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Professional Memberships | What's New At Homeguard Funding
Bank of Canada urged to hike rates after JuneOTTAWA -- With Bay Street convinced the Bank of Canada will maintain
its pledge to wait until July to begin raising interest rates, the
debate now turns to how aggressively the central bank should behave
thereafter.
In the view of a paper prepared for the C.D. Howe Institute, the central bank should act with zeal. If it wants to get ahead of the inflation curve, the bank should raise its benchmark rate by 50 basis points at every scheduled rate announcement until the middle of next year, the paper said. Michael Parkin, an economics professor at the University of Western Ontario and member of the think-tank's monetary policy council, said "steep" increases would be required to make up for keeping the benchmark rate so low for so long. The paper comes a week before the Bank of Canada's next
interest-rate statement, scheduled for March 2 and the same day Mark
Carney, the bank governor, held an annual meeting with leading
private-sector economists in Ottawa. Read More New Mortgage RulesFebruary 16, 2010 - Department of Finance CanadaThe Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians. "Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing." The Government will therefore adjust the rules for government-backed insured mortgages as follows:
"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families." These adjustments to the mortgage insurance guarantee framework are intended
to come into force on April 19, 2010. Wolf says talk of Canada Housing Bubble 'Premature'
By Greg Quinn and
Alexandre Deslongchamps Jan. 11 (Bloomberg) --
Bank of Canada Adviser David Wolf said it’s premature to conclude the country’s
housing market is in a bubble, and indicated policy makers won’t raise interest
rates soon. “It is premature to
talk about a bubble in Canadian housing markets,” Wolf said today in The lowest mortgage rates since the Korean War helped fuel a 67
percent jump in existing home sales in November from their January low, with
the average price up 19 percent from a year earlier to C$337,231 ($326,600).
The Bank of Canada cut its benchmark lending rate to 0.25 percent in April and has
committed to keeping it there through June unless the inflation outlook shifts
to aid a recovery. Refinance now while the rates are still low! We think the Bank of Canada will begin the process of "re-normalizing" interest rates in the second half of the year. That means we could see the Bank's overnight rate move up a full percentage point - perhaps 25 basis points at a time. That means five-year mortgage rates and long-term interest rates could move up by anywhere from 35 to 50 basis points by the end of next year. Domestically low interest rates are working, particularly for car sales and the real estate sector, but the global picture is still a major constraint on the Canadian economy. Diana Petramala, Economist - TD Financial Group Unlike the Bank we put slightly more weight on the downside risks associated with a mild U.S. recovery coupled with a strengthening Canadian dollar. As such, the Bank's projection for 3.0% growth in 2010 and 3.3% in 2011 is still slightly more optimistic than our forecast for growth of 2.7% and 3.0% respectively. Our forecast is consistent with an output gap that finally closes - and with inflation reaching the Bank of Canada's 2.0% target - in the second quarter of 2012, two quarters later than the Bank of Canada's projection. As such, we believe that the Bank of Canada will stay put past its conditional commitment of June 2010, and the first rate hike will not come until the fourth quarter of next year. Helmut Pastrick, Economist - Central 1 Credit Union Today's record-low rates will soon increase and that itself will have a dampening effect on real estate. CIBC World Markets in its Economic Insights report estimates that less than 4% of households are vulnerable to a rate shock. That compares with the 5.9% prediction by the central bank in its latest Financial System Review. "Make no mistake, Canada is not doomed to see a U.S.-style housing and mortgage blow-up," says CIBC Chief Economist Avery Shenfeld. "The result is that the number of Canadians truly at risk could be substantially less than the (Bank of Canada's) estimate." Activity in Canada's housing market is back to near record levels, helping pull the economy out of recession. Interest rates at historic low levels have fuelled mortgage lending and led to fears the bubble may burst once rates start rising, leaving many heavily in debt. The household debt-to-income ratio is at all-time highs above 140% prompting Bank of Canada Governor Mark Carney to urge caution from both consumers and lenders. CIBC says the central bank isn't taking into account several key facts that will help cushion Canadian consumers from higher interest rates, which may rise by three percentage points by the end of 2011, according to economists' forecasts. The report says many homeowners have built up equity in their houses and therefore could downsize their homes if they