a rate hike, market watchers say, as it acts as a brake on growth and inflation.

The Canadian dollar closed above parity with the U.S. currency this week for the first time since May 2008, powered by rising commodity prices and an economic rebound that investors expect will soon push the bank to raise rates.

Market watchers also say a steady stream of economic data is providing more reason for the central bank to raise rates ahead of the U.S. Federal Reserve.

Economic reports this week showed stronger than expected trade figures for February, while a Bank of Canada survey showed businesses upbeat about hiring intentions and expansion, and the three-month trend for housing starts displayed strength.

COMPANY AND THE FORECAST MOVE FOR APRIL, JUNE AND JULY

BMO CAPITAL MARKETS -- NO MOVE NO MOVE UP 25 BPS.

CASGRAIN & CO LTD -- NO MOVE NO MOVE UP 25 BPS.

CIBC WORLD MARKETS INC. -- NO MOVE NO MOVE UP 25 BPS.

DESJARDINS SECURITIES -- NO MOVE NO MOVE UP 25 BPS.

DEUTSCHE BANK SECURITIES LTD -- NO MOVE NO MOVE UP 25 BPS.

HSBC SECURITIES -- NO MOVE NO MOVE NO MOVE.

LAURENTIAN BANK SECURITIES -- NO MOVE NO MOVE UP 50 BPS.

MERRILL LYNCH CANADA INC. -- NO MOVE UP 25 BPS UP 25 BPS.

NATIONAL BANK -- NO MOVE UP 25 BPS UP 25 BPS.

RBC CAPITAL MARKETS -- NO MOVE NO MOVE UP 25 BPS.

SCOTIA CAPITAL INC. -- NO MOVE UP 25 BPS UP 25 BPS.

TORONTO-DOMINION BANK -- NO MOVE NO MOVE UP 25 BPS.

At which fixed announcement date is the Bank of Canada most likely to first raise interest rates this year?

BMO CAPITAL MARKETS. -- JULY

CASGRAIN & CO LTD. -- JULY

CIBC WORLD MARKETS INC. -- JULY

DESJARDINS SECURITIES -- JULY

DEUTSCHE BANK SECURITIES LTD. -- JULY

HSBC SECURITIES -- SEPT

LAURENTIAN BANK SECURITIES -- JULY

MERRILL LYNCH CANADA INC. -- JUNE

NATIONAL BANK -- JUNE

RBC CAPITAL MARKETS -- JULY

SCOTIA CAPITAL INC. -- JUNE

TORONTO-DOMINION BANK -- JULY

Where do you think the bank’s key policy rate, now at 0.25%, will be at the end of 2010?

BMO CAPITAL MARKETS -- 1.25%

CASGRAIN & CO LTD -- 1.25%

CIBC WORLD MARKETS INC. -- 1.25%

DESJARDINS SECURITIES -- 1.25%

DEUTSCHE BANK SECURITIES LTD. -- 1.25%

HSBC SECURITIES -- 1%

LAURENTIAN BANK SECURITIES -- 2%

MERRILL LYNCH CANADA INC. -- 1.5%

NATIONAL BANK -- 1.5%

RBC CAPITAL MARKETS -- 1.25%

SCOTIA CAPITAL INC. -- 1.5%

TORONTO-DOMINION BANK -- 1.25%

© Thomson Reuters 2010

© Copyright (c) National Post
 

Most of Canada’s primary securities dealers predicted on Thursday that the Bank of Canada will raise interest rates in July as the high-flying Canadian dollar gives it some wiggle room even as the economy picks up steam.

---

 

 
 

---

Tuesday, April 13, 2010

RBC hikes mortgage rates for second time in two weeks
Eric Lam,  Financial Post
National Post

RBC Royal Bank hiked its residential mortgage rates by 25 basis points across the board on Tuesday, the second rate hike in two weeks.

As of April 14, a five-year closed fixed-rate mortgage will carry an annual interest rate of 6.10%.

The bank had just boosted this rate by 60 basis points to 5.85% two weeks ago, effective March 30.

Meanwhile, RBC's four-year mortgage rate now rises to 5.59% and its three-year to 4.60%.

The two had been raised by 40 basis points and 20 basis points, to 5.34% and 4.35% respectively, only two weeks ago.

As well, RBC's five-year discount fixed-rate mortgage rate is now at 4.70% and the four-year to 4.44%.

Canadian banks have been raising their rates in recent weeks in anticipation of the Bank of Canada raising its benchmark interest rate this summer.

Along with the RBC, TD Canada Trust and Laurentian Bank also raised the rates on their various mortgage offerings between 40 and 60 basis points on March 30.

A day later, the Bank of Nova Scotia, CIBC and National Bank of Canada all raised their rates to similar levels as well.

Canada's real estate market has been booming since the Canadian economy emerged from recession last year, but has accelerated in recent months due to coming changes.

More stringent mortgage lending rules coming April 19 and the looming switch to the harmonized sales tax in Ontario and British Columbia in July, which will make purchases more expensive, have many home buyers trying to close their deals while interest rates as quickly as possible.

However, a Statistics Canada report Tuesday said the price of a new home had risen only 0.1% in February, less than the 0.4% economists had forecast.

On a yearly basis, new house prices were up 0.9% in February.

 

---

Interest rates to remain low through 2011: CIBC
 
 
BY JULIE FORTIER , FINANCIAL POST APRIL 8, 2010
 
With the Canadian economy doing surprisingly well over the past six months, many see higher interest rates from the Bank of Canada in the not so distant future, but according to a report released Thursday from CIBC's chief economist Avery Shenfeld, rates are likely to remain at a very low 2.5 per cent through to 2011 — not the seven to eight per cent forecast by some.
Photograph by: File, Reuters
OTTAWA — With the Canadian economy doing surprisingly well over the past six months, many see higher interest rates from the Bank of Canada in the not so distant future, but according to a report released Thursday from CIBC's chief economist Avery Shenfeld, rates are likely to remain at a very low 2.5 per cent through to 2011 — not the seven to eight per cent forecast by some.

In CIBC World Markets' latest Global Positioning Strategy report, Shenfeld lists several reasons for Bank of Canada Governor Mark Carney to keep interest rates subdued after July. He points out that the U.S. will probably have a more gradual approach to raising rates and if Canada gets too far ahead, that could send the Canadian dollar soaring.

"While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20 per cent below the pre-recession peak, and wages are now substantially above those stateside without the productivity gains to match. There's only so much of a competitive challenge that non-resource exporters can take in short order," Shenfeld said.

He also pointed out that inflation is not expected to rise much further and stimulus spending is expected to be reigned in by governments — including Canada's — which will slow growth.

"If the U.S., the U.K., and Japan all move from huge stimulus to even modest restraint, Canada will feel it in our export prospects come 2011," Shenfeld pointed out.

Carney has promised to keep interest rates where they are at 0.25 per cent until the end of June. However, the latest reading of Canada's economic growth showed the core inflation rate at 2.1 per cent in February, far above the Bank of Canada's forecast of 1.6 per cent for the first quarter of the year. Many analysts believe the Bank of Canada will not wait until mid-2010 to raise rates and late last month, Royal Bank, TD Canada Trust and Laurentian Bank raised the rates they charge on certain fixed mortgages.

---

 

Be wary of home-equity lines of credit
Can encourage the undisciplined to overspend

Jonathan Chevreau,  Financial Post

A home-equity line of credit is an easy way for homeowners to consolidate debts. Perhaps too easy, critics say.

My informal poll of financial advisors reveals caution over so-called HELOCs, especially for spend-happy clients prone to get in over their heads.

Veteran mortgage broker Michael Maguire has seen too many clients with balances at or close to the limit. Lenders portray HELOCs as assets, but they are debt products, making them potentially dangerous for those not disciplined in handling money. "Most seem to find it too easy to borrow and end up living at their limit," says Mr. Maguire, of London, Ont.-based Mortgage Wise Financial.

HELOCs may be more appropriate for those who keep cash reserves in separate accounts in case of emergency and who save in advance for trips or big-ticket items like furniture.

A modest line of credit between $5,000 and $20,000 may be convenient, but beyond that, Mr. Maguire says the debt should be put on a term basis so it can be paid off.

And including car loans with a line of credit or mortgage and extending amortization is looking for trouble, he says. "What happens in three years when your car dies and you have hardly touched the principal of the line? Debt should always reflect the lifespan of the asset you are financing and cars depreciate."

Another downside is interest rates, which can only go up from here. Mortgage rates already started rising this week. The new, higher three-, four- and five-year fixed mortgage rates will impact HELOC owners if they put new money into the fixed-rate portion of their credit lines, says Laura Parsons, area manager for BMO Financial Group.

And though you may expect the variable portion of the line of credit to rise when central banks raise the prime rate in the summer, Bernice Dunby, a senior manager at Royal Bank of Canada, says that is not yet a certainty.

Asher Tward, vice-president of estate planning at Tridelta Insurance, says big savings can be realized by servicing debt efficiently, but you don't need a HELOC for this. "Many people have money sitting in GICs making 1.2%, yet still have a large mortgage. Or worse, money in chequing accounts making nothing."

Putting that money to work by cutting debt costs can save you far more than 1.2%.

At Rogers Group Financial in Vancouver, vice-president Clay Gillespie says all-in-one HELOCs can be effective planning tools if used properly. Typically, you have a mortgage, a line of credit and perhaps a car loan, and monthly payments are made against those accounts. "This allows individuals to have their cash flow immediately go against their debt and thus reduce borrowing costs," he says.

But as Mr. Gillespie points out, problems can arise with undisciplined investors. "It would be easy for an individual to build up a line of credit and spend more than they earn," he says. Before jumping into one, he suggests understanding your spending behaviour to see whether it would get you into further problems.

Fred Kirby, president of Armstrong, B.C.-based Dimensional Investment Planning, says the convenience of consolidating debt and savings can blur the distinction between them, making it too easy to replace old debt with new. He prefers keeping a healthy emergency fund in CDIC-insured cash equivalents held at an institution offering the highest rates. "There is something to be said for the value of inconvenience and searching for the best deals," he says.

He also worries about the impact of putting all your money with one financial institution.

Jeff Wareham, an investment advisor with London, Ont.-based MGI Securities, says the all-in-one approach provides better pricing power, but a second relationship with another bank "gives you a foot in the door in the event you need to find alternatives."

HELOCs are best suitable for those who keep positive balances on revolving credit arrangements, Mr. Wareham says. But he frets about a volatile real estate market and consumers' temptation to use their house like an ATM.

Nor is he keen on using HELOCs to leverage into mutual funds. He's seen investors take monthly income from long-term equity funds to meet monthly payments for their loans. This "effectively reverses the benefit of dollar-cost averaging, as you sell more fund units at a lower price than a higher price," he says.

Andrew Teasdale, of the Tamris Consultancy in Toronto, is usually a vocal critic of financial products. But he sees nothing wrong with HELOCs if used sensibly. They can smooth out short-term gaps between income and expenses, he says. But he warns they should not be used to fund permanent increases in debt or support long-term gaps between income and expenses.

Financial Post

---

---

Mortgage rates' dream ride 'almost over'
 
 
BY TIM SHUFELT, FINANCIAL POST     MARCH 29, 2010 6:01 PM
 
 

 
Mortgage rates are on the upswing in Canada, with both Royal Bank and TD Canada Trust raising rates they charge on certain fixed mortgages, including the benchmark five-year mortgage.
Photograph by: Steven E. Frischling/ Bloomberg News., Steven E. Frischling/ Bloomberg News.
For Canadians now accustomed to rock-bottom mortgage rates, a harsh reality looms.

Rates are officially on the upswing, an indication that the country’s housing market is finally poised to cool off and the beginning of the end to historically low rates.

It’s a move being closely monitored by those with variable-rate mortgages trying to cling to minimal monthly payments for as long as possible.

Is now the time to lock in to a fixed rate?

“That’s the million-dollar question,” mortgage broker Paula Roberts said Monday. “We’ve had a great ride for the longest time. And we know the ride’s almost over.”

Variable-rate mortgages have dipped as low as 1.5% recently, Ms. Roberts.

“It’s really difficult for someone who has 1.5% to have to lock in to 3.75%. That’s a big jump and that’s when grief sets in a little bit,” she said. “But 3.75% historically is still a very, very low rate.”

Canada’s two biggest banks, Royal Bank of Canada and Toronto-Dominion Bank, as well as Laurentian Bank, announced Monday they are raising the rates they charge on certain fixed-rate mortgages, including the benchmark five-year mortgage, which jumped 60 basis points to 5.85% effective Tuesday.

“This is actually a fairly large increase reflecting what’s happening in the bond market lately,” said Benjamin Tal, senior economist with CIBC World Markets.

