Thursday, 22 July 2010
Canadian homeowners appear to be more financially fit than others in Canada, as 65 per cent pay off their credit balances each month compared to 48 per cent of non-homeowners.
A quarter of the homeowners with mortgages have also made a lump sum payment or accelerated their mortgage payments in the past year, according to a survey sponsored by Genworth Financial Canada.
Forty-four per cent of homeowners paid all their bills and saved money in the past year, suggesting a strong correlation between homeownership and financial fitness.
"Homeownership is an achievable goal for those who are prepared," said Peter Vukanovich, president and chief operating officer of Genworth. "Homeownership helps people focus on their financial situation and get their fiscal house in order."
The survey was conducted in partnership with the Canadian Association of Credit Counselling Services (CACCS).
"A mortgage is easier to manage when people have good personal finance skills," said Henrietta Ross, CEO of CACCS.
The survey also found:
- 49 per cent of homeowners made down payments of 20 per cent or more on their purchase
- 13 per cent of homeowners say they are in great financial shape
- 12 per cent of homeowners said they have requested a credit report in the past 12 months.
-Taken from mortgagebrokernews.ca
Thursday, July 29, 2010
Toronto, Calgary lead drop in housing sales
Garry Marr, Financial Post · Thursday, Jul. 15, 2010
Existing home sales continued their rapid decline last month, with 70% of markets showing a drop in sales in June from May, the Canadian Real Estate Association says.
But at least one senior executive in the industry says market watchers need a little perspective about the real estate sector.
“The pace we had seen couldn’t be sustained. It’s important to have a word of caution when you talk about it slowing down,” said Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada.
“This is by no stretch a buyer’s market. At best it’s a balanced market in the majority of markets. People are not out there giving their houses away yet.”
Ottawa-based CREA, which represents 100 boards across the country, said sales were off 8.2% from a month ago on a seasonally adjusted basis. Toronto and Calgary led the decline.
CREA said tighter mortgage rules and rising rates were behind a 13.3% drop in sales over the past quarter.
“As expected, these two national factors contributed to a widespread decline in activity, with transactions down in all but a dozen or so smaller markets,” CREA said.
Sales activity was down 19.7% in June from a year ago, when there was a record number of sales for the month.
Actual second-quarter sales were down 2.8% from a year ago but for the year are still up 13.6%.
There was a slowdown in Canadians putting homes up for sale, which should be good for the market and prices. The number of new listings on the market in June dropped 6.8% from May.
But year-over-year price increases are starting to slow. CREA said the national average sales price rose just 4.9% from a year ago to $342,662.
CREA chief economist Gregory Klump said there could be help on the way for prices in the coming months. “While the pricing environment is becoming more challenging, a recovering economy and job market will provide support for housing activity and prices,” he said.
The number of months of inventory in the market, which represents the number of months it would take to sell current inventories at the current rate of sales activity, is also rising. It was 5.7 months across the country at the end of June, up from 4.2 months a year ago.
“The housing market is becoming more challenging for sellers,” said Georges Pahud, CREA president. “Buyers are in less of a hurry.”
Economist Adrienne Warren of the Bank of Nova Scotia said the market has peaked.
“Canada’s housing market has clearly shifted gears, with monthly sales [seasonally adjusted] now running about 25% below last December’s peak,” she said. “The sense of urgency see n last fall and winter in the lead-up to tighter mortgage-lending criteria and the introduction of the HST in Ontario and British Columbia has faded.”
Financial Post
Existing home sales continued their rapid decline last month, with 70% of markets showing a drop in sales in June from May, the Canadian Real Estate Association says.
But at least one senior executive in the industry says market watchers need a little perspective about the real estate sector.
“The pace we had seen couldn’t be sustained. It’s important to have a word of caution when you talk about it slowing down,” said Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada.
“This is by no stretch a buyer’s market. At best it’s a balanced market in the majority of markets. People are not out there giving their houses away yet.”
Ottawa-based CREA, which represents 100 boards across the country, said sales were off 8.2% from a month ago on a seasonally adjusted basis. Toronto and Calgary led the decline.
CREA said tighter mortgage rules and rising rates were behind a 13.3% drop in sales over the past quarter.
“As expected, these two national factors contributed to a widespread decline in activity, with transactions down in all but a dozen or so smaller markets,” CREA said.
Sales activity was down 19.7% in June from a year ago, when there was a record number of sales for the month.
Actual second-quarter sales were down 2.8% from a year ago but for the year are still up 13.6%.
There was a slowdown in Canadians putting homes up for sale, which should be good for the market and prices. The number of new listings on the market in June dropped 6.8% from May.
But year-over-year price increases are starting to slow. CREA said the national average sales price rose just 4.9% from a year ago to $342,662.
CREA chief economist Gregory Klump said there could be help on the way for prices in the coming months. “While the pricing environment is becoming more challenging, a recovering economy and job market will provide support for housing activity and prices,” he said.
The number of months of inventory in the market, which represents the number of months it would take to sell current inventories at the current rate of sales activity, is also rising. It was 5.7 months across the country at the end of June, up from 4.2 months a year ago.
“The housing market is becoming more challenging for sellers,” said Georges Pahud, CREA president. “Buyers are in less of a hurry.”