got into trouble. Out of five million households, only 350,000 have a mortgage bigger than 80% of the value of the house. Many have also opted for higher payments than necessary to pay down debt more quickly, which could be stopped, CIBC said. Also, historically Canadians have switched quickly into fixed-rate mortgages once rates begin rising and that's likely to happen again. The Bank of Canada is also not taking into account the improved health of the economy, the report said. "The logic here is obvious," said Benjamin Tal, CIBC senior economist. "Interest rates rise when the economy recovers, and the benefits to employment and incomes of an improving economy easily offset the sting of higher interest rates on debt service costs." In an interview with CTV Question Period, to be aired next week, Finance Minister Jim Flaherty says the measures will be taken if there's evidence of excessive demand in the housing market. Flaherty says that the new measures would target consumers "who are taking on obligations that they will not be able to handle in the future when the interest rates do rise." He says the likely measures the government will take is to increase the size of the down payment from five per cent "to a higher figure" and to reduce the amortization period "from a maximum of 35 years to something less." Those measures would increase the monthly payments, making it more difficult for some people to take on a mortgage and purchase a home, without having to increase the interest rate. Last week, the central bank warned that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements. By Alexandre Deslongchamps Dec. 15 (Bloomberg) -- Canadian home resales rose to a record 46,450 units in November, as the housing market helped to pull the economy out of recession, a realtor group said. Seasonally adjusted sales in November climbed 67 percent from a year earlier, the Canadian Real Estate Association said in a statement. “The Canadian housing market remains on fire as the combination of low mortgage rates and still favorable buying conditions continues to spur buying activity,” Millan Mulraine, an economist with TD Securities in Toronto, said in a note to clients. The Bank of Canada has predicted growth in housing investment will stay “brisk until early 2010,” and then slow as pent-up demand is satisfied and affordability declines. The bank lowered its benchmark lending rate to a record 0.25 percent in April to spur domestic demand and pledged to leave it there through June unless the inflation outlook changes. Canada’s five-year mortgage rate was 5.84 percent for most of November and fell to 5.59 percent by the end of the month, near the 58-year low of 5.25 percent set in April, according to Bank of Canada data. The rebound has prompted some analysts, including Gluskin Sheff & Associates Inc.’s David A. Rosenberg, to question whether a bubble is forming in the housing market. ‘Next Closest Thing’ “Housing values are anywhere between 15 percent and 35 percent above levels we would label as being consistent with the fundamentals,” Rosenberg said in a report before today’s report. “If being 15 percent to 35 percent overvalued isn’t a bubble, then it’s the next closest thing.” The average nationwide price rose 19 percent from last year to C$337,231 ($317,700), the association said in the statement. Seasonally adjusted listings fell 4.8 percent to 79,953 in November from a year ago. Without adjusting for seasonality, home sales rose to 36,383 units in November, up 73 percent from a year earlier, CREA said. “The rebound in resale housing activity led the overall Canadian economy out of recession,” CREA President Dale Ripplinger said in the statement. "There's a very good chance long-term rates will head up before then," Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada. He warned new homeowners with variable-rate mortgages not to be influenced by the central bank's neutral statements on rates on Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting. Read the "fine print" and he believes it's likely three-year and five-year mortgage rates will be higher before July 2010. Mr. Jestin does not foresee a double-dip recession. "Those who expect renewed recession next spring will be proved wrong." For North America, "2010 is a year we fill in the hole we dug for ourselves in one of the most vicious recessions in our lives." But the global economy will grow at a "slower rate than we'd consider normal a few years ago. We believe expansion won't be that strong in 2011 so we don't see rates continuing up in 2011." Christopher Probyn, managing director and chief economist for State Street Global Advisors, expects the U.S. Federal Reserve will raise interest rates by 0.75% to 1.5% in the second half of 2010. However, he said inflation may run surprisingly low so the Fed could "be on hold much longer than people anticipate." The 2008-2009 period was by far the worst economy since the International Monetary Fund started collecting data in 1970. "For the first time, there was a contraction in the global economy." Growth in world gross domestic product fell from over 5% in 2007 to 3% in 