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As the market is ever changing Allyson and I have decided to start posting any articles that we find will help our clients navigate all the information circulating out there. Please don't ever hesitate to call us if you have any questions or concerns with your mortgage, we are always available to you. Thanks for letting us serve you! Laura Reaney |
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| New Rules cuff some mortgages to banks |
Monday, May 31, 2010 |
New rules cuff some mortgages to banks Garry Marr, Financial Post
A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgage rules. We are already seeing the impact of the changes that came into effect on April 19, but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it's easier to qualify for them. On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat. Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago. But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current credit situation. Stay with the same bank and there's no check. "It's definitely a headlock and not a loophole because a loophole you can get out of," says Vince Gaetano, a mortgage broker with Monster Mortgage. There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions. Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today. Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks. "It's not all of them, but a majority of first-time buyers with just 5% down or less won't be able to qualify if they go to another bank," Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate - about 200 basis points lower than the current qualification rate. If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn't meet the test of having 20% equity in their home. Marcel Beaudry, vice-president of ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn't been a huge impact. "There will be a segment of the population tied down by the new rules to their bank," Mr. Beaudry says. |
posted by Laura Reaney at 1:55 pm - 0 comments
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| Carney's big call |
Monday, May 31, 2010 |
Carney's big call Paul Vieira, Financial Post Ottawa -- Bank of Canada governor Mark Carney has had a busy time of it since taking over as the country's central banker 27 months ago, mostly tackling the financial crisis, mapping out the road to recovery and reassuring Canadians that at the end of the day the bank's extraordinary policies would work. The one thing he has yet to do during his term, however, is raise interest rates. That might be about to change on Tuesday. If he does pull the trigger - and that is what most analysts expect - it won't be after grappling with competing forces that convey two starkly different messages about the economic outlook. "We are at point where it is a tug of war between structural issues that are facing the eurozone and a very strong economic cyclical backdrop," says Stéfane Marion, chief economist at National Bank Financial. Weighing on the governor are the economic data, which call out for a rate hike - as much as 50 basis points, some reckon. The data have been consistently strong and surprising to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target. The sterling fundamentals prompted the central bank last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July, leading traders to price in a nearly 100% chance of a rate hike on June 1. That was until sovereign debt worries exploded in Europe, once Greece formally asked for international help days after the last Bank of Canada rate decision. That sparked an across-the-board retreat in global equity markets, down 9.3% since the beginning of May, as traders sold stocks and poured into risk-averse U.S. treasuries and other government securities on fears that another credit crunch was at hand. Mr. Carney is likely aware of this better than most, given his capital markets background from Goldman Sachs. The most worrying sign on Mr. Carney's radar screen might be the small but steady increases in the cost of borrowing among banks, a signal European lenders are finding it tough to access cash from their peers on concern over how much Greek, Portuguese and Spanish debt they hold. In the end, the consensus is Mr. Carney is leaning toward a rate hike - a modest one, though, of 25 basis points. The thinking is, an ounce of prevention now is worth a pound of cure later. "We can't look at things in a vacuum, because there are so many other factors besides Europe's issues" says Jonathan Basile, an economist with Credit Suisse in New York who closely watches Canadian markets. "The truth is the macroeconomic evidence is outweighing the financial risks right now." The last time the Bank of Canada raised its benchmark rate was in July 2007, by 25 basis points to 4.5%. At the time, former governor David Dodge said the economy was operating above its production potential, and inflation was likely to stay above its 2% inflation target for longer than forecast. Little did Mr. Dodge know that the U.S. subprime crisis would morph into the worst financial crisis since the Great Depression, roiling markets and economies around the world. This is why Europe's recent fiscal woes have triggered a case of nerves, and might prompt Mr. Carney to rethink any rate move. "The Bank of Canada wants to raise rates, but it doesn't have a crystal ball," CIBC World Markets said in a note to clients. "It can't be certain that the recent financial market downturn isn't going to morph into something more severe that would make a rate hike look out of place." There's another school of thought, though, that suggests markets have overreacted