Economist Adrienne Warren of the Bank of Nova Scotia said the market has peaked.
“Canada’s housing market has clearly shifted gears, with monthly sales [seasonally adjusted] now running about 25% below last December’s peak,” she said. “The sense of urgency see n last fall and winter in the lead-up to tighter mortgage-lending criteria and the introduction of the HST in Ontario and British Columbia has faded.”
Financial Post
Monday, July 26, 2010
Credit raters face new rules
Tara Perkins Financial Services Reporter
From Wednesday's Globe and Mail
Published on Wednesday, Jul. 14, 2010 2:00AM EDT
Regulators are moving to oversee credit rating agencies in Canada, widening the mandate of the watchdogs and slapping national rules on the sector for the first time.
The Canadian Securities Administrators, an umbrella group of provincial regulators, is expected to announce Friday new measures to toughen the accountability and transparency of the agencies, which came under fire after securities that investors believed were safe bets became frozen during the financial crisis.
The plan is the latest in a series of moves globally to toughen regulation of the financial sector, from banks to securities firms. Oversight of ratings agencies was one of many pledges made by the Group of 20 countries, along with reforms such as new capital rules for banks.
Regulation would give securities watchdogs the authority to review and demand changes to the way agencies such as DBRS Ltd., Standard & Poor’s and Moody’s Investors Service operate, industry sources said. The agencies would also have to sign on to a code of conduct that would deal with issues such as potential conflicts of interest.
The proposed rules are expected to be subject to changes after a comment period. In some cases, provincial bodies might require new powers by law.
Influential business voices including Canada’s top banking regulator and a number of Bay Street chief executives have pointed a finger at rating agencies for the role they played in the financial crisis. For their part, ratings agencies have said they have already improved their ratings systems and boosted their degree of transparency in light of market changes.
The prime example in Canada was the $30-billion-plus market for asset-backed commercial paper that was not sponsored by banks. It seized up during the credit crisis in 2007, leaving many investors without access to their money. Canada’s homegrown DBRS took heat for being the only agency to rate the paper, much of which received top ratings.
Similar situations occurred with other structured credit products and other agencies in the U.S. and elsewhere. Rating agencies have become engrained in the financial system because of laws that refer to them or require their ratings.
Canadian authorities first recommended regulating the agencies more than 18 months ago, and received feedback from the industry in early 2009. But they took time to see what other jurisdictions decided before making their move, and observers suggested the CSA has also been weighed down by the effort to create a single national securities regulator.
“We look forward to reviewing the proposed regulatory framework when it is published later this month,” DBRS said in an e-mailed statement Tuesday. “In the meanwhile, we have been consulting with investors and regulatory bodies, and have implemented policies that are consistent with global best practices including the IOSCO [International Organization of Securities Commissions] code of conduct for rating agencies.”
In a letter to the CSA, Moody’s said it was in favour of a regime that is governed more by broad principles than specific rules. “A prescriptive, rules-based regime that provides for a significant degree of day-to-day supervision by securities regulators could inadvertently create the perception that such approved [credit rating agencies] and their ratings are ‘fail-proof’ because they have a regulatory ‘seal of approval,’ ” the agency said.
Authorities have generally backed away from seeking major changes to the rating agencies’ business models, and are instead looking to bolster oversight. Shortly after the financial crisis, the European Union adopted a law requiring that rating agencies be registered, and the financial reforms that the House of Representatives recently approved in the United States will give the Securities and Exchange Commission new powers over rating agencies.
Since the 1970s, rating agencies have been charging companies and other issuers of debt fees for ratings. Critics charge that it’s a conflict of interest for agencies to be taking fees from companies that they rate, and argue that their revenue models should instead rely on payments from the investors who use the ratings.
In a comment piece published by American Banker last month, Standard & Poor’s president Deven Sharma argued that “the issuer-pays model allows us to publish our ratings for free on our website, whereas the subscriber-based model creates information haves and have-nots in the marketplace.” He said S&P is doing a top-to-bottom review of its ratings and making some changes to its procedures. “For instance, we have made changes to our criteria for rating mortgage securities so that it will be much more difficult for such a security to receive a triple-A rating.”
From Wednesday's Globe and Mail
Published on Wednesday, Jul. 14, 2010 2:00AM EDT
The Canadian Securities Administrators, an umbrella group of provincial regulators, is expected to announce Friday new measures to toughen the accountability and transparency of the agencies, which came under fire after securities that investors believed were safe bets became frozen during the financial crisis.
The plan is the latest in a series of moves globally to toughen regulation of the financial sector, from banks to securities firms. Oversight of ratings agencies was one of many pledges made by the Group of 20 countries, along with reforms such as new capital rules for banks.
Regulation would give securities watchdogs the authority to review and demand changes to the way agencies such as DBRS Ltd., Standard & Poor’s and Moody’s Investors Service operate, industry sources said. The agencies would also have to sign on to a code of conduct that would deal with issues such as potential conflicts of interest.
The proposed rules are expected to be subject to changes after a comment period. In some cases, provincial bodies might require new powers by law.
Influential business voices including Canada’s top banking regulator and a number of Bay Street chief executives have pointed a finger at rating agencies for the role they played in the financial crisis. For their part, ratings agencies have said they have already improved their ratings systems and boosted their degree of transparency in light of market changes.