2008 but went to -2.5% in 2009. The low was the first quarter of 2009, when the economy contracted at a rate of 6% annualized. But it was flat in the second quarter and returned to positive growth in the third, "so throughout 2009 there has been progressive improvement." Mr. Probyn foresees a sustained but "rather gradual" recovery, with GDP expanding 2.5% in 2010. Last week's favorable employment report suggests the next stage in recovery may already have arrived. "Maybe we're very close to achieving stability in the labor market," Mr. Probyn said. Like Mr. Jestin, he doesn't foresee a double-dip recession in 2010. He said the recovery is more likely to be U-shaped, with some bouncing along the bottom, than the instant rebound of a Vshaped comeback. Read more Starts rose slightly to 158,500 units, on a seasonally adjusted basis, up from 157,400 in October as single-home construction outweighed a drop in multiple home activity, Canada Mortgage and Housing Corp. said Tuesday. “The improvement in housing starts continued in November,” said Bob Dugan, CMHC's chief economist. The results were slightly less than the 165,000 starts economists had expected. Still, they're running at a much stronger level than in April, when they sunk to the 118,500 mark. Record low interest rates are fuelling a rebound in Canada's real-estate market, spurring rising prices and a flurry of buying activity. The Bank of Canada will provide its current view of lending rates and the economy today at 9 a.m. Eastern time. More builders have plans in the works, a report showed yesterday. Building permits jumped 18 per cent in October to the highest value in 13 months, Statistics Canada said yesterday. Multiple starts eased in November, CMHC said, to 71,300 units from 72,500 units a month earlier. Single starts rose 3.4 per cent to 69,800 units. The annual rate of urban starts has risen the most in Quebec, at 10 per cent, followed by Atlantic Canada. Read More GTA real estate market soaring In the first two weeks of October, Greater Toronto REALTORS® reported 3,631 sales, a 34 per cent increase compared to the same period a year ago. The average price of GTA homes sold during this timeframe also grew, by 17 per cent, to $414,479. Condominium sales increased 23 per cent to 857 transactions, with an average price of $292,439, up 12 per cent year over year. The average price increased most significantly in the City of Toronto while the 905 Region experienced the strongest sales volumes. In the City of Toronto the average price climbed to $455,001, a 21 per cent increase from mid-October last year. The number of sales was up 31 per cent compared to the same period, reaching a total of 1,489 transactions. Condominium sales in Toronto increased 17 per cent from a year ago, to 589 transactions. They sold at an average price of $318,356, up 15 per cent from a year ago. In the 905 Region sales activity soared to a 37 per cent increase over the first half of October 2008, totaling 2,142 transactions. The average price of a 905 Region home was $386,311, up 14 per cent from a year ago. Condominium transactions increased 40 per cent from a year ago in the 905 Region to 268 sales. They fetched an average price of $235,480, up eight per cent from mid-October last year. Year-to-date sales throughout the GTA have increased six per cent over last year, to a total of 69,964 transactions, putting 2009 on track to finish with some of the best years on record. The average GTA house price has also increased two per cent year-to-date, to $389,697. Given that a global recession resulted in a significant decline in sales activity at this time a year ago, it’s reasonable for this autumn’s sales to be strong by comparison. Substantial price gains though, are particularly noteworthy. I discussed this characteristic of the market with the Toronto Real Estate Board’s Senior Manager of Market Analysis Jason Mercer, who pointed to the factors of supply and demand. “Encouraged by record low interest rates and improved economic outlooks, households in the GTA have become increasingly confident in the home ownership market since the spring. With demand for resale homes rising and listings actually trending lower, it has not been surprising to see an accelerating rate of home price appreciation on average.” According to Mercer, the outlook for the spring housing market is also favourable. “Homeowners will react to the strong price increases experienced in the second half of 2009 and we will see the number of listings increase in 2010. I expect to see the average resale price continue to grow at a sustainable rate next year as well.” The Bank of Canada said on Tuesday that the "heightened volatility" and "persistent strength" in the Canadian dollar are subduing inflationary pressures and slowing growth. It added that "the current strength in the dollar is expected, over time, to more than fully offset the favourable developments" in the economy since the central bank last published its economic outlook in July. As a result, it reiterated its conditional commitment to keep its key policy rate at a record low 0.25% until the end of June of 2010.