Anticipation over the Bank of Canada raising its overnight lending rate, possibly ahead of schedule, is pushing up bond yields, Mr. Tal said. And rising yields puts pressure on fixed-rate mortgages.

In addition, in mid-April new rules come into effect that tighten lending requirements, making first-time buyers meet an income test that says they can make payments based on the five-year fixed rate.

The two effects combined are certain to price some prospective buyers out of the market, said Gregory Klump, chief economist with the Canadian Real Estate Association.

“Certainly at the margins, this will have an impact,” he said.

But analysts say that price growth in Canada’s housing market, which for years has been red-hot and even remained robust during the recession, is not sustainable.

Tempered demand and a smaller pool of buyers is required to moderate prices and make housing more affordable, said Sal Guatieri, senior economist, BMO Capital Markets.

“There is a risk if the market does not cool down, we could see a correction down the road.”

Before the two banks hiked rates, mortgage interest payments as a share of income were around the same proportion as four years ago, when rates were much higher, Mr. Tal explained.

“That reflects the fact that we took so much mortgage, which shows the starting point is not great in terms of affordability. That’s why we’ll see the bank being very effective in its ability to slow down the market. And that’s a good thing.”

Expect a gradual softening of the real estate market in the second half of 2010 and through 2011, Mr. Tal said. “The highs will not be so high and the lows will not be so low.”

The two banks also hiked four-year term closed mortgage rates by 40 basis points to 5.34%.

Royal’s three-year product rose by 20 basis points to 4.35%, while the equivalent at Canada Trust gained 40 basis points to 4.70%.

While the hikes are significant, Mr. Klump said the heightened rates are still very attractive.

“They’re still stimulative, they’re just not as stimulative.”

---

 

The realtors' new realities
 
Wholesale change looms for Canadian industry
 
BY GARRY MARR, FINANCIAL POST MARCH 27, 2010
 
 

 
Shauna Bailey, real estate agent for Royal LePage Regina Realty in Regina, Sask., is one of the more than 98,000 real estate agents in Canada, a group feeling under siege.
Photograph by: Troy Fleece for the National Post, Troy Fleece for the National Post
The last thing Shauna Bailey wants to think about is what she makes on an hourly basis.

The 27-year-old Regina real estate agent’s phone starts ringing at about 7:30 a.m. for the six listings she currently has on the market. She also works for a new home builder, which generates its own set of calls.

“A typical day is eight to 10 hours and I haven’t had a weekend off in two years,” says Ms. Bailey.

“I don’t remember the last time I had a day off. On weekends, my mornings usually start with showings. In the afternoon, I’m either at [the builder’s] showroom or doing an open house for a client. People want to see houses every day. I had two people phone me on Grey Cup day who wanted a viewing. The Riders were playing!”

Ms. Bailey is one of the more than 98,000 real estate agents in Canada, a group feeling under siege. From the volatility of the real estate market to increasingly commission-wary consumers to the continuing loss of business to the Internet, wholesale changes loom over their industry and the way they conduct business.

This week, realtors became even more uneasy with the attempts by the Competition Bureau to crack down on their industry. The bureau has filed a complaint with the Competition Tribunal against the Canadian Real Estate Association, sayings its practices are anti-competitive.

The battle centres around the proprietary Multiple Listings Service system, to which CREA owns the rights. It is estimated 90% of the country’s homes are sold through MLS. The watchdog wants it opened up so that consumers and discount agents can list homes for a fee, as opposed to paying realtors commission for access to the service.

Realtors have fought back, with CREA passing new rules that would allow consumers to decide how much they use an agent on a deal and to conduct parts of a transaction without using an agent at all. The amendments, an attempt to ward off further action by the competition watchdog, were rejected by the bureau. In particular, the watchdog took issue with a clause which would allow local real estate boards to make their own rules about who could access the MLS.

In its legal defence filed with the tribunal Friday, CREA has referred to the position taken by the Commissioner of Competition Melanie Aitken as “preposterous,” and says it has always followed competition law.

Although realtors have been more successful than other agent-model industries — travel agents, stock brokers, insurance agents — at fending off major upheaval, it appears their time has come. The industry is bracing for change.

This week, in the midst of CREA’s battle with the Competition Bureau, Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, sent out an email to his 8,500 agents, to calm the troops. “Let me assure you that I did not say that we should throw in the towel,” said Mr. Polzler, referring to a news story in which it claimed he wanted CREA to give up its battle with the bureau.

“However, I’ve also been in the business too long not to recognize the fact that our industry is changing,” he wrote.

Century 21 Canada chief executive Don Lawby plans to send a similar note to his agents on Monday, telling them there will always be a place for the full-service real estate agent.

Agents are obviously worrying about the impact on their livelihood. Bank of Nova Scotia economist Derek Holt has estimated that if the Competition Bureau wins its battle to open up the MLS, real estate agent commissions could fall by as much as $15,750 per transaction. He is basing this on the difference between what a full-service broker and discount broker earn; discount brokers charge a flat-fee or 1% commission.

On Thursday, in a letter obtained by the Financial Post, CREA accused Ms. Aitken of the Competition Bureau of harming the reputation of Canadian real estate agents. “The unfounded allegations made by you tarnish the reputation not only of CREA and its member boards but of all Realtors,” wrote Georges Pahud, CREA’s new president, who stepped into the role this week.

There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing homes sales. At a 5% commission rate — the average in Canada — consumers forked out almost $7.5-billion in commissions. In the hot real estate market of 2007, when there was $160-billion in buying activity, realtors would have earned a total of $8-billion in commission (based on the 5% rule).

A decade ago, there was 335,490 sales across the country at an average sale price of $158,145. That works out to an estimated $2.6-billion paid in total commissions to the industry. In 10 years, the industry has reaped an 188% increase in total commissions paid, not adjusted for inflation, thanks to rising real estate prices.

Statistics Canada data backs that up. Residential ownership transfer costs jumped to more than $19-billion last year, up from almost $7.4-billion a decade ago. Those figures include land transfer fees, legal fees, inspection and surveying, but the largest component is believed to be commissions.

Yet, agents say they’ve never worked harder for clients. “I probably get to keep half of my revenue, but the rest goes to expenses. It is like running a small business,” says Ms. Bailey who, like most agents, ends up giving a cut to the brokerage firm, in this case Royal LePage Regina Realty. “I was an accountant before I was real estate agent. The hours were easier but it wasn’t as exciting.”

Last year, she was part of 32 deals. She doesn’t want to reveal her total commissions, but the average home in Regina sold for $244,328 last year, which would translate into about $7.8-million in property changing hands for her 32 sales. Commissions are about 5% of the sale price in her area and each realtor gets about half of that. By her estimates, she is doing well but hardly getting rich.

Ms. Bailey knows her industry is evolving, but she says there will always be a role for full-service agents. “I don’t worry about it. People who want to work with me will want my help. They don’t have time to do their open houses and market their property,” she says.

There are similar optimistic views across the country. “I’m not just an agent. Half the time I’m acting as psychologist, holding the buyer’s hand,” says Ellie Silver, a 12-year industry veteran who works in Montreal’s exclusive Westmount area. She adds people will never be able to effectively negotiate when it comes to the price of their home. “They are just too close to it,” she says.

“Not everybody is going to want to have their services managed by a realtor from start to finish,” says Re/Max’s Mr. Polzler. “With some of the changes coming down the pipe through the Competition Bureau and CREA, there will be more à la carte services.”

But he says the majority of consumers are still going to want to use a realtor to handle their transaction — whether the market is hot or cold.

“Right now, a realtor is not often needed in the selling process, but you sure need a realtor in the buying process. If you don’t have a good realtor in this market, finding the right property and going in at the right price, people are being rejected all over the place,” says Mr. Polzler.

He acknowledges that industry changes might put pressure on commissions, but he also predicts there will be fewer agents to share the pie in the new environment. “The number of non-producing agents in the industry is obscene. They are going to get squeezed because they generally do not provide a service,” says Mr. Polzler.

He thinks it’s time for the industry to toughen up the requirements for selling property. “I’m a proponent of increasing education. I’d like to see a one-year apprenticeship program,” says Mr. Polzler.

The rules for selling real estate vary from province to province, but in Ontario, a realtor can be licensed and in business in less than three months. In Nova Scotia, you are entitled to sell real estate under the designation of sales person after a three-week course.

Mike Graham is the Surrey-B.C.-based owner of Usellahome.com, a site promoting “for-sale-by-owner” real estate transactions. Not even he sees the disappearance of real estate agents anytime soon. “You are still going to have people who want to use an agent. Half the people out there don’t want to make a $500,000 decision without someone holding their hand,” he says.

© Copyright (c) National Post

---

 
 
 

Let the countdown to rising rates begin
Garry Marr, Financial Post

It's probably time to start the countdown on interest rates going up.
The Bank of Canada only pledged -- conditionally -- to keep its record-low lending rate until the end of the second quarter, so that leaves us with slightly more than four months before the housing market falls apart. At least that's what some national magazines and economists predict will happen when rates start to rise.
"Some people say they could go up in April, but I don't buy that," says Benjamin Tal, senior economist with CIBC World Markets and one of the more sane voices out there. He predicts a pullback in housing, but not the collapse we've seen in the United States.
So, what do you do in the face of this inevitable march of interest-rate hikes coming our way, likely at the Bank of Canada's first meeting in July?
"I think people will start locking in their rates very soon and that's already happening," says Mr. Tal, referring to the variable-rate crowd that has mortgages tied to prime. "The five-year [fixed] rate [mortgage] will be moving [up] well ahead of the bank rate in anticipation of an increase."
While locking in is extremely tempting in this market -- given a five-year mortgage is as low as 3.8% -- a floating-rate mortgage can be had for almost half that. Vince Gaetano, a vice-president of Monster Mortgage, says he's seeing variable rates for as low 30 points off prime, or 1.95%.
The problem for many Canadians who negotiated variable-rate mortgages in the past year, and still don't want to lock in, is they are stuck in contracts that have them paying a rate as much as 100 basis points (one percentage point) above prime. They call it a five-year term is because that's the length of the contract.
But Mr. Gaetano says just break that mortgage. If you are in a variable-rate contract, the penalty is three payments. To go from a contract that is 100 basis points above prime to one that is 30 points below could have you recoup your money in less than a year.
"There is a large amount of people refinancing to take advantage of these variable rates. We've seen a full-point comeback in the borrower's favour. We'll never see 1.95% ever again," Mr. Gaetano says.
One option for consumers who can't make up their minds is to apply for a new mortgage and have the lender hold the rate for as much 120 days.
"There will be a credit bureau check on your name and it could lower your credit score if you don't use money," says Mr. Gaetano, referring to the potential pitfalls of looking elsewhere for a new rate.
The reality is most consumers, once they have their mortgage, stay put and wait for renewal. The banks have a loyalty record that would make any industry drool. The Canadian Association of Accredited Mortgage Professionals says 93% of borrowers who renew on schedule stay with the same lender. Even among those who renew early, 81% stay with same financial institution.
As you consider where to go next with your mortgage, remain open to switching financial institutions if it saves you money. Sometimes there are costs, but the potential savings can offset those costs.
Martin Beaudry, vice-president of ING Direct Canada, says his company will now hold your rate for 120 days by just applying online. You don't even need to fill out a full mortgage application. ING holds the rate on any term, or even the spread between a variable-rate and prime, which is now 20 basis points.
"There is no downside, but less than half of people take advantage of rate guarantees. People deal with renewals less than 30 days before the maturity date," says Mr. Beaudry.
Most banks will guarantee you a rate 90 days in advance of your mortgage coming due. Why wait until the last minute and why stay with same institution if you are not getting best rate going?
---
Dusty wallet Having trouble making ends meets because of property taxes? If you are a senior citizen, some jurisdictions will allow you to forgo the payments with the amount owing attached as a lien on the house. Make sure to check the interest rate they charge on that money owed or your heirs could be left with a lot less house--if you care about that.

 

Strong March data may force BoC to break rates pledge
 
 
BY PAUL VIEIRA, FINANCIAL POST MARCH 19, 2010 5:11 PM
 
 

 
Following the release of key inflation and retail sales data Friday from Statistics Canada, at least one Bay Street economics team revised upward its growth forecast for the first quarter by a full percentage point, and indicated more positive revisions could be in the offing.
Photograph by: Global News, .
Canada's economy produced a full month of better-than-expected economic data, helping to crank up inflationary pressure beyond expectations in February and put the Bank of Canada in the uncomfortable position of possibly breaking its pledge on interest rates.

Following the release of key inflation and retail sales data Friday from Statistics Canada, at least one Bay Street economics team revised upward its growth forecast for the first quarter by a full percentage point, and indicated more positive revisions could be in the offing.