to a regional problem. In this context, it is key to remember the Bank of Canada didn't expect the eurozone to contribute much to global growth, envisaging only 1.2% expansion this year and 1.6% in 2011. "The European picture will calm down and people will realize it is not as dramatic as being played out," says Carlos Leitao, chief economist at Laurentian Bank Securities. Yes, he acknowledges, the debt-ridden southern European economies have tough years ahead. But other countries, led by Germany and France, are going to capitalize on the lower euro and boost their exports to emerging economies and North America, which will help offset the drag from the so-called Club Med nations. Besides Europe, Mr. Carney has other factors to consider. Canada's sovereign debt levels are indeed much better than the industrialized world, as our politicians like to remind us. But the amount of debt held by households, measured as a percentage of disposable income, stood at a historical high of 146% - of which 98% is mortgage related - at the end of 2009, rating agency DBRS estimates. That would put Canadian households ahead of the United States but behind Britain on this measure. A rate hike would signal it might be time to live more modestly and refrain from too much debt-financed consumption (which helped fuel those nasty asset bubbles that central banks may want to pay more attention to in the aftermath of the subprime debacle). Mr. Carney's other challenge is to explain why, and what's ahead. He has come off a period where he provided extraordinary guidance to markets. Don't expect similar language from the governor. If anything, Mr. Marion warns the central bank should refrain from using the type of guidance the U.S. Federal Reserve deployed in 2004, when it signalled a period of "moderate" rate hikes were in the offing. In retrospect, the Fed's use of the word moderate "encouraged more financial excesses," leading to the subprime bust, Mr. Marion says. "Carney doesn't have to be brusque about it. He has the luxury to start slowly, and leave his options open," from pausing should Europe deteriorate to hiking aggressively, by 50 basis points, if conditions warrant. |
posted by Laura Reaney at 1:40 pm - 0 comments
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| Canada won't fall victim to foreclosure wave |
Monday, May 31, 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. |
posted by Laura Reaney at 1:39 pm - 0 comments
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| New rules for rental properties |
Wednesday, April 21, 2010 |
New rules for rental properties could squeeze first-time homebuyers By Derek Scott, The Canadian Press VANCOUVER, B.C. - Buying a house in the hot housing markets of Vancouver, Toronto and other major cities in recent years has been a possible dream for some first-time homebuyers only because many of those houses had suites they could rent out. But new rules coming into effect April 19 will all but wipe out that advantage in the eyes of banks handing out mortgages. "It makes it much more difficult for people with rental properties to qualify for their own mortgage on their personal residence," said Vancouver mortgage specialist Patrick Mulhern. The new regulations are designed to prevent speculation in the market, said Jack Aubrey, of the Canada Mortgage and Housing Corporation. But Vancouver mortgage agent Mike Averbach said the new rules will do little to prevent investors from gambling in the housing market. "They haven't decreased risk," he said. "They're just not allowing you to use the income." Currently, landlords can use 80 per cent of their rental income to offset monthly mortgage payments. That means, if they receive $1,000 per month in rental income, they can use $800 to offset a $1,200 mortgage payment, leaving only $400 to be debt financed. But under the new rule, only 50 per cent of a landlord's rental income will be used. Even then, that money will not be used to offset their monthly mortgage payment. It will be added to their total income, forcing them to qualify for the entire monthly mortgage. For instance, a person earning $100,000 per year in regular income plus $12,000 per year in rental income will have a total income of $106,000 with which to qualify for a mortgage on their own home. Rental income is essential for many of his clients, Averbach said. In cities like Vancouver, where the average home price in February was more than $662,000, rental offset is the only way many people can qualify for a mortgage and the new rules will keep many of his clients in condos rather than houses, he said. "Putting a renter in your basement is not speculative, it's reality," he said. "It helps you pay your mortgage." The rule changes also make it more difficult for people to buy a property separate property to use as a revenue generator. CMHC will no longer offer high-ratio financing on rental property not lived in by the owner. That means someone looking to buy a house as a rental investment will have to come up with a 20-per-cent down payment on the property, as opposed to five per cent before the rules changed. The changes haven't worried groups advocating for tenants. Jeordie Dent, of the Federation of Metro Tenants' Association in Toronto, where vacancy and availability rates have dropped over the last year, said he doesn't see a negative impact on renters. Instead, he said his group welcomes the changes. Dent said too many people become landlords without the financial or intellectual wherewithal to properly manage their properties. "Anything that strengthens mortgage rules, from our perspective, is a good thing." |