"Following the biggest quarterly improvements on record in the first quarter and continued improvement in the second quarter, the national home affordability level has been restored to pre-housing boom levels," said Robert Hogue, senior economist, RBC. "However, the recuperative phase of the affordability cycle seems to be drawing to a close with housing prices firming up in many parts of the country and mortgage rates no longer trending downward." The RBC Housing Affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a home. During the second quarter of 2009, the RBC Affordability measure at the national level improved modestly across all housing segments, as the benchmark detached bungalow moved down to 39.1 per cent, the standard townhouse down to 31.5 per cent, the standard condo down to 26.9 per cent and the standard two-storey home down to 44.4 per cent respectively. The report found that measures fell at the national level by 0.4 percentage points for standard condominiums and 0.6 percentage points for two-storey homes, detached bungalows and standard townhouses - marking the fifth consecutive quarterly decline in home ownership costs (the lower the measure, the more inexpensive it is to afford a home). "The leveling off of home affordability is not expected to stop the impressive resurgence in the housing market," added Hogue. "Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country." RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 63.4 per cent, Toronto 46.5 per cent, Ottawa 38.6 per cent, Montreal 37.3 per cent and Calgary 35.7 per cent. The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income. Highlights from across Canada: British Columbia: In the second quarter, housing affordability in B.C. eased once again, further extending the downward trend since the start of 2008, although homeownership costs are still significantly above long-term levels. Sales of existing homes surged by more than 125 per cent from their cyclical trough early this year. Market conditions have tightened and there has been some firming of prices. Alberta: The biggest cumulative drop in the history of RBC Affordability measures in Alberta deepened further in the second quarter, falling to levels not seen since before the housing boom. Existing home sales soared by more than 60 per cent between April and July, fully reversing last year's slide. Tightening market conditions should set the stage for some property value appreciation in the near future. Saskatchewan: Affordability has improved considerably in Saskatchewan since early last year, but homeownership costs remain above long-term averages. Regardless, sales of existing homes rebounded smartly, rising by more than 50 per cent since their lows in March. If this trend is sustained, property prices can be expected to eventually heat up as well. Manitoba: The notable easing of homeownership costs in the past year has fully repaired affordability in Manitoba, compared to historical averages. Resale activity ramped up during spring and summer and property prices generally maintained their steady upward trend, supported by relatively tight market conditions. Ontario: Solid improvements in affordability in Ontario have supported a strong upturn in the market in recent months. All Affordability measures are now below historic averages, indicating that homeownership costs are at attractive levels in the province. The general tone of the market is generally positive, but local demand continues to be held back by the tough economic prospects many communities in Ontario continue to face. Quebec: Housing affordability improved once again in the second quarter in Quebec, prolonging a trend that has been ongoing during the past year. Sales of existing homes surged by more than 40 per cent over the cyclical low reached mid-winter. With a more upbeat market sentiment and tightening demand-supply conditions pushing property values upward, the Quebec housing market appears to be back on track. Atlantic Canada: Rebounding from a relatively restrained downturn, housing affordability in Atlantic Canada continues to improve, albeit at a more moderate pace than elsewhere in the country. Affordability measures have declined noticeably since early last year and now stand below long-term averages. Sales of existing homes climbed by more than 18 per cent since January and property values increased modestly. Overall, Atlantic Canada is enjoying relatively attractive affordability levels, which should support housing activity in the period ahead. Bank of Canada expected to keep rates at record low The only item to look for in the pending rate statement, they indicate, is any change in nuance or tone, and possibly further concern about the rise of the Canadian dollar. "The fact that the major economic data has largely evolved in line with the Bank of Canada's forecasts suggests (the central bank) is likely to reiterate its conditional statement to keep the overnight rate at 0.25% until the end of the second quarter of 2010," said Charmaine Buskas, senior economics strategist with TD Securities. "And with no expected change to the overnight rate, all the focus will be on the nuances in the statement. It is likely to be very similar to the July 21 statement." For the record, 21 economists in a Bloomberg News survey anticipate no change in the Bank of Canada rate, nor do the 11 members of the