The data, however, failed to power the Canadian dollar's march to parity with its U.S. counterpart — although the loonie nonetheless made big gains Friday against the world's other major currencies, as it set a three-decade high against the British pound and a 28-month high against the euro.

In all, Friday's developments suggest the Canadian economy is roaring back at a pace that might be setting off warning bells at the Bank of Canada, which had conditionally pledged to keep its benchmark rate at 0.25 per cent until July to get the economy back on track.

"There is simply no mistaking that growth and inflation have more underlying power than even the most strident optimist would have believed just a few short months ago," said Douglas Porter, deputy chief economist at BMO Capital Markets, which accordingly upgraded its first-quarter GDP forecast for Canada Friday to 4.7 per cent expansion, from its previous 3.7 per cent expectation.

Retail sales was the last piece of data to emerge from January, and with that Porter said Canada produced an "unbelievable" full month of better-than-anticipated economic data. For the record, retail sales jumped 0.7 per cent in January, above the 0.6 per cent consensus.

However, when autos are excluded, sales surged 1.8 per cent, or the biggest one-month gain since late 2007. This was due, in part, to a 7.4 per cent increase in sales at outdoor supply stores, as households rushed to buy building supplies before the one-time federal home renovation tax expired on Feb. 1.

Meanwhile, all eyes were on February inflation data, which proved to be equally robust, with the core rate — watched closely by the Bank of Canada — posting a surge beyond the key two per cent threshold.

Statistics Canada core inflation, which strips out volatile-priced items such as food and energy, advanced 2.1 per cent year-over-year in February, whereas analysts anticipated a 1.7 per cent year-over-year increase.

The Bank of Canada's last economic outlook, tabled in January, envisaged core inflation to average 1.6 per cent in the first quarter and 1.7 per cent in the second quarter. The central bank's pledge on rates was conditional on its inflation outlook unfolding as anticipated.

"The Bank of Canada has all the evidence it needs to convince itself it doesn't need emergency policy measures anymore," said Andrew Pyle, wealth adviser and markets commentator with ScotiaMcLeod. "I think (the data) tells you the economy is firing on a lot of cylinders."

The inflation data come with a caveat, as the Vancouver Olympics drove up prices in some key areas, notably travel and lodging. Nevertheless, Porter said inflation would still be above the central bank's forecast even if the Olympic-related numbers were adjusted.

"I continue to believe the bank will wait until July but they must be getting incredibly uncomfortable with that long of a wait," he said.

Mark Carney, the Bank of Canada governor, might shed further light on the central bank's outlook in a speech in Ottawa this coming Wednesday.

There was anticipation that robust inflation data could finally propel the loonie to parity with the U.S. dollar. That was not the case, however, as traders cashed in on profits and sought safety in U.S. dollars, largely due to uncertainty as to how the eurozone would deal with Greek debt problems, and an unexpected rate hike in India. The dollar closed Friday at 98.39 cents U.S., down slightly from the previous session.

"The market remains unwilling to take the final plunge (toward parity) without the support of improving global sentiment," said Matthew Strauss, senior currency strategists at RBC Capital Markets.

© Copyright (c) Canwest News Service

---

 
 
 

 

---

Inflation provides 'nasty' surprise for Bank of Canada
 
 
BY PAUL VIEIRA, FINANCIAL POST MARCH 19, 2010 11:15 AM
 
The Bank of Canada building is pictured in Ottawa March 3, 2009. Statistics Canada said consumer prices rose 1.6 per cent year-over-year in February, following a 1.9 per cent increase in January. For the month, prices rose 0.4 per cent. Market expectations were for a year-over-year rise of 1.4 per cent.
 
OTTAWA — Inflation data for February came in much stronger than expected, Statistics Canada reported Friday, with the key core rate — watched closely by the Bank of Canada — posting a surge beyond the key two per cent threshold in what analysts describe as a "nasty" surprise.

Statistics Canada said consumer prices rose 1.6 per cent year-over-year in February, following a 1.9 per cent increase in January. For the month, prices rose 0.4 per cent. Market expectations were for a year-over-year rise of 1.4 per cent.

Meanwhile, the core rate, which strips out volatile-priced items such as food and energy, advanced 2.1 per cent year-over-year in February. It had risen two per cent in January. Market expectations were for core inflation to decline, to 1.7 per cent year-over-year.

The consumer price data, combined with robust retail sales figures for January, has likely set off alarm bells at the Bank of Canada, economists say, as to whether the central bank can keep its conditional pledge to maintain its target rate at 0.25 per cent until July.

However, analysts note the inflation data come with a caveat, as the Winter Olympics in Vancouver drove up prices in some key categories.

Still, markets initially pushed up the value of the Canadian dollar, which was already flirting with parity, on the basis of a possible rate hike starting in June. The central bank sets its benchmark rate to achieve inflation of two per cent, and so far inflation is ahead of the central bank's expectations.

"Canadian consumer prices came in higher than expected in February, with a particularly nasty high-side surprise on core inflation — with an asterisk," said Douglas Porter, deputy chief economist at BMO Capital Markets. "While the bank will not overreact to the persistent high-side surprises just yet, rate hikes are coming up fast on the near-term horizon, with or without the U.S. Federal Reserve in tow."

In trading Friday, the Canadian dollar surged well passed the 99 U.S. cent mark to as high as 99.30 U.S. cents, before paring back most of the gains. As of 10:15 a.m. ET, it was trading in the 98.80 U.S. cents range. The dollar's gain is based on the prospect of rates rising in Canada before the U.S., which attracts investors looking for richer short-term yields.

Besides the inflation data, retails sales numbers for January also indicated that the economy is exceeding even the most bullish of expectations. The federal agency said retail sales jumped a higher-than-expected 0.7 per cent for the month.

Analysts add that excluding automobiles, sales surged by a "towering" 1.8 per cent in January — which was more than triple the consensus call and the biggest gain since November 2007. Part of the surge was attributed to homeowners buying building supplies just before the one-time home renovation tax credit expired.

The retail data, coupled with other strong indicators released this week such as manufacturing shipments and wholesale trade, prompted BMO Capital Markets to upgrade on Friday its first-quarter GDP growth forecast for the Canadian economy, to 4.7 per cent annualized from its previous 3.7 per cent expectation.

Michael Woolfolk, senior currency strategist at BNY Mellon in New York, said the inflation and retail data released Friday makes it a "foregone conclusion" that the Canadian dollar will reach parity, and likely trade above the $1 U.S. mark. Further, he reckoned the Bank of Canada would likely tolerate gains in the Canadian dollar against the major currencies, of up to five per cent, "before officials begin railing against undue currency volatility."

In terms of headline inflation, gasoline prices exerted the most upward pressure in February, for a fourth consecutive month, as pump prices were 15.3 per cent higher than they were in February 2009. Also affecting the inflation data was prices for travel accommodation, which rose 16 per cent in February — although that was largely skewed due to the Winter Olympics in Vancouver.

Overall, six of the eight major components of the CPI recorded price increases in the 12 months to February, with the exceptions in housing, and clothing and footwear.

"(This) report must be turning heads at the Bank of Canada," said economists Derek Holt and Karen Cordes Woods at Scotia Capital. "While the details are mixed on the underlying components, it is pretty difficult to argue that emergency rates in Canada (of 0.25 per cent) are still warranted."

Statistics Canada said February's increase in core inflation was due primarily to price increases for passenger vehicles, as well as for traveller services — which climbed a whopping 17.9 per cent month-over-month, largely due to the Olympics.

In the Bank of Canada's last economic outlook, tabled in January, it envisaged core inflation to average 1.6 per cent in the first quarter and 1.7 per cent in the second quarter.

Still, economists at TD Securities said the Olympic impact on the inflation data should be taken into account. "Don't expect the Bank of Canada to lose sleep over this report, as one-off factors are well identified," they said in a note to clients.

© Copyright (c) Canwest News Service

---

 
 
 

---

Diversify your mortgage
 
 
BY GARRY MARR, FINANCIAL POST MARCH 4, 2010
 
Anyone negotiating a mortgage today is labouring over whether to lock in the rate.
Photograph by: Steve Murray/National Post illustration, Steve Murray/National Post illustration
You can't decide what to do with your mortgage? The good news is you don't have to.

Anyone negotiating a mortgage today is labouring over whether to lock in the rate. The Bank of Canada recently reiterated its pledge to keep its key lending rate at a record low until July, but has not committed to anything past the end of the second quarter. And that has everybody guessing.

It's tempting to stay variable. The banks are back to discounting and variable-rate products tied to the current prime rate of 2.25%, can be negotiated for as low as 1.95%. Meanwhile, if you do want to lock in the rate, you are guaranteed a rate as low as 3.75% for the next five years.

So, what to do? How about going long and short?

York University professor Moshe Milevsky, author of Your Money Milestones, says in many cases debt diversification does not make sense. For some, it means spreading out their liabilities across everything from mortgage to lines of credit, credit card debt to student loans.

"In many cases debt diversification does not make sense because you are borrowing money at rates that are a lot higher," says Mr. Milevsky, who hypothesizes in the book that people like to compartmentalize their debt rather than consolidate.

But if you have consolidated all your debt in your mortgage, he says there is no reason why you can't diversify your loan across different terms. "It's a bit of an insurance strategy against speculation," he says.

Think of yourself as a public company. No public company would want all its debt coming due at the same time. And most public companies would keep a certain amount of debt subject to short-term rates.

"With individuals, when it comes to mortgages, which is the biggest borrowing of their life, they go with the plain vanilla-- one duration, one maturity," he says, adding banks don't do a very good job of selling the concept of splitting up your mortgage. "They offer it, but they don't promote it."

John Turner, director of mortgages with Bank of Montreal, says consumers with at least a 20% down payment can split up their debt at his financial institution with only one charge made against the house. It's then up to the consumer to slice up the mortgage in the way that works for them. "You can have short-term variable, some long-term. You could also ladder your debt [so a certain percentage becomes due every year.]"

Of course, there is a cost to this. On a regular mortgage interest is calculated semi-annually, but on the split-mortgage, which is run like a line of credit, interest is calculated monthly. The difference can add up to five basis points.

On your statement, what you'll see will be all the terms consolidated into one monthly payment, making it just one loan you are receiving from the bank. "We are trying to make it look as much like a mortgage as we can. We've done a lot of research on this and Canadians love this type of flexibility," Mr. Turner says.

So far, only about 6% of Canadian mortgages are of the split variety, says the Canadian Association of Accredited Mortgage Professionals.

There are some downsides to the line of credit. For starters, it is loan that is callable on demand by your bank. Your mortgage is callable only when it comes due.

Mortgage broker Paula Roberts says another problem is a split mortgage can lock you into business with one bank. "If you have a variable rate, a three-year term and a five-year term, your maturity dates are different," she says.

Say you don't like what the bank is offering on renewal of the three-year term, you can't switch financial institutions because you still have part of your mortgage with that bank. "This is a strategy for the banks to keep your business," Ms. Roberts says.

"I think having options in your mortgages can be good, but too many options can make it difficult."

So go ahead and diversify that debt, but make sure your bank offers some flexibility to negotiate rates when parts of the loan come due.

© Copyright (c) National Post

---

 
 
 

---

Rise in housing starts will keep lid on prices in 2010: CMHC
 
 
BY JOHN MORRISSY, FINANCIAL POST MARCH 2, 2010 11:49 AM

OTTAWA -- Housing starts will rise in 2010, putting a lid on home prices this year following their 19 per cent surge in 2009, the Canada Mortgage and Housing Corporation said Tuesday.

Between 152,000 to 189,300 housing starts are expected in 2010, up from 149,081 units last year, the national housing agency said.

Describing the current state of affairs as a sellers' market, CMHC said the relative lack of new listings for existing homes has pushed some of the demand into the new home market, which helps explain the forecast for higher housing starts activity in 2010," CMHC said.

But it added that it expects prices to remain stable in 2010 around the Multiple Listing Service average reached in January this year of $328,537, as the new housing stock brings balance back to the market.

As well, tighter requirements for mortgage lending recently imposed by Ottawa as fears of a housing bubble mounted "will help moderate housing activity as some potential buyers will have to save a larger down payment or consider a less expensive home," said CMHC chief economist Bob Dugan.

CMHC said the strong pace of existing sales over the last three quarters of 2009, a carry-over from the two previous quarters, will not be sustained as pent-up demand is exhausted and financing costs rise later in 2010.

It forecasts existing home sales will be in a range of 455,350 to 509,900 units in 2010.

In 2011, housing starts will total 156,400 to 205,600 units and prices will rise again modestly, it said.

© Copyright (c) Canwest News Service

---

---

OTTAWA -- The Bank of Canada reiterated on Tuesday its conditional pledge to keep its key-lending rate at a record low until July, but modified its view on inflation by indicating the risks to its outlook are "roughly balanced" as opposed to tilted to the downside.