The prime example in Canada was the $30-billion-plus market for asset-backed commercial paper that was not sponsored by banks. It seized up during the credit crisis in 2007, leaving many investors without access to their money. Canada’s homegrown DBRS took heat for being the only agency to rate the paper, much of which received top ratings.
Similar situations occurred with other structured credit products and other agencies in the U.S. and elsewhere. Rating agencies have become engrained in the financial system because of laws that refer to them or require their ratings.
Canadian authorities first recommended regulating the agencies more than 18 months ago, and received feedback from the industry in early 2009. But they took time to see what other jurisdictions decided before making their move, and observers suggested the CSA has also been weighed down by the effort to create a single national securities regulator.
“We look forward to reviewing the proposed regulatory framework when it is published later this month,” DBRS said in an e-mailed statement Tuesday. “In the meanwhile, we have been consulting with investors and regulatory bodies, and have implemented policies that are consistent with global best practices including the IOSCO [International Organization of Securities Commissions] code of conduct for rating agencies.”
In a letter to the CSA, Moody’s said it was in favour of a regime that is governed more by broad principles than specific rules. “A prescriptive, rules-based regime that provides for a significant degree of day-to-day supervision by securities regulators could inadvertently create the perception that such approved [credit rating agencies] and their ratings are ‘fail-proof’ because they have a regulatory ‘seal of approval,’ ” the agency said.
Authorities have generally backed away from seeking major changes to the rating agencies’ business models, and are instead looking to bolster oversight. Shortly after the financial crisis, the European Union adopted a law requiring that rating agencies be registered, and the financial reforms that the House of Representatives recently approved in the United States will give the Securities and Exchange Commission new powers over rating agencies.
Since the 1970s, rating agencies have been charging companies and other issuers of debt fees for ratings. Critics charge that it’s a conflict of interest for agencies to be taking fees from companies that they rate, and argue that their revenue models should instead rely on payments from the investors who use the ratings.
In a comment piece published by American Banker last month, Standard & Poor’s president Deven Sharma argued that “the issuer-pays model allows us to publish our ratings for free on our website, whereas the subscriber-based model creates information haves and have-nots in the marketplace.” He said S&P is doing a top-to-bottom review of its ratings and making some changes to its procedures. “For instance, we have made changes to our criteria for rating mortgage securities so that it will be much more difficult for such a security to receive a triple-A rating.”
Canada safe from U.S. double dip
Financial Post
David Pett July 12, 2010 – 12:56 pm
Add Moody’s to the list of those who think Canada’s economic recovery is safe, even if the U.S. economy falls back into recession.
In the wake of last Friday’s stunning jobs report that saw 93,200 new jobs created in June, Jimmy Jean, an economist at Moody’s Economy.com said a “collective effort” in dealing with the financial crisis has made Canada less vulnerable to U.S. shocks than it used to be.
“It is often thought that when the U.S. sneezes, Canada catches a cold, but with the shift toward a service-oriented economy over the last three decades, Canada has grown more immune to U.S. woes,” he said in a report.
“The last two U.S. recessions are solid proof that Canada is now better able to withstand strong headwinds from the south. Not that they’ve decoupled altogether, but should a downside mild double-dip U.S. recession materialize, Canada’s recovery would very likely survive.”
In addition to the country’s strong commodity sector, Mr. Jean said the success of Canada’s recovery is thanks to policy makers acting quickly in the depth of the crisis, consumers who shrugged off the recession and started spending again and employers who believed in the recovery and hired backed their workforce swiftly.
David Pett July 12, 2010 – 12:56 pm
Add Moody’s to the list of those who think Canada’s economic recovery is safe, even if the U.S. economy falls back into recession.
In the wake of last Friday’s stunning jobs report that saw 93,200 new jobs created in June, Jimmy Jean, an economist at Moody’s Economy.com said a “collective effort” in dealing with the financial crisis has made Canada less vulnerable to U.S. shocks than it used to be.
“It is often thought that when the U.S. sneezes, Canada catches a cold, but with the shift toward a service-oriented economy over the last three decades, Canada has grown more immune to U.S. woes,” he said in a report.
“The last two U.S. recessions are solid proof that Canada is now better able to withstand strong headwinds from the south. Not that they’ve decoupled altogether, but should a downside mild double-dip U.S. recession materialize, Canada’s recovery would very likely survive.”
In addition to the country’s strong commodity sector, Mr. Jean said the success of Canada’s recovery is thanks to policy makers acting quickly in the depth of the crisis, consumers who shrugged off the recession and started spending again and employers who believed in the recovery and hired backed their workforce swiftly.
Canadians falling short on saving
Scotiabank survey finds that nearly one-third don’t have a plan
Published On Tue Jul 13 2010
Madhavi Acharya-Tom Yew
Business Reporter
Ninety-four per cent of Canadians say they feel better when they have a safety net of savings to fall back on.
But nearly one-in-five, or 19 per cent, haven’t put any money aside for a rainy day, according to a survey released Tuesday by Scotiabank.
Personal finance experts say everyone should have an emergency fund that would cover one to three months’ worth of household expenses.
