Canada First Mortgage

Michael Babad

Globe and Mail Update Published on Wednesday, Jul. 28, 2010 4:44PM EDT Last updated on Wednesday, Jul. 28, 2010 4:51PM

House prices still strong
Canadian house prices rose 1.3 per cent in May from a month earlier, and now stand 4.2 per cent above their pre-recession peak, according to a Teranet-National Bank composite house price index. It marked the 13th straight month of increases and the second that prices rose in each of the six regions it covers. National Bank economist Marc Pinsonneault contrasted that to the real estate market in the United States, where prices are down almost 30 per cent from their peak. In Canada, year over year, the index is up 13.6 per cent. The index differs from the measure used by the Canadian Real Estate Association.

“But we do not believe that acceleration in the Teranet-National Bank index will be sustained,” he said in a research note. “… The number of existing homes sold has declined in each of the three months ending last June, and it did so to a much larger extent than the number of new listings. This heralds a deceleration in home price inflation, especially since a harmonized sales tax (HST) was introduced on July 1 in Ontario and B.C.”

Among the gains:

• Ottawa, 2.3 per cent month over month, 11.4 per cent year over year
• Montreal, 1.8 per cent and 8.5 per cent
• Vancouver, 1.2 per cent and 17.1 per cent
• Calgary, 1.2 per cent and 7.8 per cent
• Toronto, 1.1 per cent and 16 per cent
• Halifax, 0.7 per cent and 5.6 per cent

By MYKE THOMAS, SUNMEDIA

The Bank of Canada raised its key overnight lending rate by 0.25% last week, no doubt setting off another round of confusion about mortgage rates and regulations.

Most people will think interest rates will rise rapidly, which is not always the case, says Peter Kinch, founder of the Peter Kinch Mortgage Team.

“The last time rates moved, we actually saw the long-term rates fall,” says Kinch. “Long-term rates are governed by the bond market, which often assumes, or ’pricesin,’ a rate increase before it happens.

Last time, they assumed a higher than announced rate increase, which caused long-term rates to fall the following day.”

The Bank’s move, which takes its rate to 0.75% and the prime lending rate to 2.75%, had an immediate effect on the variable rate, rising to 2.15% (prime minus 0.6%) but it doesn’t necessarily mean buyers should rush to lock-in their mortgage, says Kim Gibbons, a mortgage broker with Mortgage Intelligence.

“While mortgage holders may be tempted to lock into a fixed-rate mortgage, a closer look reveals that a variable-rate mortgage could save them a lot more money, even if the Bank continues to raise rates,” says Gibbons.

Going with the current variable rate as opposed to a five-year fixed rate can save more than $15,000 in interest payments in those five years, says Mark Herman, a Calgary-based broker with Mortgage Alliance.

“Doing the numbers for a $250,000 mortgage, using the variable rate of 2.15% and 25-year amortization, the monthly payments are $1,076,” says Herman.

“Using a five-year fixed rate of 4.19%, the monthly payments are $1,340, a difference of $264 a month. Over 60 months, a variable will save you $15,840 in interest payments.”

Gibbons, using a five-year fixed rate of 4.29%, says if the Bank of Canada hiked its prime rate by a full percentage point over the next year, borrowers with a $250,000 mortgage with a 25-year amortization would save $17,478 over five years by going with a variable rate, compared to a five-year fixed rate.

“This assumes a scenario in which the Bank of Canada raises its prime rate four times by 0.25 per cent every three months,” says Gibbons. “When I run the numbers with clients, they’re often surprised by what mortgage strategy will save them the most.”

Herman expects fixed rates to continue to go down, but not for long.

“We know rates are eventually going to go up, but I think there will be a short period of time when fixed rates are going to be going down and the variable going up,” he says. “The Bank of Canada will probably (raise its rate) again in September and I expect prime to go to 3% and stay there until the end of the year or longer.”

Developing a mortgage strategy, rather than just diving in, is essential to saving money, says Herman.

“If fixed rates continue to come down and I think they will go below 4% to 3.9%, I would recommend taking a variable at prime minus 0.6 and then have the option of locking into a fixed rate later on as the rates continue to come down,” he says. “In the meantime you’re saving $264 per month on that $250,000 mortgage.”

Financial Post · Friday, Jul. 23, 2010

OTTAWA — Consumer prices in Canada were up one per cent per cent in June compared to a year earlier, Statistics Canada said Friday.

The results are in line with expectations, as economists were expecting annual inflation of one per cent in June. The compares to 1.4 per cent in May.