posted by Laura Reaney at 3:22 pm - 0 comments
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| common financial terms |
Wednesday, April 21, 2010 |
There are many financial terms that are commonly used in daily discussions, however if we had to define some of them we might be stumped. Here are a few simple definitions Basis Point
One-hundredth of a percentage point. For example, the difference between 5.25% and 5.50% is 25 basis points. Bear Market
A market in which stock prices are falling. The rule of thumb seems to be at least 20 percent. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually accompanies a bear market. *Bull Market
A market in which stock prices are rising for a length of time. Prices need not rise continuously. There can be days, weeks and even months in which prices fall. What matters is the long-term trend. When it comes to people, bullish describes one who is optimistic. Dow Jones Industrial Average (DJIA)
There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities however the DJIA is one of the best known and most widely quoted stock market averages in the media. It contains an average made up of 30 actively traded blue chip stocks spanning many different industries that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing.. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The average is quoted in points rather than dollars. It is price weighted, meaning that a $2 change in a $100 per share stock will have a greater affect than a $2 change in a $20 per share stock. Gross Domestic Product GDP is the value of all goods and services produced in Canada in a calendar year. The gross domestic product includes only final goods and services, not goods and services used to make another product. Changes in the gross domestic product are an indication of economic output. Income Trust
Trusts structured to own debt and equity of an underlying entity, which carries on an active business, or has royalty revenues generated by the assets of an active business. By owning securities or assets of an underlying business, an income trust is structured to distribute cash flows, typically on a monthly basis, from those businesses to unit holders in a tax-efficient manner. The trust structure is typically utilized by mature, stable, sustainable, cash-generating businesses that require a limited amount of maintenance capital expenditures. An income trust is an exchange-traded equity investment that is similar to a common share Index or stock price index
A statistical measure of the state of the stock market, based on the performance of stocks. Examples include the S&P/TSX Composite Index Recession Two consecutive quarters of contraction in the gross domestic product TSX Composite Index
Comprises the majority of market capitalization for Canadian-based, Toronto Stock Exchange listed companies. It is the leading benchmark used to measure the price performance of the broad, Canadian, senior equity market. It was formerly known as the TSE 300 Composite Index |
posted by Laura Reaney at 3:21 pm - 0 comments
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| Bank signals higher interest rates only weeks away |
Wednesday, April 21, 2010 |
Bank signals higher interest rates only weeks away, as dollar soars By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada signalled Tuesday it is poised to start raising interest rates in a matter of weeks, a move that will make borrowing costs higher on everything from car loans to mortgages. Over the last few weeks, Canadians have already felt the impact of expectations that rates were due to rise - most major Canadians banks started hiking fixed-rate mortgage rates by as much as 0.85 per cent. But with the central bank now saying it is prepared to move off its emergency 0.25 per cent overnight rate as early as June 1, the whole menu of variable and short-term rates are being brought into play. "The one that will be affected is the prime lending rate... so the whole gamut will go up when the Bank of Canada raises its rate," said Bank of Montreal economist Michael Gregory. Those include variable-rate mortgages, lines of credit and short-term car loans, he said. The bank is also risking sending the Canadian dollar into the stratosphere by moving significantly and robustly before the U.S. Federal Reserve moves off its own zero per cent interest rate policy. The loonie soared within minutes of the central bank's 9 a.m. ET policy statement, which, while leaving the rate unchanged for now, made no secret of where it is headed. The bank's governing council declared that with the economy and inflation growing faster this year than had been previously thought, there was no need to stay with its "conditional commitment" to leave rates unchanged until the end of the second quarter, or after June 30. "This unconventional policy provided considerable additional stimulus during a period of very weak economic conditions," the council wrote. "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." Hence, the council went on, it was withdrawing the conditional commitment. The bank also said it was ending its key emergency lending instrument that helped inject liquidity into money markets during the crisis, which economists called a clear signal about the central bank's future intentions. The dollar rose about 1.5 cents shortly afterwards, breaking through the parity ceiling with the U.S. greenback. It closed up 1.58 cents at 100.12 cents U.S. The currency move suggested that while the market had expected bank governor Mark Carney to signal a tightening bias, it was surprised by the hawkish tone. "Removing the conditional commitment to keep rates on hold