That was the one significant change in its scheduled interest-rate announcement, and analysts might interpret this as a first step by the central bank to ready markets for an interest-rate hike.

For nearly a year, the central bank has pledged to keep its benchmark rate at 0.25 per cent until July in an effort to pump up economic growth, on the condition that inflation would not hit its preferred two per cent target until mid-2011. The central bank's mandate is to set its key policy rate at a level to achieve two per cent inflation.

In previous statements, the central bank had suggested inflation risks were titled downward because of the possible need to engage in quantitative easing, in which the Bank of Canada would flood financial markets with cash in an effort to spur lending and combat deflation.

But through the statement, the central bank might be indicating deflation is no longer a concern.

"The bank judges that the main macroeconomic risks to the inflation projection are roughly balanced," it said, with upside risks being stronger-than-projected growth, while a protracted recovery and strong Canadian dollar flagged as downside risks.

The change in the inflation outlook emerged after Statistics Canada reported that the economy grew at a five per cent annualized rate in the fourth quarter of last year - blowing past market expectations for a four per cent gain and the central bank's original 3.3 per cent forecast. Economists say the fourth-quarter performance has set the stage for another robust gain, of perhaps four per cent or more, for the first three months of 2010.

Recent data indicate that both the headline and core inflation rates have moved much closer to the two per cent level than the central bank had expected. Under the bank's forecast, the two per cent level would not be reached until the third quarter of next year.

"Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity," the central bank said in its one-page statement. "The outlook for inflation should continue to reflect the combined influences of stronger domestic demand, slowing wage growth, and overall excess (economic slack)."

In its economic outlook in January, the central bank said stubborn unit labour costs along with increases in property taxes and other administered prices accounted for the recent "stickiness" of core inflation.

Michael Gregory, senior economist at BMO Capital Markets, said prior to the release of the rate statement that "the longer this (inflation) stickiness persists, the more likely it might also reflect an overestimation of the size and impact of the output gap," which measures the amount of economic slack in the marketplace.

Other economists, most notably at National Bank Financial, have argued the central bank has overestimated the amount of slack in the economy, and that recent economic data suggest spare capacity is being absorbed at a faster pace than anticipated. The bank has said it expected the output gap to close in the third quarter of 2011.

A large amount of excess production capacity suggests a lack of consumer demand, and gives producers little to no pricing power.

Meanwhile, the central bank also acknowledged that economic activity has been "slightly higher" than its own projections, with the five per cent gain in the fourth quarter powered by "vigorous domestic demand" and a recovery in exports.

"The underlying factors supporting Canada's recovery are largely unchanged - policy stimulus, increased confidence, improved financial conditions, global growth and higher terms of trade," the bank statement said.

It added that "persistent strength" in the Canadian currency and the "low absolute level" of U.S. demand would continue to act as "significant drags" on economic activity.

The central bank's next statement on interest rates is April 20, and two days later it will release its updated economic forecast. Meanwhile, the governor, Mark Carney, has scheduled two speeches this month in which he may provide further guidance as to how the bank would behave as its conditional pledge comes to an end.

© Copyright (c) Canwest News Service

---

The Greater Toronto Realtors reported a 74 per cent increase in sales for the first two weeks of February compared to last year, when the recession hit hardest.

There were 3,555 sales through MLS during the first half of this month, compared to 2,0044 during the same period in 2009. This month's activity was even 7.7 per cent higher than the previous record in 2006.

"Home ownership demand remains strong in the GTA, as households remain confident that economic recovery is at hand and that ownership housing will continue to be a quality long-term investment," says Tom Lebour, president of the Toronto Real Estate Board.

Accordingly, the increased activity has led to higher prices as well. The average price for February mid-month transactions was $429,997, up 18 per cent from 2009. That's also drawn more sellers out hoping to cash in. New listings with the Toronto Real Estate Board's boundaries were up 15 per cent to 6,212.

The board's senior market analyst Jason Mercer says double-digit price increases wil continue through the first quarter of the year.

"However, as new listings continue to increase,  creating a better supplied market, we will see the annual rate of price growth moderate into the single digits," says Mercer.

---

---

U.S. mortgages little changed
 
Canada leads way with pre-emptive measures
 
BY JANET WHITMAN, FINANCIAL POST FEBRUARY 18, 2010 8:18 AM
 
U.S. lenders are largely cleaning up thier own bad practices.

NEW YORK - As Canada took pre-emptive steps this week to thwart a possible housing bubble, the United States has done little to reform the reckless lending practices that, two years ago, led to the near-collapse of the country's financial system.

For now, the industry is cleaning up its own bad behaviour. U.S. lenders have put a stop to zero-money-down mortgages and so-called liar loans, the "no-doc" or "low-doc" mortgages that don't require income documentation. But there has been little in the way of new regulation that would prevent the return of such practices.

Meanwhile, the ability of Americans to get a tax deduction for their annual mortgage interest payments -- which essentially encourages them not to pay down their mortgages -- remains sacrosanct. Sweeping reforms, including a simple provision that would require lenders to ensure a borrower's ability to repay, were proposed by U.S. lawmakers in 2007, but they remain hung up by debate.

"There's been a fair amount of tightening, but it's coming out of the private sector," said Greg Rand, managing partner at Better Homes and Gardens Rand Realty, a brokerage in the suburbs north of New York. "It sounds simplistic, but lenders want to make sure they get their money back."

Vince Malta, liaison to government affairs with the National Association of Realtors, said he's worried the pendulum might swing too far and U.S. lawmakers will crack down on the industry too hard.

"I would hate to see someone who qualifies to purchase a home, but is unable to because of some regulatory scheme that goes overboard," he said.

Meantime, not only are the exotic loans that got the United States into the housing crisis gone, but standard mortgage loans also are hard to come by for many prospective buyers around the country.

"Even regular, good people cannot get a loan," said Andrew Mungar, a real estate broker in Texas and author of the new book The Homeowner Survival Guide. "I have a lot of clients that make good income but are still having trouble getting a loan because conditions are so tight."

With 10,000 new U.S. foreclosures still hitting the market each day, the caution might be understandable, Mr. Mungar said. "We still have billions of dollars of adjustable-rate mortgages and interest-rate only mortgages to hit the market."

One of the main reasons why Canada's housing market held up while America's cratered is that U.S. lending standards all but disappeared.

Canada also wasn't as swept up by the securitization market, in which bankers bundled mortgages and sold them off to investors.

Barry Ritholtz, a well-known blogger and investor, pointed out other important factors at play in a recent post on his "Big Picture" blog.

While Americans are walking away from their underwater mortgages in droves, Canada has full recourse mortgages, which means a homeowner can walk away from the house, but not the duty to pay the mortgage debt, Mr. Ritholtz said.

© Copyright (c) National Post

---

 
 
 

---

Don't worry, home loan rules can still be bent
New mortgage rules

Garry Marr,  Financial Post  
Fotolia.
The good news or bad news, depending on your perspective, is you can still buy a home in Canada with almost no money.

Really, you say? If you have a job with steady income, you need about $16,000 to buy the average Canadian house. You can pay back the $304,000 you owe over the next 35 years -- with the little matter of about $243,000 in interest, based on a 3.79% rate and monthly payments.

Nothing has changed with yesterday's news that the government has tightened lending rules in Canada. You too can still pay almost double for your house.

The new rules mean first-time buyers -- the people with those tiny down payments who the government is targeting-- will still be able to purchase a home with just 5% down.

The difference is they now have to meet an income test that says they can make payments based on the five-year fixed rate, in case interest rates start to spike. That measure is to target consumers who are taking out variable-rate mortgages that are now as low as 1.95%. If they were to take out a mortgage after April 19, they would have to qualify based on the usually higher five-year rate.

Still to be discussed is what constitutes the five-year fixed rate, no minor issue considering the difference between the posted rate and the discounted rate ranges from about 3.8% to 5.4%.

"I called the [department of ] finance," said Heather Paterson, a senior mortgage agent with Invis Inc., who was trying to get answers yesterday for her clients. She failed.

Consumers with default mortgage insurance will also face new rules allowing them to refinance their home for only 90% of their value, down from the current 95%. Forget about doing that kitchen renovation by dipping into your home equity unless home prices continue to rise.

"It's not a huge deal," said Benjamin Tal, a senior economist with CIBC World Markets. "It was a balancing act for the government, which wants to be seen as responding to the mortgage market but not derailing it."

The group most affected by the changes are condominium investors, who will suddenly be forced to come up with a 20% down payment to be eligible for mortgage insurance. If you're a renter, this part of yesterday's news could affect you in the coming years.

In some major markets like Toronto, the condominium has become part of the new de facto rental market because taxes and other government regulations have discouraged the construction of rental stock. Expect the supply to grow less quickly, potentially raising your rents.

Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals, said his group was pleased with the changes.

"We thought the debt levels were restrained," said Mr. Murphy, whose group produced a report last month that found 86% of loans went into fixed-rate mortgages, 70% of them for longer than five years.

The real-estate industry was clearly worried about the possibility of down payments rising to 10% and amortization shrinking to 25 years.

Not that there isn't any way around those type of rules, as many of the banks have proved with mortgage products that effectively give back consumers the 5% down payment they have on their house -- even though the government passed rules in 2008 requiring that minimum payment. Although not hugely popular, the 5% cash-back mortgage had become an option for some consumers with no money left over for closing costs.

In fact, one financial institution was still advertising last week its offer to "pay the 5% minimum down payment on your behalf when you take an insured" five-or seven-year fixed-rate mortgage. The price you pay has always been the posted rate, about 150 basis points higher. The banks will also let you tack on your mortgage -insurance costs on top of your loan, meaning you can get a mortgage for almost 98% of the value of your property.

Nothing has really changed. You can still get that house -- and that debt -- but you might have to have more income than you did last week.

---------

WHAT IT ALL MEANS

The difference between a three-year mortgage rate and a five-year rate now ranges between 50 and 100 basis points. A house in Canada costs an average $337,000, which means that a mortgage applicant would need to absorb $2,500 a year in additional mortgage costs once the change is implemented, according to calculations by Eric Lascelles at TD Securities. That effectively means the minimum household income for a Canadian mortgage applicant would be $5,000 to $8,000 higher than before.

---

---

MORTGAGE INSURANCE RULES ANNOUNCEMENT

This morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP was actively engaged in the discussions around these changes which are as follows:
All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
Non-owner occupied properties will require a minimum down payment of 20%.
There were no changes to down payment requirements or length of amortizations for owner-occupied residences.

Flaherty’s measures will help prevent Canada from suffering a housing crisis similar to the United States, where mass foreclosures caused prices to drop as the market collapsed, sources said Monday.

---

---

OTTAWA — Easier access to the Multiple Listing Service could negate the impact of mortgage-rule changes currently under debate to cool the country's overheated housing market, Scotia Economics said in a research note Thursday.

"Indeed, the potential is there for home buying conditions to actually become easier over the next one to two years via sharply lower average commission rates that are more in keeping with choices south of the border," said the note, written by economists Derek Holt and Karen Cordes.

Holt and Cordes argue that the savings from reduced real-estate commissions could be substantial, and could make up a large part of the difference on a downpayment that was changed from a five per cent minimum to a 10 per cent minimum.

For example, a typical five per cent commission paid against the average resale price of $345,000 would result in a commission of $17,250. The same home sold at rates offered by the still-tiny discount-broker segment would result in a commission of $1,500, a difference of $15,750.

"Thus, through the interplay between potential shifts in mortgage rules and the Competition Bureau's challenge, Ottawa is likely to at worst leave buying incentives on neutral terms, or could even instead drive even more stimulative terms, given a low probability of changes to mortgages rules.

"The Bank of Canada cannot rely on the regulatory apparatus to cool what we think is a house price bubble," said Holt and Cordes.

On Wednesday, the Canadian Real Estate Association announced it would ask its members to bow to pressure from the Competition Bureau of Canada to allow easier and possibly cheaper access to the Multiple Listing Service.

While the Conservative government in Ottawa has denied the country is in the midst of a housing bubble, numerous commentators have voiced concern about the possibility, as resale prices reach record levels and new home prices continue to rebound sharply, as reported Thursday by Statistics Canada.

On Wednesday, former Bank of Canada governor David Dodge added his voice to the debate, warning that prices have reached a point where they are almost unsustainable.

In response, Finance Minister Jim Flaherty has raised the possibility of tightening mortgage requirements. Some of the solutions being floated include doubling minimum down payments to 10 per cent or reducing the maximum amortization period to 30 from 35 years.

---

Bond King Buys Canada

Ottawa -- Count one of the world’s biggest and most influential mutual-fund managers as the latest market-mover to jump on Canada’s bandwagon.