The bank’s survey found that one-quarter, or 25 per cent, of those surveyed have that much set aside. Another one-third have more than three months’ worth, and 23 per cent have squirreled away less than one month of expenses.
Sixty-eight per cent of Canadians say they have a plan in place to achieve their savings goals.
But nearly one-quarter, 23 per cent, say they like to live day-to-day and do not worry about saving money.
“We’re really become a consumer society and we are encouraged to spend. Having the discipline to put aside part of your income for the future or saving for discretionary needs are not things we are necessarily guided to do,” said Chris Hodgson, Scotiabank’s head of Canadian banking.
“There’s an opportunity to raise a level of awareness on how Canadians can build more of a nest egg. To us, this is an issue for Canada.”
Figures from Statistics Canada show that the personal savings rate was 2.8 per cent in the first quarter of 2010. That’s down 0.7 per cent from the last three months of 2009 and a decline of 2.4 per cent from the previous year.
Scotiabank released the survey as part of the kickoff to its Let the Saving Begin program. The goal is to “break the inertia around saving and help spark a movement among Canadians,” the bank said.
It has recruited broadcaster Valerie Pringle to travel across the country to speak with Canadians about the challenges they face when trying to put money aside.
“It’s like we’ve been living in a fool’s paradise of cheap money and buy, buy, buy, and our grandparents concept of saving to buy a refrigerator sounds like something from the dark ages,” Pringle said in an interview.
“There’s a lot of pressure on people, on families, and their wallets. We want to make Canadians aware that small steps can make a difference. Figure it out, get some advice, make changes and make yourself more financially healthy.”
Nearly three-quarters, or 72 per cent, of Canadians surveyed said that saving an additional $1,500 would improve their financial well-being.
“That’s about $4 a day. It’s not a huge amount,” Hodgson said.
Scotiabank will match 10 per cent of savings up to $150 accumulated between July 5, 2010, and Oct. 31, 2011 using automatic savings plans. Details are available on the bank’s website.
The online survey, conducted in late March, also found that the majority of Canadians, 83 per cent, said they would make some change to their spending habits to save more money, with 20 per cent saying they would make large changes and 63 per cent saying they would make small changes.
“We’re talking about creating a balance between borrowing and saving,” Hodgson said. “We’re not suggesting Canadians should be moving away from borrowing to buy a house or a condo or get an education, but there has to be a balance between the two.”
Published On Tue Jul 13 2010
Madhavi Acharya-Tom Yew
Business Reporter
Ninety-four per cent of Canadians say they feel better when they have a safety net of savings to fall back on.
But nearly one-in-five, or 19 per cent, haven’t put any money aside for a rainy day, according to a survey released Tuesday by Scotiabank.
Personal finance experts say everyone should have an emergency fund that would cover one to three months’ worth of household expenses.
The bank’s survey found that one-quarter, or 25 per cent, of those surveyed have that much set aside. Another one-third have more than three months’ worth, and 23 per cent have squirreled away less than one month of expenses.
Sixty-eight per cent of Canadians say they have a plan in place to achieve their savings goals.
But nearly one-quarter, 23 per cent, say they like to live day-to-day and do not worry about saving money.
“We’re really become a consumer society and we are encouraged to spend. Having the discipline to put aside part of your income for the future or saving for discretionary needs are not things we are necessarily guided to do,” said Chris Hodgson, Scotiabank’s head of Canadian banking.
“There’s an opportunity to raise a level of awareness on how Canadians can build more of a nest egg. To us, this is an issue for Canada.”
Figures from Statistics Canada show that the personal savings rate was 2.8 per cent in the first quarter of 2010. That’s down 0.7 per cent from the last three months of 2009 and a decline of 2.4 per cent from the previous year.
Scotiabank released the survey as part of the kickoff to its Let the Saving Begin program. The goal is to “break the inertia around saving and help spark a movement among Canadians,” the bank said.
It has recruited broadcaster Valerie Pringle to travel across the country to speak with Canadians about the challenges they face when trying to put money aside.
“It’s like we’ve been living in a fool’s paradise of cheap money and buy, buy, buy, and our grandparents concept of saving to buy a refrigerator sounds like something from the dark ages,” Pringle said in an interview.
“There’s a lot of pressure on people, on families, and their wallets. We want to make Canadians aware that small steps can make a difference. Figure it out, get some advice, make changes and make yourself more financially healthy.”
Nearly three-quarters, or 72 per cent, of Canadians surveyed said that saving an additional $1,500 would improve their financial well-being.
“That’s about $4 a day. It’s not a huge amount,” Hodgson said.
Scotiabank will match 10 per cent of savings up to $150 accumulated between July 5, 2010, and Oct. 31, 2011 using automatic savings plans. Details are available on the bank’s website.
The online survey, conducted in late March, also found that the majority of Canadians, 83 per cent, said they would make some change to their spending habits to save more money, with 20 per cent saying they would make large changes and 63 per cent saying they would make small changes.
“We’re talking about creating a balance between borrowing and saving,” Hodgson said. “We’re not suggesting Canadians should be moving away from borrowing to buy a house or a condo or get an education, but there has to be a balance between the two.”