until July and ending purchase and resale agreements are as good as cementing a June 1 hike," said economists Derek Holt and Karen Cordes Woods of Scotia Capital in a note to clients. Holt added in an interview that the language from the bank opens the door for a bigger-than-expected hike in June, perhaps by as much as half a point. Not all analysts believe the market is right to anticipate a June hike, however. Some say Carney is still leaving himself some wiggle room to stay at the lower bound until July 20, while others are advising the governor to wait until the Fed acts. "I would keep rates unchanged until the Fed moves, because otherwise you create this problem on the Canadian dollar," said Brian Bethune, chief economist with IHS Global Insight. A strong loonie is regarded as a brake on economic growth because it makes the price of Canadian exports less competitive in foreign markets. In the statement, the central bank conceded the point, listing the "persistent strength of the Canadian dollar," along with poor productivity and low U.S. demand as "significant drags" on the Canadian economy. But economists suggested the bank's language suggests it is prepared to live with a strong loonie. Even so, economists that favoured a rate hike said the bank can only get so far ahead of the Fed. They note the Canadian bank has flown solo twice before in the past two decades, only to have to subsequently pull back. "The need for emergency rates have passed but we still have a need for low rates," Holt explained. C.D. Howe's monetary policy council, a sampling of nine economists, sees the bank's policy rate rising to 2.5 per cent by the spring of 2011. That is a significant hike from the current level, but it is still below what would be considered normal and only slightly above the rate of inflation. While the tone on interest rates was hawkish, the bank's view on the economy was only mildly more rosy. It upgraded this year's growth to 3.7 per cent, from a previous prediction of 2.9 per cent, but it lowered its forecast for 2011 to 3.1 per cent, and it believes 2012 will only bring a 1.9 per cent advance. It now expects the economy to return to full capacity in the spring of 2011, a full quarter before the previous estimate it made in January. The bank did raise the temperature, slightly, on inflation. It said core prices have been firmer than projected, but that they were expected to ease slightly in the second quarter of this year and remain near the bank's two per cent target over the next two years. Total headline inflation, which includes volatile items such as gasoline prices, was expected to be higher than two per cent this year, but returning to target in the second half of 2011. |
posted by Laura Reaney at 3:20 pm - 0 comments
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| Bank hikes in next 19 months ...predictions..... |
Friday, April 16, 2010 |
April 10, 2010 Banks See A 2.75% Rate Hike In 19 Months Economists at the Big 5 banks worked overtime this week, polishing their rate forecasts and fielding calls from reporters. It seemed every major media outlet in the country ran stories on where interest rates are headed. Here’s what the “prophets’” predict rates will do by the end of next year (2011): That’s an average estimated increase of 2.75% in the overnight rate (rounded to the nearest 1/4%). This number will certainly bring doubters out of the woodwork, as some still fear slow growth and/or a double-dip recession. As for the first rate change, the banks forecast that rates will start their climb by July. Specifically: - BMO: July 20
- CIBC: July 20
- Scotia: June 1
- TD: July 20
- RBC: July 20 (“Although, markets are becoming
anxious about a June increase,” RBC says.)
The next question is: Once rates start rising, how fast will they run up? According to BMO, “The Bank (of Canada) probably has a predilection to raise policy rates expeditiously.” The average economist polled by Bloomberg expects a one percentage point increase by the end of this year. In turn, that suggests a 175 bps hike in 2011…if the bank consensus is correct. If prime rate jumps 2.75%, that could mean a 35% payment increase for certain floating-rate mortgage holders. (e.g., payments could jump $284 on a regular $200,000, 1.75% variable mortgage amortized over 25-years). This assumes the banks don’t “give back” the 1/4% they withheld when prime rate dropped 3/4 of a percentage point in December 2008. As for fixed mortgage rates, the bond market will plot their destiny as usual. CIBC economist, Avery Shenfeld, suggests bond yields could run up more than some people expect—at least initially: “Once the first hike is in place, the bond market is likely to become even more aggressive in its expectations for subsequent moves. The first hike could also prompt more Canadians to fix their variable rate mortgages, putting even more pressure on five-year yields. Still, hikes in 2011 won’t end up being as steep as what the bond market will, at some point, fear.” The big banks see the 5-year bond yield hitting 3.75% to 4.10% one year from now. Based on historical spreads, that would put typical discounted 5-year fixed mortgage rates at roughly 5.13% in 12 months—an 88 basis point increase from today. ____________________________________________________ Sidebar: As always, take any rate prediction with a dose of scepticism. Rate forecasters attempt to see through very muddy waters and the economy can change considerably between now and the end of this year. |
posted by Laura Reaney at 10:37 am - 0 comments
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| Anticipation of Bank of Canada rate hikes are fueling mortgage increases |