Bill Gross, founder and managing director of Pacific Investment Management Co., which manages US$1-trillion on behalf of clients, said in his monthly letter to clients that Canada stands out among industrialized countries as a destination for investors to park their fixed-income cash.

“Given enough liquidity and current yields, I would prefer to invest money in Canada,” said Mr. Gross, whose company manages the world’s biggest bond fund. “Its conservative banks never did participate in the housing crisis, and it moved toward and stayed closer to fiscal balance than any other country.”

In contrast is Britain, the world’s fifth-largest economy, which is in danger of having its debt-to-gross domestic product ratio surge to 120% by 2017 from just less than 50% three years ago.

Mr. Gross said Britain was a “must to avoid,” adding its bonds, or gilts, “are resting on a bed of nitroglycerine.” He added: “High debt with the potential [for pound devaluation] present high risks for bond investors.”

Mr. Gross’s fondness for Canada shouldn’t come as a surprise. As it happens, foreigners can’t get enough of Canadian bonds, issued by the federal government or the provinces.

Recent data from Statistics Canada indicated foreign purchases of Canadian bonds in 2009, at a net $73-billion, shattered the previous $41-billion mark set in 2001. And the record total is likely to swell once December figures emerge.

Fund rater Morningstar Inc. recently named Mr. Gross as the manager of the decade. PIMCO’s flagship product, Total Return Fund, recorded nearly US$70-billion in net inflow last year (more than net inflows for the previous three years combined), pushing the fund’s assets to more than US$200-billion.

In his newsletter, Mr. Gross reinforced his view that a “new normal” will emerge in the aftermath of the latest financial crisis. The PIMCO thesis says households and firms in developed economies — whose banks were at the centre of the credit collapse — will spend years paying down debt and boosting savings. As a result, developed economies will record slower economic growth and lower returns on investment and financial assets.

Countries most at risk are identified by Mr. Gross as belonging to a so-called ring of fire, whose members include the United States, Britain, France, Japan and Italy. These countries run the risk of having public debt reach a level that surpasses the equivalent of 90% of GDP. Once that is reached, economic growth could slow by 1% or more, PIMCO’s calculations say.

In another category of countries belong economies such as Canada, Germany, Sweden, Norway and Australia, among others. These economies are “considered to be the most conservative and potentially the most solvent, with the potential for higher growth.”

Canada’s fiscal position has deteriorated sharply in the past year, with Ottawa set to record a $56-billion deficit this fiscal year. Nevertheless, Canada’s budget balance going into the recession was far superior to other major economies, and that should count for something, Mr. Gross said.

“Initial conditions are important because the ability of a country to respond to a financial crisis is related to the size of its existing debt burden and because it points to future financing potential,” the newsletter said.

Despite Canada’s attractiveness, Mr. Gross said emerging economies, such as India, Brazil and China, are better positioned for growth, as they are starting off at much lower debt levels, measured as a percentage of GDP, compared to their developed peers.

Meanwhile, the old established Group of Seven nations, of which Canada is a member, “have lost their position as drivers of the global economy” as they focus on debt reduction.

Financial Post

pvieira@nationalpost.com

© Copyright (c) National Post

---

 

After completing the transformation to chartered bank and dropping rates by 1.2 per cent on its CHIP Home Income Plan, HomEquity Bank reported a record $43 million in reverse mortgage originations in the fourth quarter of 2009. 

"The increase in originations during the last quarter is an early indication that our pricing strategy is working and that our reverse mortgage offering is being transformed from a niche product into a mainstream financial solution," HomEquity president and CEO Steven Ranson said.

The bank reported that at of the end of 2009, its reverse mortgage portfolio sat at close to 7,000 mortgages with an accrued value of $865 million, six per cent higher than its total at the end of 2008.

HomEquity also said the 2009 fourth quarter results represented a 77 per cent increase in originations compared to the same quarter in the previous year. 

---

---

 
 
 

Prospective home owners should stress-test their budgets against future rises in interest rates
Posted: December 22, 2009, 4:20 PM by Jonathan_Chevreau
Mortgages, Interest Rates, Banks, Home Renovation Tax Credit
In recent weeks, the Finance Department and the Bank of Canada have both issued warnings to consumers about not getting overextended borrowing at today's historically low interest rates. In several recent blogs and columns, I've made a similar point aimed at bond investors: that it's only a matter of time before rates start rising again.

Certainly I'd rather be on the interest-receiving end of the equation than the interest-paying end. The way things are rigged, savers are punished by receiving almost nothing in interest, while borrowers are tempted to go into hock because of the same low rates: whether for housing, autos, vacations or even to take leveraged flyers on the stock market.

As noted in a cautionary release today from BMO Financial Group, home sales in Canada have surged 76% from their January lows. By November, prices of existing homes were 19% higher than they were a year ago, which is the second fastest price surge in 20 years. Plenty of renters are thinking of jumping in while rates are still low, perhaps worried that as so often happens with housing, prices will jump even more while they sit on the sidelines and save for a downpayment.

BMO's economists are predicting that interest rates will indeed rise, likely in the second half of 2010. "We expect the Bank of Canada's overnight rate target to climb from 0.25% beginning in July 2010, to 4.25% in mid-2012. In turn, consumers can also expect mortgage rates to increase," says BMO Capital Markets senior economist Sal Guatieri. "While today's ultra-low borrowing costs represent a unique opportunity to purchase a property, home buyers need to proceed with caution and keep in mind that renewal rates will likely be substantially higher in coming years."

 Beware dual temptation to minimize downpayment and extend amortization schedule

BMO senior manager of mortgages Jane Yuen [pictured above] warns that stretching budget limits by choosing the maximum amortization period and minimum downpayment could leave new homeowners with little wiggle room if they later are confronted with unexpected financial emergencies.  "A meaningful downpayment and shortening your amortization by making extra payments on your mortgage will save you tens of thousands of dollars in interest costs."

Or as the character Theo says in my financial novel Findependence Day, "The foundation of financial independence is a paid-for home."  (By the way, just in time for Christmas, the price of the book has been cut to $18.95, either online or in the stores)

While the best mortgage is no mortgage at all, the next best thing is one that's paid off in a matter of years, not decades.  Below are some other tips from BMO on this topic. I don't disagree with any of these tips (else I wouldn't run them) so what follows after the next subhead are BMO's own words. When you get to the bit on variable versus fixed, pay close attention. Personally, if I had a mortgage now I wouldn't be greedy for rock-bottom rates but would lock in at least a 5-year rate, or longer if available. So yes, I agree with the bank on this one.

Consider a shorter amortization:

·       The shorter the life of the mortgage, the less you pay in interest.
 
Make a larger downpayment:

·      • If you can provide a bigger downpayment, it's a significant way of helping you pay less interest over the life of your mortgage.  
Make sure you can afford what you signed up for:

·       • Stress test your financial budget using a mortgage payment based on a higher interest rate: customers looking to renew a $250,000 mortgage currently priced at 2.25 per cent would see their monthly mortgage payment increase by $260/month if rates were to increase by 2 percentage points.

·       • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

Make pre-payments when you can:

Pay weekly or bi-weekly instead of monthly.
Take advantage of 20+20 prepayment privileges:
Increase your mortgage payment (principal and interest) by up to 20 per cent over the current payment. This option can be exercised once each calendar year, at any time, without charge.
Prepay up to 20 per cent of the original mortgage principal each calendar year.  This option can be exercised in minimum amounts of $100 without charge, some conditions apply.
Always make sure you save for a rainy day:

If you are up to your maximum in debt, you may not be well prepared for the leaky roof along the way.
Think carefully about fixed vs. variable:

While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.
Yuen also warns that in today's heated market, prospective home buyers should try not to get locked into bidding wars that push mortgage payments outside their comfort zone.  By getting a pre-approved mortgage, you should have a good idea of the constraints imposed by your budget.

---

---

---

---

---

 
Why didn't Canada's housing market go bust?
 
 BY IAM MCGUGAN, FINANCIAL POST DECEMBER 10, 2009
 
Canadian houses have held their value better than those in the U.S. market.
Photograph by: Sean DeCory, National Post
The Federal Reserve Bank of Cleveland released a commentary this past week asking, “Why didn’t Canada’s housing market go bust?” In the commentary, James MacGee, a professor at the University of Western Ontario, does a fine job of pulling together many strands of research. He concludes it was primarily the lack of a subprime lending industry in Canada that kept the housing market in this country from imploding.

Anyone interested in the Canadian real estate market should read the commentary — but count me as one reader who believes the paper raises as many questions as it answers. By defining the issue as why Canada’s housing market didn’t go bust in the past, the commentary sidesteps the more interesting question of whether Canada’s housing market will go bust in the future.

The most striking graph in the commentary traces the performance of U.S. and Canadian home prices since 2000. U.S. home prices doubled from 2000 to 2006, then tumbled. They are now about 40% ahead of their 2000 levels.

In Canada, home prices staged a more sedate takeoff and didn’t hit a peak until 2008. They’ve come down only slightly and are still more than 75% ahead of their 2000 levels.

The natural question to ask is why Canadian home prices have done so much better than U.S. home prices from 2000 until now. Home ownership rates in the two countries are much the same; our economies are intertwined. Doesn’t it make sense that Canadian home prices will eventually follow U.S. home prices downward? (The alternative would be that U.S home prices may surge upward, but that seems highly unlikely given current trends.)

Prof. MacGee’s primary exhibit for the subprime-did-it theory is a table that shows the distribution of mortgages by loan-to-value ratios in the two countries. In Canada, nearly 85% of people with mortgages in 2006 had substantial equity in their homes (if you define that category as meaning that their mortgage was worth no more than 80% of the value of their house.) In the United States, only about 78% of people fit into this same category. More Americans had high-loan-to-value mortgages than Canadians.

I agree that the numbers demonstrate that Americans tend to borrow more against their homes than Canadians — but doesn’t that make perfect sense given the ability of homeowners in the United States to deduct mortgage interest on their taxes? However you slice it, the vast majority of homeowners in both countries have substantial equity in their homes, so why should the U.S. market crash and the Canadian market remain buoyant? These are questions that deserve attention.

Freelance business journalist Ian McGugan blogs for the Financial Post.

© Copyright (c) National Post

---

 
 
 

---

Don't handcuff your mortgage
Take the 50/50 Wi$e Mortgage

Gary Marr, Financial Post

Would you like to pay an extra $300 per month on your mortgage? Not likely.
That hasn't stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage,
from switching over to a more expensive fixed-rate product and paying the extra freight.
A fear of rising rates is driving the rash decision. But if you've finally managed to pin your banker to
the ground, why on Earth would you let him off the mat?
More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian
Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October
of last year, chances are you are now borrowing money for as little as 1.35%. That's based on deals
that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.
The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment
and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a fiveyear
fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly
payment of $1,289.04.
Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week,
although discounters were still offering 4% this past week.
"It's not a mass rush yet, but we are starting to see ... people locking in. But variable rates are still so
good," says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She
stops short of questioning why a consumer would pull out of these "deals" that are no longer available
on the market.
Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points
above prime, or 2.85%.
The landscape changed dramatically in October during the credit crunch. As the Bank of Canada
lowered rates, the major banks reluctantly lowered prime because of the massive amount of
customers with variable-rate products negotiated under the old, higher terms.
"Bonds yields are going up rapidly and people are starting to realize the rates are going to go up," Ms.
Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word "conditional"(on
inflation rates)when it promised not to raise rates until June, and you can understand why some
people think today's record-low prime rate might not hold.
But if you're someplace between 60 to 90 basis points below prime, the rate is going to have to go up
pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit
last month for a five-year term.
"I don't understand why you would lock in," says Jim Murphy, chief executive of CAAMP. "Sure, if
they start to rise, but [Bank of Canada governor Mark] Carney says they won't rise, so you've got
another year at that prime-minus rate."
Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are
not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but
double-digit rates seem unlikely. "The only logic two locking in would be for someone very sensitive to
any rate change and they just want to be secure," Mr. Lawby says.
But at what price? If you're using the "feeling secure" logic, why not go for the 10-year fixed-rate
product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet
fewer than 10% of Canadians consider a 10-year product.
There are some compromises you can make. For starters, there is nothing to prevent consumers from
having a blended mortgage at most Canadian banks. Some banks will let you take half your
outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to
adhere to the same philosophy when managing their debt.
Consumers might want to take their cue from business. Few companies would want all of their debt
coming due at the same time -- it presents too much risk. The other option is knocking down
principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal
every month.
The bottom line is if you've got a deal on your mortgage, why would you give it back?
Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a
taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from
airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess
what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a
second receipt. In the interim, DW had to pay the second $56 charge.
gmarr@national-post. com