Friday, July 23, 2010
10 worst first-time homebuyer mistakes
John Woods/THE GLOBE AND MAIL
Published on Thursday, Jul. 22, 2010 6:00AM EDT
Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little bit scary. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes the prevent them from achieving this simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign. (Don't know even where to get started when purchasing a home? Check out Financing Basics For First-Time Homebuyers and our First-Time Homebuyer Guide.)
1. Not Knowing What You Can Afford
As we've all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don't already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don't forget major expenses that only occur once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you'll know how much you can spend on your new home each month.
If you end up looking at homes that are outside your price range, you'll end up lusting after something you can't afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can't afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking. (Read Six Months To A Better Budget and Get Your Budget In Fighting Shape to learn more.)
2. Skipping Mortgage Qualification
What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get pre-approved for a loan before placing an offer on a home. If you don't, you'll be wasting the seller's time, the seller's agent's time, and your agent's time if you sign a contract and then discover later that the bank won't lend you what you need, or that it's only willing to give you a mortgage that you find unacceptable.
Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the several thousand dollars that you put up when you went under contract. (To learn more, read Pre-Qualified Vs. Pre-Approved - What's The Difference?)
3. Failing to Consider Additional Expenses
Once you're a homeowner, you'll have additional expenses on top of your monthly payment. Unlike when you were a renter, you'll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace).
If you're interested in purchasing a condo, you'll have to pay maintenance costs monthly regardless of whether anything needs fixing because you'll be part of a homeowner's association, which collects a couple hundred dollars a month from the owners of each unit in the building in the form of condominium fees. (For more information, see Does Condo Life Suit You?)
4. Being Too Picky
Go ahead and put everything you can think of on your new home wish list, but don't be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home, or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list - you'll just have to decide how important it is for you to become a homeowner now rather than in a couple of years. (For related reading, read To Rent or Buy? The Financial Issues - Part 1 and To Rent or Buy? There's More To It Than Money - Part 2.)
5. Lacking Vision
Even if you can't afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home otherwise meets your needs in terms of the big things that are difficult to change, such as location and size, don't let physical imperfections turn you away. Besides, doing home upgrades yourself, even when you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you. (For more information on remodeling, read our related article Fix It And Flip It. The Value of Remodeling.)
6. Being Swept Away
Minor upgrades and cosmetic fixes are inexpensive tricks that are a seller's dream for playing on your emotions and eliciting a much higher price tag. Sellers may pay $2,000 for minimal upgrades or staging that you'll end up paying $40,000 for. If you're on a budget, look for homes whose full potential have yet to be realized. Also, first-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder.
7. Compromising on the Important Things
Don't get a two-bedroom home when you know you're planning to have kids and will want three bedrooms. By the same token, don't buy a condo just because it's cheaper when one of the main reasons you're over apartment life is because you hate sharing walls with neighbours. It's true that you'll probably have to make some compromises to be able to afford your first home, but don't make a compromise that will be a major strain.
8. Neglecting to Inspect
It's tempting to think that you're a homeowner the moment you go into escrow, but not so fast - before you close on the sale, you need to know what kind of shape the house is in. You don't want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house's physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
9. Not Choosing to Hire an Agent or Using the Seller's Agent
Once you're seriously shopping for a home, don't walk into an open house without having an agent (or at least being prepared to throw out a name of someone you're supposedly working with). Agents are held to the ethical rule that they must act in both the seller and the buyer parties' best interests, but you can see how that might not work in your best interest if you start dealing with a seller's agent before contacting one of your own. (To learn more, read Do You Need A Real Estate Agent?)
10. Not Thinking About the Future
It's impossible to perfectly predict the future of your chosen neighbourhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.
Some questions you should ask about your prospective property include:
• What kind of development plans are in the works for your neighbourhood in the future?
• Is your street likely to become a major street or a popular rush-hour shortcut?
• Will a highway be built in your backyard in five years?
• What are the zoning laws in your area?
• If there is a lot of undeveloped land, what is likely to get built there?
• Have home values in the neighbourhood been declining?
If you're happy with the answers to these questions, then your house's location can keep its rose-coloured lustre.
For more on mortgages, see my website: www.leonmartin.ca
Conclusion
Buying a first home can seem stressful and overwhelming, and it isn't without its share of potential pitfalls. If you're aware of those issues ahead of time, you can protect yourself from costly mistakes and shop with confidence.
For many people, a home is the largest purchase they will ever make, but it need not be the most difficult.
Be sure to read Investing In Real Estate to learn more about the perks of owning property.
Published on Thursday, Jul. 22, 2010 6:00AM EDT
Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little bit scary. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes the prevent them from achieving this simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign. (Don't know even where to get started when purchasing a home? Check out Financing Basics For First-Time Homebuyers and our First-Time Homebuyer Guide.)
1. Not Knowing What You Can Afford
As we've all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don't already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don't forget major expenses that only occur once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you'll know how much you can spend on your new home each month.
If you end up looking at homes that are outside your price range, you'll end up lusting after something you can't afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can't afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking. (Read Six Months To A Better Budget and Get Your Budget In Fighting Shape to learn more.)
2. Skipping Mortgage Qualification
What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get pre-approved for a loan before placing an offer on a home. If you don't, you'll be wasting the seller's time, the seller's agent's time, and your agent's time if you sign a contract and then discover later that the bank won't lend you what you need, or that it's only willing to give you a mortgage that you find unacceptable.
Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the several thousand dollars that you put up when you went under contract. (To learn more, read Pre-Qualified Vs. Pre-Approved - What's The Difference?)
3. Failing to Consider Additional Expenses
Once you're a homeowner, you'll have additional expenses on top of your monthly payment. Unlike when you were a renter, you'll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace).
If you're interested in purchasing a condo, you'll have to pay maintenance costs monthly regardless of whether anything needs fixing because you'll be part of a homeowner's association, which collects a couple hundred dollars a month from the owners of each unit in the building in the form of condominium fees. (For more information, see Does Condo Life Suit You?)
4. Being Too Picky
Go ahead and put everything you can think of on your new home wish list, but don't be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home, or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list - you'll just have to decide how important it is for you to become a homeowner now rather than in a couple of years. (For related reading, read To Rent or Buy? The Financial Issues - Part 1 and To Rent or Buy? There's More To It Than Money - Part 2.)
5. Lacking Vision
Even if you can't afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home otherwise meets your needs in terms of the big things that are difficult to change, such as location and size, don't let physical imperfections turn you away. Besides, doing home upgrades yourself, even when you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you. (For more information on remodeling, read our related article Fix It And Flip It. The Value of Remodeling.)
6. Being Swept Away
Minor upgrades and cosmetic fixes are inexpensive tricks that are a seller's dream for playing on your emotions and eliciting a much higher price tag. Sellers may pay $2,000 for minimal upgrades or staging that you'll end up paying $40,000 for. If you're on a budget, look for homes whose full potential have yet to be realized. Also, first-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder.
7. Compromising on the Important Things
Don't get a two-bedroom home when you know you're planning to have kids and will want three bedrooms. By the same token, don't buy a condo just because it's cheaper when one of the main reasons you're over apartment life is because you hate sharing walls with neighbours. It's true that you'll probably have to make some compromises to be able to afford your first home, but don't make a compromise that will be a major strain.
8. Neglecting to Inspect
It's tempting to think that you're a homeowner the moment you go into escrow, but not so fast - before you close on the sale, you need to know what kind of shape the house is in. You don't want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house's physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
9. Not Choosing to Hire an Agent or Using the Seller's Agent
Once you're seriously shopping for a home, don't walk into an open house without having an agent (or at least being prepared to throw out a name of someone you're supposedly working with). Agents are held to the ethical rule that they must act in both the seller and the buyer parties' best interests, but you can see how that might not work in your best interest if you start dealing with a seller's agent before contacting one of your own. (To learn more, read Do You Need A Real Estate Agent?)
10. Not Thinking About the Future
It's impossible to perfectly predict the future of your chosen neighbourhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.
Some questions you should ask about your prospective property include:
• What kind of development plans are in the works for your neighbourhood in the future?
• Is your street likely to become a major street or a popular rush-hour shortcut?
• Will a highway be built in your backyard in five years?
• What are the zoning laws in your area?
• If there is a lot of undeveloped land, what is likely to get built there?
• Have home values in the neighbourhood been declining?
If you're happy with the answers to these questions, then your house's location can keep its rose-coloured lustre.
For more on mortgages, see my website: www.leonmartin.ca
Conclusion
Buying a first home can seem stressful and overwhelming, and it isn't without its share of potential pitfalls. If you're aware of those issues ahead of time, you can protect yourself from costly mistakes and shop with confidence.
For many people, a home is the largest purchase they will ever make, but it need not be the most difficult.
Be sure to read Investing In Real Estate to learn more about the perks of owning property.
Pre-Paying a Mortgage Before Discharge
July 23, 2010 Homeowners who break a closed mortgage before maturity will often make a pre-payment before the mortgage is discharged.
The idea is to reduce the mortgage balance and thereby pay less of a pre-payment penalty.
It’s a great idea if you have the funds to do it. Remember, however, that lenders have different policies on how close to the payout date you can make a pre-payment.
Some lenders, for example, won’t allow pre-payments to be made within 30 days of the date of discharge (the date you pay off your mortgage in full).
Therefore, if you plan to pre-pay a portion of your mortgage to reduce your penalty, remember to do two things:
1.Ask your lender how close to your payout date you can make a pre-payment and still have that payment count towards reducing your penalty. (Allow several days regardless. You don’t want to cut it too close.)
2.Make the pre-payment and then confirm that your lender has applied it to your account before your lawyer requests the payout statement. Otherwise, your pre-payment might not reduce your balance for the purposes of penalty calculation.
Taken from: www.canadianmortgagetrends.com
Three key drivers behind refinancing
Friday, 23 July 2010
By: Jessica Darnbrough
While much of the rhetoric in the press suggests borrowers are largely refinancing for a better rate, new data has revealed that there are actually three main drivers behind refinancing activity.
According to The Adviser’s latest weekly straw poll, there is more to refinancing than meets the eye.
Of the 290 respondents to the survey, the majority of brokers pegged debt consolidation as the main driver behind refinancing.
37.2 per cent of brokers said debt consolidation was the number one reason for refinancing, while 29 per cent said it was a better rate, and 25.9 per cent said it was to release equity.
First Chartered capital broker Greg Hearn told The Adviser that while some borrowers were obviously still refinancing for a better rate, competition for the cheapest mortgage was not the main driver behind his refinancing activity.