Core inflation, which strips out volatile items such as energy products and certain foods, was at 1.7 per cent last month. In May, the core inflation rate was 1.8 per cent and economists expected that to rise to 1.9 per cent in June.

The Bank of Canada, which aims for annual inflation of about two per cent, raised its target interest rate for second time in two months this week by a quarter-point to 0.75 per cent.

Overall annual inflation has not been as high as two per cent since November 2008. Core inflation, which the central bank deems a better indicator of underlying trends, was two per cent or more in January and February of this year, and has remained near that level since.
Read more: http://www.financialpost.com/news/Consumer+prices+rise+June+StatsCan/3313201/story.html#ixzz0uVMH43zp

Owe Canada. It’s not our anthem any more.

Crazy borrowings on lines of credit? History. The gotta-buy-now housing market? Toast. Credit card debt? Slowing down, too.

Many months ago, it was fashionable to question how Canada’s profligate borrowers would hold up when interest rates began to rise. Today, after the Bank of Canada raised its trendsetting overnight rate for the second time in the past two months, we’re starting to see the answer.

In virtually all forms of borrowing, the rate of increase has slowed drastically. “I’ve been saying for a while that this is the most logical display of behaviour on the part of the consumer that I’ve seen in a long time,” said Benjamin Tal, senior economist at CIBC World Markets and an expert on household finances.

Mr. Tal’s take is that consumers ramped up their borrowing to take advantage of the historically low rates that were used by central banks around the world to fight the recession and global financial crisis. The likelihood of a rate rebound was widely discussed, and people took notice. When he looked at borrowing data for the first quarter of 2010, the rate of growth was down across the board.

“What we need to see now is a continuation of the softening in credit in order for people not to get into trouble,” Mr. Tal said.

This appears to be happening. The latest mortgage data has prompted him to forecast growth in outstanding mortgage debt of 3 to 4 per cent in 2011, down from 10 to 12 per cent in the first half of this year. He said growth in line-of-credit balances has fallen to about 7 per cent on an annual basis from 30 per cent two years ago. As for credit cards, growth in balances has fallen to 3 to 4 per cent from 12 to 14 per cent two years ago.

“All credit vehicles are slowing significantly,” Mr. Tal said.

This responsible attitude toward debt came through as well in the results of a survey by Genworth Financial Canada, which competes with Canada Mortgage and Housing Corp. to provide mortgage default insurance. It indicates that one-quarter of homeowners with mortgages have either made a lump-sum payment against principal or accelerated their payments in the past year.

There’s no better way to prepare yourself for the impact of rising interest rates on your mortgage than to make a lump-sum payment or speed up your pace of repayment.

In a way, the Bank of Canada’s latest move to raise rates is a gift to people with debts. They’ll have to pay a bit more in interest on their lines of credit, variable-rate mortgages and floating rate loans, but the increase is mild and the pace of further increases will be muted. It could be a lot worse.

In fact, lots of market watchers thought it would be worse last year when they looked ahead to 2010. They saw all the government stimulus pumped into the economy during the recession producing a significant uptick in inflation, which in turn would send interest rates marching higher.

Now, there’s talk of deflation, or falling prices. The Bank of Canada’s not outwardly concerned about this, but it did throw a mention into its latest statement on rates about how it expects economic growth to slow next year and in 2012 from the 3.5-per-cent growth of 2010. Back in April, the bank expected 3.7-per-cent growth this year.

Borrowers would undoubtedly argue in favour of keeping rates steady at current levels, but that promotes an unhelpful complacency. Rates are still close to the unsustainable emergency lows they hit in the financial crisis and recession. By increasing them by a quarter-point in June and then another quarter-point on Tuesday, the Bank has signalled to people that it’s time to take control of their debts.

Lots of people have obviously got the message already, and good for them. But let’s remember that less borrowing means less of the consumer spending that’s essential to economic growth.

Mr. Tal said lower levels of consumer spending are one of the reasons why his firm sees growth slowing, just as the Bank of Canada does. But he still thinks both the economy and borrowers are benefiting from the central bank’s early action on rates.

“By October, I think we’ll have reached a point where interest rates have gone up enough to slow down economic momentum without the risk of punishing the consumer too much.”

That seems fair, given how much less Owe Canada’s being sung these days. http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/canadians-back-away-from-borrowing/article1646613/

Kim Covert, Financial Post · Friday, Jul. 16, 2010

OTTAWA — Two major announcements bookending the coming week’s economic news will provide a clearer snapshot of the state of the Canadian recovery.