---

---

Bank of Canada expected to hike interest rates in mid-2010
  TORONTO — The Bank of Canada repeated its pledge Tuesday to keep interests rates at historic lows until the middle of next year to stimulate growth and a sense of stability in the midst of a slow economic recovery.
But, economists are calling for rate hikes as much as a full percentage point or more later next year, and say the bank’s commitment to keep its key rates at 0.25 per cent creates a false sense of security in borrowers who have taken on debts larger than they could normally afford.
The C.D. Howe Institute’s 12-member monetary policy council’s median target for the overnight rate was for one per cent in the second half of 2010.
The council said the central bank should give a strong signal that when the overnight rate moves up, it may be quick and large. They also suggested the bank rein in the housing market by raising the required down payment on government-insured mortgages.
C.D. Howe president and CEO William Robson says a rapid rise in interest rates expected late next year could prove devastating for homeowners who have not evaluated their ability to carry their mortgage at a higher interest rate.
The central bank announced Tuesday the global economy has been slightly more positive than it was at the time of the bank’s October pronouncement, but added “significant fragilities remain.”
The economy grew less than analysts expected in the third quarter and inflation has been slightly higher than the central bank expected.
Diana Petramala, an economist at TD Bank, said as long as those fragilities remain, the Bank of Canada will not be swayed to move quickly with interest rate hikes.
She said TD believes there is more risk associated with the combination of a mild U.S. recovery and strengthening Canadian dollar than the central bank has outlined.
Petramala said the bank’s projection for three per cent growth in 2010 is slightly more optimistic than TD’s forecast of 2.7 per cent growth, adding that she believes the Bank of Canada’s first rate hike will not come until the fourth quarter of next year.
Dawn Desjardins, assistant chief economist at RBC Economics, said still volatile markets and global market uncertainties suggest a significant change to the central bank’s policy is premature.
Given the still-fragile global economy, she said, Canada’s growth rate in 2010 will likely fall short of those recorded during the early stages of past recoveries.
Desjardins added that if the economy continues to build momentum by next summer, the bank will likely hike the rate by one percentage point for the second half of next year.
Michael Gregory, a senior economist at BMO Capital Markets, said there was a faintly more hawkish tone in the bank’s announcement.
“The combination of higher-than-projected global growth and domestic core inflation is a shade more hawkish no matter what prism you’re looking through,” he said.
“The bank is on hold until the end of June, but come next Canada Day the bank will be hoisting its hawkish colours amid all the Canadian flags.”
The Canadian Press

---

---

Calgary home prices forecast to rise 5% in 2010
 
 
BY MARIO TONEGUZZI, CALGARY HERALD DECEMBER 3, 2009
The average sale price of a Calgary existing home is forecast to rise by five per cent next year after falling by an estimated five per cent in 2009, according to a report released today by Re/Max.
Photograph by: Colleen De Neve, Herald Archive
CALGARY - The average sale price of a Calgary existing home is forecast to rise by five per cent next year after falling by an estimated five per cent in 2009, according to a report released today by Re/Max.

The real estate firm's Housing Market Outlook for 2010 said the MLS sale price this year for Calgary, which includes all residential properties, is estimated to be $385,000 but it is forecast to rise to $403,000 next year.

Re/Max is estimating MLS sales to hit 26,000 this year in Calgary for a 12 per cent gain from 2008 and it is expecting sales to continue to rise by another eight per cent in 2010 to 28,000.

At the national level, the company says the average sale price across Canada will be up five per cent this year to $318,000 and increase by a further two per cent in 2010 to $325,000.

MLS sales in Canada, it said, will rise by seven per cent in 2009 to 465,000 units and increase by a further two per cent in 2010 to 475,000 units.

The Re/Max Housing Market Outlook for 2010 examined residential real estate trends in 23 markets. The report found that sales are forecast to recover in almost all major centres by year-end 2009, led by an anticipated 45 per cent increase in Greater Vancouver. Two markets --Ottawa and Quebec City -- are expected to hit historic highs in the number of homes sold. Average price should post new records in 65 per cent of markets surveyed this year. As economic performance ramps up across the country, so too will residential real estate. Eighty-three per cent of markets (19/23) are expecting sales to increase over 2009 levels while housing values are forecast to escalate in 91 per cent (21/23) of Canadian centres in 2010. The remaining markets will match 2009 levels.

"A number of factors will help prop up activity going forward, including improved economic conditions, continued low interest rates, rising consumer confidence and solid capital spending which will buoy employment," said Re/Max. "Inventory will once again assume the wildcard role, with any decline placing upward pressure on prices. Multiple offers will remain the exception in most markets, more commonplace on quality entry-level product which remains in tight supply. "

mtoneguzzi@theherald.canwest.com

© Copyright (c) The Calgary Herald
 

---

---

---

---

Ontario teachers devise financial literacy course for students
 
 
BY ELLEN VAN WAGENINGEN, CANWEST NEWS SERVICE NOVEMBER 29, 2009
 
 
WINDSOR, Ont. - The options for saving and spending these days are bewildering for those of us who have been handling our finances for years. Imagine what it is like for young people just getting started.

Kingsville District high school students will have help sorting through the options, thanks to a course designed by business teachers Shanno Simonton and Rob Jasey.

"Our point of view as teachers is that financial education should be separate from financial advice," says Simonton, the business department head.

Much of the flood of financial advice being offered out on the street comes from folks who are also selling products such as credit cards, insurance, mutual funds and mortgages.

Also, "there are fewer pension plans out there now, so students, when they go out into the work world, are going to have to make some very important long- term decisions," says Simonton.

So she and Jasey developed a class called Building Financial Security that will be offered to college- and university-bound students at the Grade 12 level. It covers topics such as the kinds of financial institutions, determining net worth, investment options and the social impact of investment decisions.

The course is full, with 32 students signed up for February. "We knew there would be interest from parents and students," Simonton says. Other schools have also made inquiries about offering it.

While the Ontario government figures out how to integrate financial literacy into the curriculum for Grades 4 to 12 by 2011, many local business teachers are finding ways to spread the word.

St. Joseph Catholic high school business teacher Chris Gilbert estimates roughly 30 per cent of the students at his school take an introductory business class in Grade 9 or 10 that includes the basics of personal finances. But every Grade 11 and 12 student at the school got a blitz on the basics in October from comedian James Cunningham, who puts on his Funny Money presentations at high schools across the country.

Gilbert easily rhymes off Cunningham's three-pronged message: "Know your flow, watch what you owe and invest some dough." The presentation, sponsored by the Investor Education Fund and Investment Industry Regulatory Organization of Canada, seems to stick with students, he says.

Funny Money, which was only available in Ontario until the spring of 2009, has been wildly popular, says IEF president Tom Hamza. "In the schools they've recognized the need for this for quite some time."

Gilbert believes the more students are exposed to good financial information, the better.

"I've always told students that every single one of them throughout their lifetime is going to make over a million dollars," he says, "but what they do with it and how they manage it in the end is really important."

Windsor Sar

evanwageningen@thestar.canwest.com

© Copyright (c) Canwest News Service

---

Friday, November 27, 2009

Rates can stay low through 2015: David Dodge

REUTERS/Chris Wattie
OTTAWA -- The Bank of Canada could keep its benchmark interest rate accommodative through 2015 to offset fiscal restraint by the government, which must hike taxes to balance its budget, former central bank chief David Dodge said Friday.

In point-form notes for a speech he was delivering at a business forum in Lake Louise, Alberta, Mr. Dodge backed the plan by his successor, Governor Mark Carney, to hold interest rates at near zero until mid-2010 but said the bank could back away from "unconventional initiatives".

With a credible fiscal plan, the overnight target rate, now at the lower limit at 0.25%, could "remain accommodative through 2015," he said.

The rate could rise to 2% in 2010-11 but stay below neutral for the rest of the period, he said, to compensate for the "fiscal drag and continuing (small) output gap," Mr. Dodge wrote in his notes.

Mr. Dodge, governor until January 2008 and now a senior advisor at Bennett Jones Llp, said any credible plan to eliminate the federal government's fiscal deficit by 2015 would likely include tax increases.

That conflicts with the Conservative government's promise to refrain from any politically unpopular tax hikes to balance its books, vowing to rely entirely on economic growth and a lower rate of growth in program spending.

Mr. Dodge argued that if the government focused its efforts only on the spending side, spending -- including debt service -- would have to be reduced to zero real growth from 2012 to 2015. This assumes all temporary stimulus spending ends by the end of 2011.

"Restraint of this magnitude is very difficult and disruptive, so some tax increases will be necessary. Consumption taxes would be least harmful to long-term growth," he said.

The fiscal plan must include a mix of expenditure cuts and tax increases that have a combined impact of 3% of gross domestic product, he said.

Ottawa fell into deficit last year after a decade of surpluses and projects a shortfall in the 2009-10 fiscal year of $56-billion. On Friday, the government reported an accumulated deficit in the first six months of the current year of $28.64-billion, compared with a surplus of $535-million in the same period a year earlier.

© Thomson Reuters 2009

© 2009 The National Post Company. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.

---

---

    

Mortgage initiative helps fund renovations
 
Marty Hope
Calgary Herald

When it comes to signing that dotted line there has to be a physical and financial comfort level or the cheque won't be signed.
Emotions are a big part of the homebuying process. People have to feel good about the house they are considering purchasing.

Both physically and financially, there has to be a comfort level or the cheque won't be signed.

The location might be perfect and the price may fit, but the house might need some work-- and the cost of, say, new kitchen cabinets, flooring and windows might just be enough to break the deal.

Laura Parsons, Calgary-area manager of national business development for the Bank of Montreal, has heard this scenario countless times from those on the front lines of the real estate industry.

"I talked with one realtor who showed clients something like a hundred homes and there was always something wrong," she says.

"They couldn't put a deal together."

Banks want to help realtors sell homes to get the financing business, so Parsons had to find an answer to the you-scratch-my-back, I'll-scratch-yours problem.

In the back of her mind, there was something she recalled that might solve the problem--some financing vehicle that would help both realtors and potential homebuyers.

After much mulling, it came to her.

More than five years ago, Canada Mortgage and Housing Corp. introduced a Purchase Plus Improvement Program (PPIP) that would allow homebuyers to finance the purchase of the home plus the cost of immediate renovations--all in the original mortgage.

Because there was no big flag-waving, horn-blowing announcement of the program, it's been under-utilized to some extent.

Parsons decided it was time to brush the dust off the PPIP--which is available through both CMHC and Genworth Financial Canada --and put it to better use.

"We wrapped our arms around how to deal with this issue and came up with mortgage staging--our way of helping people fix up their homes without spending much extra money on a mortgage payment," she says.

In a nutshell, here's how the PPIP works,

A home is purchased for, say, $400,000. Based on a five-per-cent down payment and a 35-year mortgage plus things like the mortgage insurance, PIT (principal, interest and taxes). and property taxes, the monthly payment would be $1,524.

But $50,000 worth of renovations are needed to bring the home up to snuff at move-in. Add this amount to the original mortgage and the monthly cost goes up just $169--less expensive than taking out a separate loan.

When the decision has been made to make an offer on a home that needs upgrading, Parsons says the offer is conditional for a longer-than-normal period to arrange for a contractor to look at the place and give an estimate for the work.

If everything is satisfactory, the timing of the work is then between the buyer and contractor.

Bart Dutchak is one of the early success stories for the program.

The 32-year-old bought a unit in a 25-year-old condo building in April, knowing ing full well he was going to be spending money to fix it up on his own--things like laminate for new countertops, as well as new flooring, crown mouldings and baseboards.

"I worked for two solid months after work to get it done," he says.

The bill was $10,000-- which, when added to his original mortgage, didn't make all that much a difference to the monthly outlay.

He shopped around, but he says he couldn't find a lender who would let him add the renovations onto his original mortgage.

"Then the Bank of Montreal treal said, 'Yes,' and I was pretty excited to be able to combine everything," says Dutchak, who is a senior draftsman and detailer at Canam Steel. "It just made it all so much simpler."

Elena Salikhov, Calgary based based area manager for business development for CMHC, says the program was established to help people wanting to make improvements that would increase the value of the property.

The key to the program is that the cost of the renovations must be reflected in the expected future value of the home.

In the example of the $400,000 home with $50,000 worth of renovations, CMHC or Genworth must agree the home would have a value of at least $450,000 after renovations are done.

So, with CMHC and Genworth worth firmly on side, Parsons set out to find other partners who would help increase the profile of the mortgage program.

Because she is involved with the Canadian Home Builders' Association-Calgary Region, Parsons explained the program pro-to its Renomark committee, which represents many of the city's renovation contractors.

Unlike Dutchak, some people don't want the challenges of doing the renovation themselves. They'd rather hire the work out.