“Most of my refinancing activity comes through my investor clients. Investors are starting to fill the gap that was created by first home buyers. They are building a little bit of equity in their property and then refinancing so that they can buy another property,” he said.
Mr Hearn said while refinancing was becomingly increasingly more common among borrowers, he preferred not to “churn the loan book”.
“I really don’t like to refinance my clients. Ultimately, I would prefer to put them in the right loan the first time, every time. However, depending on rates and other economic factors – sometimes refinancing is hard to avoid. When refinancing is essential, I at least try to keep my client with the same bank, because this ultimately saves them hassle, time and expense.”
Similarly, Core Mortgage Brokers principal Peter Wotherspoon also doesn't like to refinance his clients.
"If I go out to see a client that is looking at refinancing, I try to keep them with that bank. I will negotiate a better rate on their behalf. I am not a big churner of business," he says.
"Often refinancing is unavoidable. There are many different types of clients that want to refinance. Young couple who want a cheaper rate as well as investors that are looking to buy another property."
But while some brokers would prefer to avoid refinancing altogether, data from AFG shows refinancing activity is on the rise.
According to the latest data, refinancing activity made up 39.0 per cent of all AFG mortgages sold during the month of June – up from 35.7 per cent this time last year.
Taken from: www.theadvisor.com
By: Jessica Darnbrough
While much of the rhetoric in the press suggests borrowers are largely refinancing for a better rate, new data has revealed that there are actually three main drivers behind refinancing activity.
According to The Adviser’s latest weekly straw poll, there is more to refinancing than meets the eye.
Of the 290 respondents to the survey, the majority of brokers pegged debt consolidation as the main driver behind refinancing.
37.2 per cent of brokers said debt consolidation was the number one reason for refinancing, while 29 per cent said it was a better rate, and 25.9 per cent said it was to release equity.
First Chartered capital broker Greg Hearn told The Adviser that while some borrowers were obviously still refinancing for a better rate, competition for the cheapest mortgage was not the main driver behind his refinancing activity.
“Most of my refinancing activity comes through my investor clients. Investors are starting to fill the gap that was created by first home buyers. They are building a little bit of equity in their property and then refinancing so that they can buy another property,” he said.
Mr Hearn said while refinancing was becomingly increasingly more common among borrowers, he preferred not to “churn the loan book”.
“I really don’t like to refinance my clients. Ultimately, I would prefer to put them in the right loan the first time, every time. However, depending on rates and other economic factors – sometimes refinancing is hard to avoid. When refinancing is essential, I at least try to keep my client with the same bank, because this ultimately saves them hassle, time and expense.”
Similarly, Core Mortgage Brokers principal Peter Wotherspoon also doesn't like to refinance his clients.
"If I go out to see a client that is looking at refinancing, I try to keep them with that bank. I will negotiate a better rate on their behalf. I am not a big churner of business," he says.
"Often refinancing is unavoidable. There are many different types of clients that want to refinance. Young couple who want a cheaper rate as well as investors that are looking to buy another property."
But while some brokers would prefer to avoid refinancing altogether, data from AFG shows refinancing activity is on the rise.
According to the latest data, refinancing activity made up 39.0 per cent of all AFG mortgages sold during the month of June – up from 35.7 per cent this time last year.
Taken from: www.theadvisor.com
Wednesday, July 21, 2010
Is the Real Estate Rebound Here?
Jul 21, 2010 Michael Cook
Real Estate Turnaround - ClaritaDespite the rise in foreclosures, lower interest rates and depressed prices seem to be drawing buyers back to the market.
Over the past six months, real estate foreclosures have continued along at a blistering pace. In addition, the number of bank owned homes is also swelling. Until recently, banks appeared to be unwilling to accept losses in to their real estate portfolio. Short sales proved to be very tough to execute and very few foreclosed properties were actively in the market. The tide appears to be shifting.
Bank Real Estate Owned (REO) Properties
While the average home sales price continuing to decline, sellers can take solace in the fact that volume seems to be turning. After the government tax break ended, there was a stiff drop off in the number of home sales. However, over the past month or two, volume appears to have stabilized, albeit at lower price points.
Buyers have banks to thank for the increased volume. Banks are beginning to show a willingness to deal their trouble properties to the highest bidders. Banks faced a major concern of selling too early at lower prices than they may have gotten by waiting. It would appear that the waiting game is over and many institutions believe the markets have bottomed out.
Read on
Do Hybrid REITs Really Diversify?
Hybrid REITs are designed to provide investors exposure to the mortgage and equity side of the real estate market. But do they actually provide diversification benefits? All real estate is local of course, so it might take a bit longer for the smaller markets in Florida and Las Vegas to experience a rise in the volume of sales, but rest assured its coming. If the economy can avoid a second recession and begin to add jobs, expect residential real estate sales to come back in a big way.
Real Estate Sales Volume vs. Price
While a volume resurgence might be a few months off, a price rebound is at least a year away. The same force driving volume back up is pushing prices down. Every sale of property is recorded the same way, rather it be a foreclosed sale or a sale by an individual. Appraisers and buyers have no way of knowing what sales were foreclosures and what were not. As such, the average sales price will always be deflated in markets with a large amount of foreclosed properties.