The Bank of Canada will be first up when it makes its monthly interest rate announcement on Tuesday. But that will come before Friday’s critical report from Statistics Canada on the country’s consumer price index for June.

The central bank raised its benchmark index rate in June by 25 basis points, and at the time expectations were that the rate would increase steadily. But in the weeks since that announcement concerns about a double-dip recession have been growing, increasing speculation that the bank would hold the course. Consensus expectation is for a 25 basis-point increase on Tuesday, bringing the rate to 0.75%, though analysts disagree on what will happen as the year unfolds.

“While both domestic and global conditions have deteriorated modestly since June, the underlying momentum in the Canadian economy warrants the continued normalization of policy in the near term,” wrote strategist David Tulk of TD Securities in a note to investors. “When we look further into the future, the impact of financial market turmoil and decelerating economic growth is more difficult to quantify. In recognition of this uncertainty, we have scaled back our forecast for rate increases, and now look for a year-end overnight rate of 1.25% and a rate of 2.50% by the end of 2011.”

Economist Michael Gregory of BMO Economics, who also calls for a another 25 basis point increase, said he expects the bank to make one more increase of that size in September then hold the line for the remainder of the year. CIBC is calling for the rate to reach 1.25% in October, followed by a pause lasting at least two quarters.

The Bank of Canada’s rate announcement will come ahead of the key June inflation report on Friday. The consensus expectation is for 0.1% month-over-month drop in the consumer price index on lower gasoline prices, while the core year-over-year inflation rate will be unchanged at 1.8%, below the Bank of Canada’s target of two%.

CIBC economist Krishen Rangasamy said that while the rate announcement will precede the CPI, he doesn’t expect the “milder” June prices will have any effect on the rate. He said July’s prices should get a bounce from the harmonized sales tax introduced on July 1 in Ontario in British Columbia.

The bank will also release its Monetary Policy Report on Thursday. Mr. Rangasamy doesn’t expect the bank to make material changes to its April forecast of 3.5% growth for the second half.

“The only thing will be perhaps in the tone of the report. We think that they might adopt a more cautious tone on the external environment, particularly what’s happening in Europe and elsewhere, with slower Chinese growth, so they might adopt a little bit more cautious tone as opposed to their upbeat tone in April.”

Statistics Canada reports in the coming week include securities transactions on Monday, travel data on Tuesday, wholesale trade on Wednesday, as well as employment insurance and retail trade data on Thursday.

On the corporate front, some major Canadian companies will be reporting earnings on Thursday, including Canadian National Railway, Shoppers Drug Mart and Loblaw Cos.

Read more: http://www.financialpost.com/news/Week+Ahead+Rate+hike+cards/3288001/story.html#ixzz0u7tLcQoZ

BY JULIAN BELTRAME

OTTAWA — Canadian firms are giving the recovery a vote of confidence in a key quarterly survey, paving the way for the Bank of Canada’s expected interest rate hike next week.

The central bank’s quarterly survey, released Monday, showed firms were concerned about the fallout from the European sovereign debt mess, but still generally upbeat about the coming year.

“Overall, (business executives) are positive about the outlook for business activity over the next 12 months,” the bank wrote.

“For the first time in two years, firms, on balance, reported an improvement in their past sales activity.”

The bank’s governing council next interest rate announcement is next Tuesday.

Following a strong jobs report last week, the survey likely represents the last piece of evidence governor Mark Carney was looking for to confirm a predisposition to continue raising rates.

“I’d say there’s a 75 or 80 per cent probability they will hike next week by 25 basis points,” said Derek Holt, vice-president of economics with Scotia Capital.

“I think they’d want to avoid the perception that they just came out with a whole new round of bullish forecasts and then got wobbly knees after just one quarter-point hike (in June).”

What could stay Carney’s hand, economists say is the unknown factor of what will happen to the global economy as governments move from spending to restraint later this year and next.

Canada’s domestic economy appears well grounded. Statistics Canada reported on Friday that an additional 93,000 jobs were added in June, bringing total re-hiring since the recession’s end to over 400,000.

And the business outlook survey showed that 50 per cent of firms surveyed said they planned to add workers over the next 12 months, as opposed to only 10 per cent that planned to cut their workforce.

TD Bank economist Diana Petramala viewed that finding as the strongest in the report, although she said it might indicate some hiring that’s already taken place.

While an increase in the bank’s policy rate to 0.75 per cent will raise short-term interest rates for consumers, most economists say it is unlikely to have much of an impact on longer-term, fixed mortgage rates. Many see a hike at this time as not applying the brakes to growth, since the rate would remain near the historic low, but as a judgment by the bank that the recovery is taking hold.