Paul Klassen, president of Pinnacle Group Renovations by Design Ltd., was in the Renomark audience for Parsons' address and says the timing was uncanny.

As part of the company's five-year strategic plan, Klassen developed a 3-D application to show people how a renovation would look when complete.

The fact a program was available to help clients pay for it was an added bonus.

"I ran out to speak to her, explaining that this was a perfect marriage for us and would be another tool in our business arsenal," he says.

Since that meeting, he has talked about PPIP with a couple of his clients.

"What we thought was a wall (to a renovation decision) has become a door," says Klassen.

Parsons then went in search of a supply partner. Because of prior business dealings with Rona, she received the support of Mel Anderson, manager of the retail chain's Crowfoot location.

"We thought it would tie in well with services we were already offering at the store," says Anderson.

Rona has an installation department that includes designers and estimators. They also have programs and facilities to assist customers with all aspects of a renovation.

"We are an option to hiring a contractor," says Anderson. "We can walk customers through the design and buying processes right here in the store, or we can go to their residence and give them an estimate."

With program partners on side, Parsons says consumers are able to take advantage of another federal government program that might save them money and time.

"Its been around for a long time, but few have taken advantage of it because they don't realize the little impact it will have on them financially," she says.

---------

In Short

If you intend to buy a home that needs some immediate upgrades, the Purchase Plus Improvement Program may be the answer. A qualified mortgage consultant can guide you through the process:

- Step 1: Mortgage pre-approval-- Arranging a pre-approved mortgage not only protects you if interest rates increase, it also gives you a

clear price range for your new home. At least a five-per-cent down payment is required for a PPIP mortgage.

- Step 2: Obtain cost estimates for upgrades-- Once you have found a home, you need to get written quotes from licensed contractors on the planned renovations.

- Step 3: Mortgage application--For example, with five-per-cent down, your mortgage consultant would apply to a lender for whatever's lowest: 95 per cent of the purchase price plus 95 per cent of the cost to finish the renovations, or 95 per cent of the "as improved" market value, determined by the institution which insures the mortgage after the renovations.

- Step 4: Finalize purchase--Your realtor and mortgage consultant will walk you through this part of the process. The funds for renovations will be sent to your lawyer in trust when the mortgage closes.

- Step 5: Complete upgrades--The lender will hold back funds for the renovations until the work has been completed and inspected, at which time the contractor can be paid.

---------

---

Copyright © 2009 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.
CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

---

Big-ticket insurance
 
Helen Morris
National Post

Title insurance shouldn't be an option when buying a house-- without it, you could lose it all.
Buying a house is likely the biggest financial investment you are going to make. The last thing you want is for some dastardly fraudster to get their hands on it.

"You're sitting in your property, minding your own business and all of a sudden you get served with a letter saying you're in default of some mortgage that you've never even heard of, because a fraudster stole your identity, went to the bank and got a mortgage on your property," says Kathleen Waters, president and CEO of Lawpro and former vice-president of TitlePlus.

While it is not compulsory in Ontario, Lorne Shuman, director of legal services at First Canadian Title, says that more and more homebuyers are taking out title insurance to protect themselves -- for a premium of only a few hundred dollars -- against losses related to title or legal ownership of their property, including fraud.

"Title insurance is essentially a product that protects homeowners against a number of possible defects: title problems, survey problems and fraud," says Mr. Shuman. "It's a one-time premium that lasts as long as you own the house. Typically, you obtain it through your lawyer when you buy the house and it lasts for as long as you own the house." (Title insurance products are also available for existing homeowners, to protect them for just such situations as identity theft leading to a fraudulent mortgage placed on your home.)

A range of policies exist, so you and your real estate lawyer will need to check which one suits your needs. Prior to obtaining the insurance, your lawyer (who cannot work for the title insurance company) must issue an opinion on the title of the property to ascertain whether the title is clean or if there are risks such as unclear record of transfer of ownership (in which case the insurer may exclude them from your policy).

The Financial Services Commission of Ontario notes that a residential title insurance policy may protect you from unknown title defects as well as existing liens against the property's title such as an unpaid mortgage, utility or condominium charges. And if there's no survey to be found, a policy with survey coverage may be accepted by lenders instead of a new survey or Real Property Report (which sets out lot lines, structures, rights-of-way and the like).

However, Ms. Waters says that homeowners must be aware that title insurance

may only provide cash compensation and does not necessarily rectify all situations. For example, if you move in and discover that an existing deck encroaches on your neighbour's lot line, the title insurance will compensate you for the cost of removing and rebuilding it.

But as another example, "Let's say you only want to buy that property if you know for sure you can put a pool in the backyard or ... an addition on the back of the house," says Ms. Waters. "Your real estate lawyer would say to you 'We'd better make sure your agreement of purchase and sale is conditional on giving us a period [to] do the necessary investigation with the municipality'." If you buy a property only to discover later that a pool is not allowed, you would negotiate a value of loss for which the insurer would then compensate you.

Mr. Shuman says it is crucial to work with your lawyer to make sure the policy meets your coverage needs.

"It is really important to look at the claims-paying ability of the title insurer," says Mr. Shuman. "The policy is only good if the company behind it is able to handle the claims fairly and efficiently."

A side-effect of title insurance may be that it simplifies the closing process for your lawyer, which could cut your costs.

"The standard of practice for lawyers on residential real estate deals used to be a bit extreme," says Ms. Waters. "I can remember, back in the 1980s, doing a Conservation Authority search on properties which may not even have been anywhere near Conservation Authority land, but the standard of practice said you had to do it." Ms. Waters says that having title insurance can reduce the need for some searches and streamline the real estate purchasing process.

Title insurance policies focus on legal issues, so it is vital to be aware of exclusions, Mr. Shuman says, and to work with your lawyer to make sure title insurance is for you and covers what you need. Environmental hazards and general wear and tear of your home are not covered, nor is needing to replace an old furnace six months after moving in; while it may be expensive and annoying, it is not a legal issue dealing with ownership, so there is no coverage for this type of situation under title insurance.

For more information, visit the Financial Services Commission of Ontario Information on Title Insurance site: fsco.gov.on.ca/English/PUBS/consumerbrochures/undstitins.pdf

© National Post 2009

---

 
Mortgage brokers do the legwork for you
One broker explains what they do and how they bill for their services
 
Vic Cotton
Canwest News Service

Here in Canada, about 25 per cent of mortgages originate through mortgage brokers (versus about 75 per cent of mortgage dealers in the United States and Europe).
Who are mortgage brokers and who do they work for? The question is one I hear a lot these days.

Here in Canada, about 25 per cent of mortgages originate through mortgage brokers (versus about 75 per cent of mortgage dealers in the United States and Europe).

Most people just walk into their local bank and fill out the paperwork and believe they received the best deal.

Well, the best deal for you, or for the bank?

When you walk into the bank, you will be shown only the products the bank has to offer. With the vast number of lenders and mortgage options available today, this strategy just doesn't make sense anymore.

You will never know what other options are available without working with a qualified mortgage broker.

As a mortgage broker, I don't only deal with the major banks but also banks that specialize in mortgage lending.

With all these options available to you through a mortgage broker's resources, you can be assured that you will receive the best rates and mortgage products to match your individual credit and financial situation.

In the past, it was thought that only those who had poor credit ratings sought the help of a mortgage broker to obtain a home loan.

Today's educated borrower realizes that using the services of a mortgage broker will not only save them time and aggravation, but in most cases save them a substantial amount of money throughout the term of their mortgage.

Mortgage brokers work with borrowers of all credit types and specialize in finding a mortgage of any size and type on any given day.

Further to this, most mortgage brokers will work with their clients on credit issues to improve their ability to obtain financing.

They connect you to a lender and help you navigate through the steps the lender requires of you as well.

You are better off going through a mortgage broker and letting them do the legwork to find you the best deal available. It's like having an advocate on your side during the lending process.

Remember, a mortgage broker will take whatever time is necessary for you to understand all the options and requirements for mortgages.

The mortgage broker's experience will be able to identify the positives and negatives associated with all the mortgage options available to you.

The mortgage broker is a negotiator and will make your case to the appropriate lenders if your situation should contain some financial or credit challenges.

In most cases, the mortgage broker's negotiations will result in better terms or rates for those in situations that leave them not up to bank quality.

There is also a misconception that a mortgage broker costs you money. In 90 per cent of cases, a mortgage broker is paid by the lender based on the dollar amount of the mortgage.

In cases where he/she has to go to a private lender, or a lender who does not provide compensation for the mortgage broker's service, payment is made by clients and taken out of the mortgage's proceeds.

If you are being charged for the services of a mortgage broker, ask if they are also being paid by the lender.

An ethical mortgage broker will not double-end on payment received.

Mortgage brokers build their business on referrals, providing personalized service and education to their clients, which larger banks are simply unable to provide.

Because of this, you can rest assured that your mortgage broker has your best interests in mind with everything they do.

Most mortgage brokers will work with you and your schedule.

We know how busy you are without the added inconvenience of a 9 a.m. to 5 p.m. window to get mortgage advice.

If you can't come to the mortgage broker, the mortgage broker will come to you.

By providing you with "one-stop shopping," a mortgage broker can get you a good deal and educate you along the way.

If you are looking for a mortgage, discuss your needs with a mortgage broker and see what kind of deal they can offer you -- you might be pleasantly surprised at the results.

So let's recap. Who should use the services of a mortgage broker?

Everyone from the investor looking to use the equity in their home for further investments, to the self entrepreneur who needs someone to understand what running a business is all about and the financial challenges that go with it.

The first-time homebuyer will find a wealth of information and mortgage products through a mortgage broker.

Such buyers will find options like purchasing with no down payment, cashback mortgages -- and even debt consolidation programs which will enable a purchase in the near future.

Contact a qualified mortgage broker and see why more and more people have discovered that using a mortgage broker just makes sense.

© Times Colonist (Victoria) 2009






Copyright © 2009 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

Mortgage checkup vital to homeowners
 
Calgary Herald

Life can change substantially in a year and a regular review can help ensure that your mortgage is still the right fit for your financial situation.
For many Canadians, financial matters are about as enjoyable as their yearly physical exam, but it's something that should be done just to be sure everything is as it should be.

This is particularly important in these times of a low-rate environment.

Homeowners should become proactive about their overall financial health by taking a close look at one of their most important obligations--their mortgage, says Gary Siegle, Calgary-based regional manager for Invis.

"A mortgage isn't something you sign once every few years and then forget about," says Siegle. "Life can change substantially in a year and a regular review can help ensure that your mortgage is still the right fit for your financial situation."

Don't kid yourself, says Siegle--a number of major life changes may call for looking over your mortgage, such as starting or growing a family, starting a business, loss or interruption of income, home renovations, purchasing investment property or other major expenditures.

A mortgage professional can assess a homeowner's current interest rate, payments and other mortgage terms, determine available home equity, and recommend options that may help them better reach their goals.

So given all that could happen in just 365 days, Siegle offers some common reasons to revisit your mortgage:

-Paying down your mortgage faster--If you receive extra cash like an inheritance, tax refund or a work bonus, think about putting it toward your mortgage.

For example, paying an extra $3,000 once every year toward the principle on a $250,000 mortgage can result in interest savings of $42,443 over the life of the mortgage, assuming a 25-year amortization and a fixed rate of 4.19 per cent.

-Lowering monthly payments --Renegotiating for a lower interest rate can protect your finances from unforeseen factors like a reduced income and allow you to save up a rainy day fund.

-Debt consolidation--Transferring high-cost consumer debt, such as moving a credit card balance to a lower interest rate by consolidating it into your mortgage, can help you boost your cash flow to build up savings or pay down your debt faster.

-Securing a home equity line of credit--A line of credit can help you access lower-cost

funds for investing, such as topping up your RRSP contribution for the year. It can also help you pay for home improvement projects so you can take advantage of the federal Home Renovation Tax Credit for eligible projects done before Feb. 1.

-Improving credit--A mortgage professional can coach you on how to improve your credit score, which can help you work toward future goals such as buying a vacation property for your family.

In some cases, a mortgage check-up may show that refinancing could improve your mortgage strategy. However, most mortgages require the borrower to pay a penalty if they pay off their mortgage in full before the maturity date.

A mortgage professional can provide advice on what penalties you may incur and if refinancing is indeed your best option.

"In the end, a yearly mortgage checkup could reveal that the best course of action is no change at all," says Siegle. "Mortgage professionals can be excellent resources to help homeowners better understand their financing options, whether they're buying a new home or staying put."

© Calgary Herald 2009

---

 

---

---

---

Study says variable-rate mortgages better deal for borrowers most times

The Canadian Press

TORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX:BMO) says the more volatile variable rate mortgages will save you money in the long run.

The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.

That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.