C.D. Howe Institute's monetary policy council. The C.D. Howe said the Bank of Canada should stick to its mid-2010 commitment, adding that growth prospects remain uncertain as council members questioned how sustainable Canadian exports growth abroad will be, with "the dependence of U.S. and Chinese growth on government stimulus being a particular point of concern." Mortgage and Housing Corp. "Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction," CMHC said. Bob Dugan, CMHC's chief economist, said, "Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year. In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen." The Teranet-National Bank National Composite House Price Index, which measures the rate of change of prices for repeat sales of single-family homes in six metropolitan areas, rose 1.5% in June. "The turnaround is consistent with an improvement in market conditions in recent months for the country as a whole -- more homes have been sold and fewer have been coming on the market," the monthly report said. Notably, the trend of falling prices in Western Canada slowed in June as Calgary, Alberta, posted a 0.2% dip from the month before, compared with a month-on-month decline in May of 2.2%. It was Calgary's twelfth consecutive monthly decline. But prices rose for the first time in 11 months in Vancouver, British Columbia. Montreal, Toronto, and Ottawa were also markets that showed a monthly rise, while Halifax, Nova Scotia, declined. The data is broadly in line with the latest statistics from the Canadian Real Estate Association. CREA reported that sales of existing homes posted their biggest year-over-year gain in two years and rose for a sixth straight month in July. Still, Teranet's year-over-year national measure was lower for a sixth straight month, with prices off 6.2%, and down 6.8% from the peak reached in August last year. The Teranet-National index tracks home prices over time for repeat sales, meaning properties with at least two sales are required in the calculations for the index. The report did not provide actual prices. © Thomson Reuters 2009 That is the view emerging following the weekend gathering of the world's leading central bankers in Jackson Hole, Wyo., highlighted by remarks from Ben Bernanke, U.S. Federal Reserve chairman, who warned of the uncertainties ahead, and Jean-Claude Trichet, president of the European Central Bank, who suggested he is in no rush to reverse emergency stimulus measures. "The key message from Jackson Hole was ... that monetary policy is likely to remain ultra-accommodative for the foreseeable future - at least for the next several years," said Julian Jessop, chief international economist at Capital Economics of London. "It seems more likely that there will be no increases in interest rates in any of the major economies over the next 12 to 18 months." Read --- THE CASE AGAINST RISING RATES CRAIG WRIGHT Chief economist, RBC Capital Markets The Canadian economy may be on the mend, but Mr. Wright said it will be some time before it can handle an increase in the benchmark interest rate and therefore the Bank of Canada will likely stick to its conditional pledge to keep the rate on hold until mid-2010. "Eventually, they will have to raise rates, but we think given the deep recession we've had, the slow recovery we expect and contained inflation expectations, the Bank has time on their side," Mr. Wright said. He said the central bank will begin to slowly lift rates in the second half of next year. "We don't think they will have to rush aggressively to move rates higher," he said. "I think it gets a lot more exciting in 2011 in terms of how much they have to raise rates, but that's a long time off." THE CASE FOR RISING RATES STEPHANE MARION Chief economist, National Bank Financial The Bank of Canada will be forced to use its "conditional exit" card and begin to raise interest rates early next year to prevent a rise in inflation expectations as well as long-term interest rates, Mr. Marion said. "The time for tightening is not yet at hand, but June 2010 seems too late," Mr. Marion said. "The day when the condition for the Bank's low-rate commitment is no longer met will probably come before then. We see the first rate hike at its first meeting in 2010." With the economy expected to return to growth this quarter amid a stabilization in credit conditions, Mr. Marion said the central bank would need to begin to reverse the unusually accommodative monetary policy put in place to address the worst credit crisis since the 1930s. The "real" interest rate, which is the nominal interest rate minus inflation, is nearing a negative 2% based on a benchmark policy rate of 0.25% minus a core inflation rate at 1.9%. Mr. Marion said real interest rates under normal economic conditions are usually around 2%. Please click here to read the whole article. The survey - which polled 2,507 recent mortgage consumers - showed brokers tend to fare better among purchasers in the 25 to 34 age range (42 per cent share) and female purchasers (43 per cent share). More than half of the survey respondents said getting the best rate or deal were the most important factors driving their satisfaction when obtaining a mortgage, and consumers were equally satisfied whether they used a broker or went directly to a lender. Other findings from the survey saw that 86 per cent of recent purchasers believe their