Not all agree, however. A bearish minority argue that Canada still faces considerable headwinds from the European situation and ongoing U.S. weakness, and that Carney should refrain from adding a further impediment to growth.

But failing a climb down from its forecast of 3.7 per cent growth this year, and 3.1 per cent next year, the bank appears on track to take interest rates a little higher next week, analysts say.

“With price pressures expected to rise in the production line, excess economic slack continuing to melt away, and credit and lending conditions continuing to ease, the survey results weigh on the tightening side,” noted economist Michael Gregory of BMO Capital Markets.

The summer poll, and a separate survey of loan officers also released Monday, found sentiments positive, if not deliriously so, across a range of topics.

The bank said credit conditions appear to be easing, especially for larger corporations, a critical prerequisite for expansion.

The balance of opinion was also positive on questions of sales volume prospects for the coming year, and future investment intentions.

Not all doubts have vanished, however.

Business executives expressed concerns about “recent global economic and financial uncertainties and possible spillover effects in Canada.”

And although on the plus side of the ledger, expectations on future sales and investment intentions were softer than three months ago. That’s partly because of the way the Bank of Canada couches its questions, contrasting expectations to what they were in the earlier survey.

The bank noted the responses suggest that firms that have already experienced strong sales growth from recession lows now believe that the growth rate will slow to more sustainable levels, but remain positive.

And many firms that do not expect to increase spending on new machinery have already made those investments, particularly firms in the services sector.

On other elements of business activity, executives said they expect the cost of their inputs to increase at a greater rate during the next 12 months, and plan to pass on these cost increases to their customers.

But the inflationary expectations over the next two years were modest, within the central bank’s one-to-three per cent range.

The Canadian Press http://news.therecord.com/Business/article/744317

CALGARY - Housing starts in the Calgary census metropolitan area soared in June compared with a year ago.

According to preliminary data released today by Canada Mortgage and Housing Corp., total starts during the month were 685, up by 57.8 per cent from June 2009.

Single-detached starts jumped to 531 from 374 last year, a 42 per cent hike while multiple-family starts rose by nearly 157 per cent from 60 in June 2009 to 154 last month.

To the end of June housing starts have increased in both categories year-to-date. There have been 4,617 total starts in the first half of this year compared wtih 1,981 for the same period a year ago. In the single-detached category, starts have increased from 1,549 last year to 3,335 this year while the multi-family category has seen a rise from 432 last year to 1,282 this year.

“This marks the 12th consecutive month where single-detached starts have increased on a year-over-year basis,” said Richard Cho, senior market analyst for Calgary for the CMHC. “Builders in the last several months have taken the opportunity to replenish their inventory levels.”

But Cho added that the year-over-year gains have started to moderate.

He said that despite the rise in multi-family production activity so far this year is behind last year’s level.

“Elevated apartment inventories have contributed to fewer apartment projects breaking ground, keeping multi-family production below historial averages,” said Cho.

In Alberta’s seven largest cities, housing starts increased 33 per cent in June from 1,446 units in 2009 to 1,926 last month.

mtoneguzzi@theherald.canwest.com

© Copyright (c) The Calgary Herald

Calgary house prices remained strong in the second quarter compared to the same period in 2009, but they are expected to decrease slightly over the remainder of the year, according to the Royal LePage House Price Survey released today.

“Overall, prices are still higher than they were a year ago,” said Ted Zaharko, broker and owner of Royal LePage Foothills. “But as the second quarter ends, we are seeing the market lean in favour of the buyer.”

The report says that sales in the Calgary market have decreased and inventory levels have risent slowly compared with this time last year, but the prices still remain higher than a year ago in most housing categories except standard condominiums, which saw a 0.2 per cent decline to $251,756 due to its large inventory levels. Standard two-storey homes posted the largest year-over-year price increases, rising 5.5 per cent to $422,078. Prices for detached bungalows increased 4.6 per cent compared with the second quarter of 2009 to $419,978.

“Buyers don’t feel the urgency to make decisions when inventory levels are high,” said Zaharko. “However, we expect to see a slight increase in the number of sales and a decrease in the amount of inventory as we continue through 2010, but we also anticipate overall prices to soften in the second half of 2010 as buyers continue to remain cautious and inventory levels continue to remain higher than in past years.”

MTONEGUZZI@THEHERALD.CANWEST.COM

BY SUNNY FREEMAN, THE CANADIAN PRESS

TORONTO — A majority of Canadians who just bought or are about to buy their first home expect to pay less than the asking price and prefer newer and detached homes over older and semi-detached homes or condos, according to a TD Bank survey.