Friday, April 16, 2010 |
Anticipation of Bank of Canada rate hikes are fuelling mortgage increases, high dollar By Julian Beltrame, The Canadian Press OTTAWA — The Bank of Canada has yet to officially start hiking interests rates, but already Canadians are feeling the impact of higher borrowing costs. Analysts say expectations the central bank will boost rates June 1 at the earliest and July 20 at the latest have boosted the Canadian loonie and pushed the big banks to twice raise mortgage rates in the past two weeks. The loonie has been steadily gaining ground for weeks and Wednesday closed above parity, at 100.08 cents U.S., for the first time in almost two years.But economists warn there is danger in the Bank of Canada moving ahead of the U.S. Federal Reserve on hiking rates, even if it is justified by the fundamentals. “The Bank of Canada is basically going to fly solo,” said Benjamin Tal, an economist with CIBC World Markets.“The markets are already discounting 75, maybe 100 basis points and it’s already in the price of the dollar.” Canada’s economy has sprinted forward following last year’s recession to record a five per cent advance in the fourth quarter of 2009, and expectations are the first quarter will show an even quicker pace. More importantly, Canada has recouped nearly half of the total job losses of the downturn, while the United States still struggles with the disappearance of 8.5 million jobs, a decimated housing market and a financial sector still hobbled by an excessive overhang of debt. In testimony to Congress on Wednesday, Fed chair Ben Bernanke suggested it will be some time before the U.S. starts raising the policy rate from the current near-zero emergency stance. “The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke told a Congressional committee. Economists say moving ahead of the U.S. — which is all but certain — could have some beneficial effects, such as cooling what many believe is an overheated housing market by making mortgage costs higher. But the bigger problem is that higher rates attract more foreign capital into Canada and gives an additional lift to the loonie, something few, except for possibly cross-border shoppers, want. Finance Minister Jim Flaherty said Wednesday that the strong loonie is a reflection of the relative strength of the Canadian and U.S. economies. While true, said Liberal critic John McCallum, a former bank economist, there is a risk in raising rates while the U.S. keeps theirs low. “Then our dollar could get even stronger and that would be really bad for exports and jobs,” he said. While some analysts have speculated that Canada’s manufacturing sector is no longer as exposed by a strong currency as a decade ago, few disagree with the notion that currency appreciation is a net negative for the economy. This week’s trade numbers showed the rebound is almost all due to energy, while the goods side registered a $4.4 billion deficit in February. Carl Weinberg of U.S.-based High Frequency Economists was not impressed. “You might think that the largest supplier of crude oil to the United States would be able to run a bigger surplus,” said Weinberg. “Blame the strong loonie for a lot of the woes of exporters, especially since so much of what Canada sells is priced in U.S. dollars.” Given the signals the bank has sent, it would take a major reversal in the recent spate of good economic news, as well as easing inflationary pressures, to stay the central bank’s hand on rates. However, Sheryl King, chief economist with Merrill Lynch in Canada, says she does not believe governor Mark Carney will get too ahead of the curve and will keep the increases modest. She says the economy may be hot now, but she sees it cooling in the second half of the year, and Carney putting on his brakes until the Fed shows signs of joining him on the policy tightening track. http://news.therecord.com/Business/article/698287 |
posted by Laura Reaney at 10:35 am - 0 comments
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| Housing may have peaked |
Friday, April 16, 2010 |
Housing may have peaked Gary Marr, Financial Post The spring homebuying season has reached a fever pitch with a record number of "for sale" signs being placed on Canadian lawns for the month of March. But there are indications the market has reached the peak with nowhere to go but down. The Canadian Real Estate Association said yesterday that 97,663 properties were put on market last month, a 25% increase from the number of new listings in March a year ago. Since the beginning of the new year, there have been 233,402 homes put on the market, the best-ever first quarter for new listings. With demand still strong, sales continue to soar. There were 49,256 units that traded hands in March, the second-best March on record, and a 40.8% rise from a year earlier. Yet despite the huge increase in year-over-year sales, March was the fifth straight month that the percentage increase has declined. In some markets, sales are already falling. Seasonally adjusted sales in British Columbia dropped 17.8% from a quarter earlier and Alberta sales dropped 9.7% during the same period. Phil Soper, chief executive of Royal LePage Real Estate Services, said affordability and consumer confidence drive the market. "The former has not eroded enough to affect the market and the latter has improved considerably," he said. Still, he concedes the spring market may be the top for real estate. "It will be the top from an industry-volume perspective. It's the last hurrah for the pent-up demand in the market," said Mr. Soper, who expects prices to continue to rise, but more slowly. Even with the increase in the supply of homes, sales are expected to remain strong this spring as homebuyers scramble before tougher mortgage rules, rising interest rates and the new HST in Ontario and British Columbia come into play - all by July 1. Many in the industry concede, however, the spring market could be the last gasp before housing sales start to drop, along with prices. Few, however, are predicting a U.S.