A fixed rate locks the borrower into a set interest rate for a certain period of time.

That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.

Variable rates change along with interest-rate moves.

BMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future.

BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again.

The bank added that the current interest environment is similar to both of these periods.

"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report.

"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue."

Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.

As a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high.

---

 

---

---

CMHC helps markets
Stephen Smith,  Financial Post

Re: CMHC Bubble Is 100% Made In Canada, Diane Francis, Oct. 22.

Contrary to Diane Francis's assertions, Canada Mortgage and Housing Corporation (CMHC) has been a significant contributor to the stability of the financial and housing markets in Canada.

First National Financial LP is Canada's largest non-bank mortgage lender with $45-billion of mortgages under administration. Each year, we lend $12-billion to Canadians across the country, of which a significant portion is insured by CMHC.

In Canada, all OSFI regulated financial institutions such as the banks must obtain mortgage insurance on all mortgage loans where the down payment is less than 20%. In order to obtain CMHC insurance on a mortgage, a lender must undertake a rigorous underwriting process on the prospective borrower. The lender must ensure that the borrower has sufficient resources for the down payment and a good employment history. The borrower's credit profile is assessed to determine their past history of fulfilling their financial obligations. The borrower must be able to demonstrate the necessary income to meet all the responsibilities of homeownership such as mortgage payments, property taxes, heating expenses and condominium fees as well as any other external financial obligations. In addition, each mortgage loan is sent individually to CMHC for its own evaluation and approval.

Far from creating a bubble, the underwriting standards of CMHC has insured that Canada experienced moderate house price appreciation over the past decade rather than the boom and bust experienced in the United States as a result of uncontrolled lending.

During the financial crisis, the fact that all mortgages over 80% were insured and all mortgages under 80% were underwritten to a similar high standards was one of the principal reasons that Canadian banks were seen as having solid assets rather than the "toxic" debt created by the European and American banks.

In addition, during the past several years, the Canada Mortgage Bond (bonds backed by CMHC insured mortgages and guaranteed by the Government of Canada) was one of the few financial instruments that provided liquidity to mortgage lenders and financial institutions in Canada, ensuring the continuing availability of affordable mortgage lending to Canadians throughout the financial crisis

For from being criticized, CMHC should be commended for its role in contributing to the development as well as the stability of the financial and housing markets in Canada.

Stephen Smith, Chairman and President, First National Financial LP

---

---

 

Why Canada's housing sector didn't collapse

Globe and Mail Update Published on Monday, Oct. 19, 2009

While it's tempting to think of a “housing correction” as a continent-wide phenomenon, National Bank Financial says the Canadian and U.S. markets couldn't be more different.

“The two have absolutely nothing in common,” senior economist Marc Pinsonneault wrote in an economic update Monday. “In Canada, the correction got under way much later and lasted nowhere as long.”

Mr. Pinsonneault said “prudent lending practices” in Canada prevented the housing market from falling as hard as its American counterpart, and pointed out that Canada's crisis was a side-effect of its recession rather than its cause.

Here are four ways the markets have differed:

Duration of slowdown

The Canadian market began to slide in October, 2008, while the American slump has lasted 2 1/2 years.

“People wishing to sell their homes either cut their asking price or quite simply took their property off the market,” he said of the Canadian market. “Lower interest rates, lower home prices and renewed consumer confidence led to a quick recovery in sales, so much so that as early as last May, these had surpassed pre-recession levels.

Price declines

According to Teranet, Canadian home prices fell 8.9 per cent from their August, 2008, highs to their recessionary lows eight months later. In the U.S., the S&P/Case Shiller index shows prices slid 33 per cent in 33 months.

Delinquency rates

Canadian banks have seen delinquency rates climb to 0.4 per cent, compared to the 0.65 per cent high reached in 1992. The number is far greater in the U.S., at 3.67 per cent.

Consumer spending

When home prices are under pressure, consumers tend to reel in the spending.

“According to Statistics Canada, from the end of Q3 2008 to mid-2009, the value of household real estate wealth sagged only 1.1 per cent,” he said. “The impact of this impoverishment on consumer spending has been negligible.”

In the U.S., the value of household real estate wealth dropped 18.2 per cent. The Federal Reserve estimates that for each dollar lost in housing wealth, consumer spending pulls back up to 15 cents.

Steve Ladurantaye

---

---

 Give yourself some credit

Don't expect rubber-stamped mortgage approvals anymore

Helen Morris, National Post 

Whether you are planning to move from an existing home or are stepping into the property market for the first time, and unless you have a substantial supply of cash, you will likely require a mortgage.

Interest rates may be at historic lows but with uncertain and changing market conditions, lenders want to be doubly sure that borrowers can repay a mortgage. This has led to lenders placing more stringent conditions upon borrowers and demanding more detailed and verifiable proof of income and ability to pay.

A borrower's income, expenses, credit history and down payment are all considered when assessing whether they qualify for a mortgage.

"Prior to eight months ago, for a standard salary individual, I could do the mortgage on a job letter," says Jeff Mayer, a mortgage agent with the Mayer Group, part of the mortgage brokerage firm Mortgage Intelligence. "Now you need a job letter ... then they want a pay stub...and a lot of times they'll ask for two paystubs, then they're going to want either a T-4 or a notice of assessment. The bank wants to make sure that you can afford the mortgage. It's tough love; they want to make sure that you're going to stay in your house."

If you work overtime it is essential to check with the lender if this income can be counted towards your mortgage qualification.

"In a lot of situations, with unemployment rising, there is not as much overtime," says Gary Siegle, a regional manager with the Invis mortgage brokerage firm. "Lenders are looking at that a little bit more carefully."

Because of increased default rates in some communities, some lenders will now only consider a base salary when evaluating a mortgage application.

If you have a stable job, a decent-sized deposit and a good credit score, putting in the hard work at the application stage can secure you a good deal.

"With prices having softened due to the recession, housing has never been more affordable," Mr. Siegle says. "It is a little more difficult to qualify when it comes to showing your income and proving different parts of [it], but it's also much easier to qualify on the numbers because house prices are down and mortgage rates are on sale, really."

However, mortgage qualification has become rather more testing for those with lower credit scores, smaller deposits or irregular income.

"Lower credit scores have become more difficult to get traditional financing for. You can still quite often get a mortgage but it's just going to cost more," Mr. Siegle says. "Those with very poor credit probably have much more difficulty today. If you've got bad credit and haven't been proven to be able to manage it, maybe you need to get things fixed up before you get a mortgage."

It has also become a lot tougher for self-employed individuals to get mortgage financing, Mr. Mayer says. Lenders are still allowing self-employed applicants to state their own income levels but the income stated must be deemed reasonable based on the size and type of business.

Many lenders, Mr. Siegle says, are demanding extensive documentary evidence from self-employed applicants and even then, lenders can refuse to provide a mortgage if they believe that disparities between taxable and real income are not reasonable.

It is not just borrowers buying their own homes who are facing tougher lending criteria.

For buyers of rental properties, Mr. Siegle says, lenders have become less generous when calculating how much rental income can be used to qualify a mortgage. Conventional lenders used to include up to 80% of the rental income when calculating how much homebuyers could borrow. However, due to a higher risk of default, now he says some lenders are including only 50% to 70% of the rental income.

 

---

---

 

---

 

---

Canada's main purvey of reverse mortgages is now a chartered bank.

HOMEQ Corporation (TSX: HEQ) has announced  its operating subsidiary, Canadian Home Income Plan Corporation [CHIP], has received its Letters Patent and Order to Commence as a federally regulated Schedule I bank from the Minister of Finance.

Effective today,Canada's newest chartered bank is called HomEquity Bank (Banque HomEquity) and has immediate access to retail deposits sourced through deposit brokers.

CHIP has been the main underwriter of reverse mortgages in Canada for more than 20 years. HomEquity Bank says it will continue to provide reverse mortgages to homeowners aged 60 or older under the CHIP Home Income Plan brand.

President and CEO Steven Ranson says CHIP's continuance as a bank is "part of a strategic initiative that allows access to additional cost-effective and reliable sources of funding, which will directly enhance our ability to offer competitively positioned products and services."

Ranson says seniors will benefit from lower interest rates on reverse mortgages through HomEquity Bank's ability to access retail deposits, diversifying the bank's sources of funding and lowering its cost of borrowing. With reverse mortgage interest rates at an all-time low, in anticipation of becoming a bank, rates were recently further reduced by up to 1% to as low as 4.95%.

Senior vice president Greg Bandler says reverse mortgages have no income, credit or health qualifications. Unlike traditional loans, borrowers don't have to service the interest or repay the principal for as long as they own their home and are living in it.  "The seniors market is the fastest growing segment of the population and we will use our accumulated experience and understanding of Canadian seniors and their financial needs to provide even more flexible solutions," Bandler said.

 

Read more: http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/10/13/xxxx.aspx#ixzz0Ty0OjBCo
The New Financial Post Stock Market Challenge starts in October. You could WIN your share of $60,000 in prizing. Register NOW

 

 
   

Equifax Canada data reveals 24% jump in Annualized Delinquency Rate

 

Toronto, Aug. 6, 2009 -- Equifax Canada today released the latest consumer credit delinquency data which shows that Canadians continue to fall behind on their credit payments at an ever -increasing rate. The average delinquency rate for Canada rose by approximately 24% over a one-year span from June 30, 2008 to June 30, 2009. The average delinquency rate for all of Canada as of June 30, 2009, was 1.56%, a 3% increase over May 2009.
 
Provincially, June numbers reveal that Nova Scotia continues to have the highest average delinquency rate at 2.09%; Saskatchewan again had the lowest rate at 1.24%. Ontario’s rate was 1.78%.
 
Equifax Canada defines delinquent accounts as credit facilities that have not received a payment for at least 90 days. The average delinquency rate is calculated by comparing the number of delinquent credit facilities to the total number of credit facilities.   Equifax Canada’s experienced team of consultants and analysts compute delinquency rates by analyzing data from Canadian lenders who report to it on a daily basis.
 
On a yearly basis, the average delinquency rates have been rising dramatically in Alberta (32%) and British Columbia (30%), and, on the east coast, Prince Edward Island experienced a 27% increase. The national yearly average rate of increase is approximately 24%.  
 
It is important to note that British Columbia (1.35%) and Alberta (1.46%) continue to have average delinquency rates that are lower than the national average. In Prince Edward Island (2.04%), however, average delinquency rates were higher than the national rate.
 
 
 
 
 
Calgary sees sharpest jump
Urban areas experienced some of the largest jumps in delinquency rates. Five out of the ten cities monitored by Equifax Canada have annual increases in delinquency rates that are higher than the national average:
 
 
June 2009 Delinquency Rate
Year over Year Increase (%)
Calgary
1.36%
35%
Montreal
1.44%
23%
Vancouver
1.21%
27%
Quebec City
0.83%
22%
Edmonton
1.45%
31%
London
1.70%
26%
Hamilton
1.75%
25%
Toronto
2.03%
20%
Canada
1.56%
24%
 
 
With the exception of Prince Edward Island and Quebec City, all provinces and cities monitored by Equifax Canada from May 2009 to June 2009 experienced an increase in their average delinquency rate.
 
Toronto continues to have the highest delinquency rate at 2.03%, even though its yearly increase rate is 20.12%, which is below the national average.
 
This is another in a series of news releases that will feature Equifax Canada’s financial and demographic data, which can help businesses target opportunities and make informed decisions.   If you would like to find out how Equifax Canada can use their unique insights to help you make better decisions for your business, please contact us at 1-800-278-0278 or visit our website at www.equifax.ca.
 
 
 
About Equifax Inc. (www.equifax.com )
Equifax empowers businesses and consumers with information they can trust. A global leader in information solutions, we leverage one of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights that enrich both the performance of businesses and the lives of consumers.
 
Customers have trusted Equifax for over 100 years to deliver innovative solutions with the highest integrity and reliability. Businesses – large and small – rely on us for consumer and business credit intelligence, portfolio management, fraud detection, decisioning technology, marketing tools, and much more. We empower individual consumers to manage their personal credit information, protect their identity, and maximize their financial well-being.
 
Headquartered in Atlanta, Georgia, Equifax Inc. operates throughout the U.S., Canada and 13 other countries in North America, Latin America, and Europe. Equifax is a member of Standard & Poor’s (S&P) 500 Index. Our common stock is traded on the New York Stock Exchange under the symbol EFX.
 
For more information, please contact Craig Hillyer, AVP, Product Management & Innovation , at 416-227-5290 or visit our website at www.equifax.ca.
 
Contact Information
Craig Hillyer
AVP, Product Management & Innovation
416-227-5290
MediaRelationsCanada@equifax.com
INFORM > ENRICH > EMPOWER
Copyright © 2009 Equifax Inc

---

---