But the report questioned whether the homebuyers had unreasonable expectations, considering that nine out of 10 took out or expect to take out a mortgage for their home.

“It’s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford,” said Farhaneh Haque, a mortgage specialist at TD Canada Trust.

Six in 10 first-time homebuyers said they were worried about being able to afford their home should interest rates rise — a scenario that economists say is inevitable after an era of historically low rates sparked a rush into the housing market.

Only 30 per cent said they plan to or already have more than a 20 per cent down payment, and the remaining 70 per cent will require mortgage insurance. Eight of 10 buyers reported putting down as much as they can afford.

But Haque advised that prospective first-time homeowners consider a larger down payment because paying 10 per cent or more will make a big difference, bringing down the time it will take to pay off a mortgage and possibly affecting regular payment amounts.

“It may mean that you need to save longer before buying your first home, but it will pay off in the end.”

The vast majority of those surveyed said they made informed financial decisions before buying, with nine in 10 homebuyers getting pre-approved mortgages and calculating closing costs before buying.

However, closing costs, land transfer tax, and legal fees were the top three costs buyers felt unprepared for.

Six in 10 first time home buyers said they bought or intend to buy a fully detached home and three-quarters want a new home.

Meanwhile, survey respondents were equally split between preferring a smaller home closer to work and 45 per cent would prefer a larger home with a longer commute.

Almost all respondents, 99 per cent, said price was the most important factor when considering what kind of home to buy.

The report compiled 1,000 results from an online survey between June 8 and 21 of Canadians who had purchased their first home within the past 24 months or intended to purchase their first home within the next 24 months.

First-time homebuyers in B.C. bucked a national trend and said condominiums were their No. 1 choice. They were also most concerned about being able to afford their homes if interest rates rise.

Respondents from Atlantic Canada were most likely to have their hearts set on new, large and fully detached homes. They are also most likely to prefer a larger home even if it would mean a longer commute.

Quebecers browsed through the fewest number of homes while shopping for their first, but were most likely in the country to live in their first home for their entire lifetime, the report found.

More first-time buyers in Alberta expected to pay less than asking price than those in any other province.

In Ontario, more homebuyers than the national average planned to put more than 20 per cent toward a down payment.

More than in any other provinces, people in Manitoba and Saskatchewan said they would prefer a newer home over an older home if price points were similar.http://news.therecord.com/Business/article/740718

- TD Canada Trust releases 2010 Home Buyers Report -

TORONTO, July 5 /CNW/ - Are Albertans better negotiators than the rest of Canada? More than any other province, first time home buyers in Alberta are expecting to pay less than the asking price for their home (71% vs. 65% nationally). One-quarter (26%) expect to pay asking price and only 3% expect to pay more than asking price. This is according to the first TD Canada Trust Home Buyers Report, which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.

More than in any other province, Albertans report putting down as much as they can afford for a down payment (95% vs. 88% nationally). Sixty-five per cent say they saved or plan on saving for two years or less for their home purchase. Despite the majority putting down as much as they can afford, only 25% plan to have more than a 20% down payment. The remaining 75% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Two-thirds (65%) are worried about being able to afford their home if interest rates rise.

“It’s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time,” says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. “I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save.”

Seventy-three per cent of those surveyed in Alberta have or plan to have a fixed-rate mortgage. “Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations then a fixed-rate is best,” says Haque.

Albertans are doing their homework:

Nearly all home buyers are making informed financial decisions before buying their home. Top activities before buying a home include getting pre-approved for a mortgage (94%), learning about mortgage options (93%), calculating closing costs (89%) and speaking to a mortgage lender before shopping for a home (89%). However, land transfer tax, closing costs and property taxes were the top costs that buyers felt unprepared for (53%, 51% and 48% respectively).

What type of home do Albertans want?

Fifty-nine per cent of Albertans prefer fully detached homes, followed by condominiums (17%) and semi-detached homes (14%). If two homes were at the same price point, 68% would prefer a newer home over an older home. Albertans are split about the preferred location for their home; for the same price, 55% would prefer a smaller home closer to work and 45% would prefer a larger home that requires a longer commute to work.

Home shopping process:

People in Alberta do their due diligence when searching for a home, spending almost 9 months looking for a home and viewing on average 13 homes. They spend a lot of time shopping in Alberta because they plan to live in their first home for longer than people in other provinces. In fact, only 5% of people plan to spend less than 3 years in their first home (compared to 11% nationally). Thirty-nine per cent plan to spend more than 10 years in their home or to never sell.