total housing costs and other monthly payments should not exceed 40 per cent of household income, a generally accepted approach, and 20 per cent reported making a lump sum payment to their mortgage. "Our results confirm what we have seen in previous surveys - when it comes to their mortgages, Canadians are informed and manage their debt prudently," said Francois Blouin, CMHC's director of insurance products and strategic direction. He added Canadians continue to be "optimistic" about homeownership despite the economic downturn. Don't handcuff your mortgage 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 five-year fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04. Click here to read the full article. But in testimony to Congress' Joint Economic Committee, Mr. Bernanke warned that even after a recovery gets under way, economic activity is likely to be subpar. That means businesses will stay cautious about hiring, driving up the United States' unemployment rate and causing “further sizable job losses” in the coming months, he said. The recession, which started in December, 2007, already has snatched a net total of 5.1 million jobs. The unemployment rate “could remain high for a time, even after economic growth resumes,” Mr. Bernanke said. Even with all the cautionary notes, the Fed chief offered a far less dour assessment of the economy. “We continue to expect economic activity to bottom out, then to turn up later this year,” he told lawmakers. Recent data suggest the recession may be loosening its firm grip on the country, Mr. Bernanke said. Read If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis -- the lowest rate in Canadian history. But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago. "What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin." Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low. The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates. Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in. "You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist. John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market. "There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further." He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner. Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit. "If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history." Mortgage rates in Canada, which have plunged by almost 50% in the last year, aren't likely to fall further, said Phil Soper, chief executive of Brookfield Real Estate Services Fund. "Certainly with the Bank of Canada's target rate set at virtually zero, there's very little room," Mr. Soper said Tuesday at a conference in Toronto on Canada's real estate market. The rate is "the lowest it's been in anyone in this room's lifetime." Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4%, Mr. Soper said. That compares with an average posted five-year rate of 7.5% a year ago, according to the Bank of Canada. He added that home prices in Canada aren't likely to rise "sharply" over the next two years. Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15%. "We are approaching almost zero interest rates," at the Bank of Canada, said John Turner, the Toronto-based bank's director of mortgages. "The question becomes, how much upward pressure will there be as we come out of this recession?" The Bank of Canada last month cut its benchmark lending rate to 0.5%, its lowest ever, and said it's preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21. Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association's Multiple Listing Service. Sales of existing homes rose 8.6% from January to 28,669 units. Bank of Montreal senior economist Sal Guatieri predicted that Canada's housing market will decline further this year, without the "crash" experienced in the U.S. But since the federal government revealed the Home Renovation Tax Credit in its budget on Jan. 27, 2009, you're starting to think that maybe you might be able to manage a couple of small jobs. After all, if you keep the renovation budget to $10,000, you'll get $1,350 back — a saving of 13.5 per cent. The tax credit kicks in on expenditures over $1,000, and you won't get any tax relief for what you spend over $10,000. So your tax savings on a $20,000 job will still be $1,350 — or a saving of 6.75 per cent. The variety of expenditures that qualify for the tax credit is wide. Among them:
Just about any job that improves your home or cottage — or any combination of jobs that improves either or both — qualifies for the credit. Buying furniture, a big-screen TV, cleaning your carpets, buying tools or performing regular maintenance on your home won't get you the tax credit, however. Click here to read the entire article. Gross Domestic Product contracted at an annual rate of 3.4 per cent in the fourth quarter, the worst showing since 1991, Statistics Canada reported yesterday. While doing nothing to dilute the pain being felt in every corner of the country's economy, the data support Bank of Canada Governor Mark Carney's contention that record-low interest rates and hundreds of billions in government spending around the world will spark a rebound by the second half of this year. The glimmer of hope comes from the fact that Canada's descent into recession last year was faster and deeper than the two previous economic contractions in the early 1990s and the early 