-style crash. "If this isn't the top, we are very close to it in terms of sale activity and price," said Gregory Klump, chief economist with CREA. Mr. Klump doesn't predict the market will reverse dramatically, but says year-over-year comparisons are going to continue to shrink for sales and prices. Mr. Klump said prices at the high end of the market are going to start driving down because consumers in that segment are trying to beat the clock on all the changes coming. New mortgage rules, which go into effect on April 19, will force consumers to borrow based on the five-year posted rate if they are locking in for a term less than five years. Previously, they could use the actual rate on their contract, meaning they could borrow more. Banks have also raised long-term mortgage rates in the past two weeks, with a five-year, fixed-rate closed mortgage rising from 5.25% to 6.10%. The Bank of Canada is expected to raise its own benchmark rates shortly and that will affect consumers with floating-rate mortgages now based on a prime rate of 2.25%. And the introduction of the harmonized sales tax on July 1 will raise costs for some services associated with buying a house, such as a real estate commission. It is coming only to British Columbia and Ontario, but Toronto and Vancouver are the most expensive real estate markets in the country and skew the national averages. For now, the market still has some wind behind it. "Negotiations still favour sellers during the home-buying process in a number of major Canadian housing markets," said Georges Pahud, CREA's president. "The rise in new listings means that buyers may shop around more before making an offer." |
posted by Laura Reaney at 10:34 am - 0 comments
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| Bank to keep us guessing on rates |
Friday, April 16, 2010 |
| Post Content Bank to keep us guessing on rates Financial Post
OTTAWA -- Traders hope next week's interest-rate decision from the Bank of Canada settles the debate as to whether the central bank's first rate hike in nearly three years comes in June or July. Some observers warn, though, that the central bank might keep people guessing. "The reality may be somewhat messier, with quite a number of viable scenarios, and the most likely outcome [is] that the central bank elects to leave both options open - to be settled by incoming economic data," said Eric Lascelles, chief Canadian strategist at TD Securities. It will be a big week for Mark Carney, the Bank of Canada governor, with the rate statement on Tuesday, followed two days later by the release of the central bank's latest economic outlook, which is bound to incorporate the robust data emerging not just in Canada, but the United States and the rest of the globe. Markets, through bankers' acceptance futures, have priced in a 100% chance that the rate hike comes in July, allowing the central bank to fulfill its conditional commitment to maintain its 0.25% rate until the end of the second quarter. But those same instruments have priced in a 50-50 likelihood of a June increase. Pressure on Mr. Carney to move in June has mounted in recent weeks, especially on news that inflation is stronger than the central bank had forecast, and a sharp upturn in inflation expectations among firms. Core inflation in February surpassed the key 2% mark, while headline inflation remained above forecast. The central bank sets its interest rate to achieve and maintain 2% inflation. The yield on the two-year Canada bond now stands at roughly 1.92%, for a spread of nearly 170 basis points against the Bank of Canada benchmark rate. Yanick Desnoyers, assistant chief economist at National Bank Financial, said history dictates rate hikes emerge once that spread reaches 160 basis points. (Higher yields generally forecast higher inflation down the road.) "How can you justify a yield curve that is calling for rate hikes," said Mr. Desnoyers, who is among those calling for a June move. Still, the consensus among private sector economists is that the Bank of Canada will wait until July. Even though inflation is stronger than expected, analysts note that's likely due to one-off factors such as the Winter Olympics, which will no longer be accounted for in future readings. Further, an early rate hike could spark a sudden surge in the Canadian dollar, as the U.S. Federal Reserve has indicated no plans to raise its policy rate any time soon as inflation in that country remains tepid and unemployment relatively high. "The Canadian dollar has to be a consideration for the Bank of Canada, and is the main reason we think it will wait until July," said Sal Guatieri, senior economist at BMO Capital Markets. Sheryl King, head of Canadian economics strategy at Merrill Lynch Canada, said it would be best if the Bank of Canada began rate hikes in June, and take a "low and slow" approach. One option mentioned – that the central bank waits until July and undertake a 50-basis-point increase at that time – is "crazy talk," she said, as the market would then expect all future hikes to be similar in size and drive up long-term yields in "a heartbeat." Financial Post |
posted by Laura Reaney at 10:33 am - 0 comments
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