1980s. Read More In his budget released Tuesday, the Finance Minister also backed away from a controversial measure – announced two years ago – to limit the interest deductibility when companies borrow to finance a foreign affiliate. He also said he would move quickly to create a national securities regulator – over the objections of Quebec and Alberta – by the tabling legislation later this year. Read More The package will push Ottawa into the red even sooner than expected and rack up the first annual deficit in 12 years – a hole the Tories don't expect to emerge from for half a decade. The Conservatives say their measures – which focus heavily on putting shovels and hammers to work across Canada immediately – will create 190,000 jobs over the next two years. Finance Minister Jim Flaherty said the measures are necessary to shield Canada from a “synchronized global recession” being felt everywhere. Read More Governments and central banks continue to fire from all directions. In the US, the fed funds rate is already at The Bank of Canada’s 50 basis points rate cut this week was not the last one for this cycle. Look for the Bank But even if the Fed and the Bank of Canada are successful in lowering borrowing rates, you still need to create In the US, the Obama Administration will soon introduce an estimated $875 billion in fiscal stimulus and in And that’s the main reason for the renewed optimism by the Bank of Canada, which now calls for a continual Benjamin Tal Senior Economist The Bank of Canada’s core measure, which eliminates the impact of eight volatile series plus indirect taxes, fell 0.4%, slightly more than the expected 0.3% dip on a not seasonally adjusted basis (and was unchanged on a seasonally adjusted basis) following the strong 0.7% gain recorded in November. The year-over-year core rate held steady at 2.4%. Read More Lenders including Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia, Toronto-Dominion Bank and CIBC are slicing mortgage rates shortly after the Bank of Canada cut its key lending rate to a historic low of 1 per cent. The banks quickly followed suit, passing on the full central bank cut by lowering their prime rates half a percentage point to 3 per cent. Previously, the banks had failed to pass on the full benefit of rate cuts made by the central bank late last year to consumers. Their quick move to follow the Bank of Canada yesterday could be a sign of pressure from the government and customers, and also that borrowing costs may be easing a bit. Read More The central bank's target for the overnight lending rate now stands at 1 per cent – lower than in 1958, when the most-watched policy rate was 1.12 per cent. “The outlook for the global economy has deteriorated since the bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity,” the bank said in its gloomiest statement yet. Canada's major commercial banks, which came under fire in December when they passed on only 50 basis points of the 75-point rate cut made by the central bank, reacted swiftly to its latest move, passing along the full reduction. (There are 100 basis points in a percentage point.) Toronto-Dominion Bank and Bank of Montreal responded by announcing they have cut their prime lending rates by 50 basis points to 3 per cent – and BMO also said it is cutting key mortgage rates by 30 to 50 basis points. Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Nova Scotia and Laurentian Bank of Canada said later in the morning that they, too, have cut their prime rate to 3 per cent from 3.5 per cent. Read More Renovation Tips From Thursday's Globe and Mail January 15, 2009 at 4:00 AM EST OTTAWA — The Harper government has been floating the idea of a tax credit for home renovations - an idea that could deliver significant stimulus for Canada's residential construction industry in the Jan. 27 budget. Deliberations continue as Canada's premiers meet today in Ottawa to put the final touches on a budget request for Prime Minister Stephen Harper - one that sources say will include more cash for employment training, more benefits for the jobless and extra funding for infrastructure. Finance Minister Jim Flaherty, meanwhile, has been conducting his own consultation on the looming budget, expected to deliver up to $30-billion in stimulus to soften an economic downturn. During a closed-door session in Montreal last week, Mr. Flaherty asked participants' opinion on a partly refundable tax credit for renovations. Some economists among the more than 20 attendees criticized the proposal while representatives of the building-trades sector lauded it. Tax credits can be used to reduce the amount of taxes a person owes to the government, but refundable tax credits can benefit filers even if they have no taxes to be paid; in that case, they could get a refund based on the credit. The federal Finance Department looks favourably on stimulus spending that helps builders, in part because so many of their materials are made in Canada. This ensures more benefits of stimulus spending remain in this country than if the money goes to taxpayers in the form of rebates to spur consumption. There's a good chance that consumer spending would leak the benefits of stimulus to foreigners: 50 per cent of durable goods bought in Canada are imported. Read More Central bank to "stress test" for risk |
Updated: Mar 10, 2010
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