On average foreclosures sell for 30 – 40% less than non-foreclosed homes. If half the sales are foreclosures, the market price will decline by 20% more than if all of those homes had been sells by individual owners. The same dynamic that contributes to the volume increase will likely accelerate the price deflation. Assuming buyers can maintain their cool, expect prices in the hardest hit areas to remain below their historical averages for at least one more year.
Real Estate Turnaround - ClaritaDespite the rise in foreclosures, lower interest rates and depressed prices seem to be drawing buyers back to the market.
Over the past six months, real estate foreclosures have continued along at a blistering pace. In addition, the number of bank owned homes is also swelling. Until recently, banks appeared to be unwilling to accept losses in to their real estate portfolio. Short sales proved to be very tough to execute and very few foreclosed properties were actively in the market. The tide appears to be shifting.
Bank Real Estate Owned (REO) Properties
While the average home sales price continuing to decline, sellers can take solace in the fact that volume seems to be turning. After the government tax break ended, there was a stiff drop off in the number of home sales. However, over the past month or two, volume appears to have stabilized, albeit at lower price points.
Buyers have banks to thank for the increased volume. Banks are beginning to show a willingness to deal their trouble properties to the highest bidders. Banks faced a major concern of selling too early at lower prices than they may have gotten by waiting. It would appear that the waiting game is over and many institutions believe the markets have bottomed out.
Read on
Do Hybrid REITs Really Diversify?
Hybrid REITs are designed to provide investors exposure to the mortgage and equity side of the real estate market. But do they actually provide diversification benefits? All real estate is local of course, so it might take a bit longer for the smaller markets in Florida and Las Vegas to experience a rise in the volume of sales, but rest assured its coming. If the economy can avoid a second recession and begin to add jobs, expect residential real estate sales to come back in a big way.
Real Estate Sales Volume vs. Price
While a volume resurgence might be a few months off, a price rebound is at least a year away. The same force driving volume back up is pushing prices down. Every sale of property is recorded the same way, rather it be a foreclosed sale or a sale by an individual. Appraisers and buyers have no way of knowing what sales were foreclosures and what were not. As such, the average sales price will always be deflated in markets with a large amount of foreclosed properties.
On average foreclosures sell for 30 – 40% less than non-foreclosed homes. If half the sales are foreclosures, the market price will decline by 20% more than if all of those homes had been sells by individual owners. The same dynamic that contributes to the volume increase will likely accelerate the price deflation. Assuming buyers can maintain their cool, expect prices in the hardest hit areas to remain below their historical averages for at least one more year.
Mortgage hike and housing slump is no disaster
By Michael Taube Last Updated: July 21, 2010 12:02pm
GTA resale home transactions for June were down 23% from last year’s level — no surprise, as the real estate market has been saturated with overpriced homes, high volume of sales, and a wide variety of houses available for purchase for some time.
Toronto had to go through a real estate correction — not only because this is the way the market works, but also because asking (and final sale) home prices were out of whack, to put it mildly.
With housing rates falling, some people are concerned mortgage rates will start to rapidly increase — with Tuesday’s quarter-point hike being just the start.
The thinking is banks will need to hike 1-5 year mortgages to make up for the shortfall in sales. This will lead to more home defaults and foreclosures, reduce investor confidence, and create a drain on our economy — just like what happened in the U.S.
That’s what some people think. I’m not one of them.
I believe mortgage rates will gradually increase over the next year or two, but not as high as some fear.
Long-term mortgage rates (three years and up) follow the bond market. If bond yields are high, banks will usually spike mortgage rates to make up for funding costs. If bond yields remain low, mortgage rates also remain low.
Meanwhile, the correction in a real estate market does not mean market collapse. A repeat of the U.S. mortgage meltdown won’t happen here.
The subprime mortgage crisis was, in former U.S. Federal Reserve chairman Alan Greenspan’s view, “an accident waiting to happen.”
He’s right. It was a preventable accident. High-risk loans given to people with lousy credit was a bubble waiting to burst.
The late department store tycoon Marshall Field had a simple motto, “Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.”
That’s what happened in the U.S. While we blame “greedy” businessmen, “arrogant” government officials, or “dim-witted” low-income families for this financial mess, everyone had their fingers in the pie — and enjoyed the filling a bit too much.
In Canada, we don’t offer subprime mortgages to potential clients. Most importantly, credit checks matter.
If you don’t have sufficient personal income or assets, you ain’t getting the deed to the house.
As well, the Canadian economy continues to chug along. According to Statistics Canada, 93,000 new jobs were created in June, and most jobs lost during the recession have now been recovered. As long as our economy remains on track, real estate will not collapse in Toronto.
It’s up to federal politicians — and, to a lesser extent, provincial and municipal politicians — to ensure economic growth remains a priority so the real estate correction doesn’t become a real estate collapse.
But it’s also up to voters. If pro-business and pro-development forces are in charge of our political futures, the economy should remain on solid footing, bond yields should remain low, and mortgage rates should remain stable.
If not, the future of real estate in our fair city could be up in the air.
— Taube is a former speechwriter for PM Stephen Harper. His family has been involved in mortgages for more than 50 years
GTA resale home transactions for June were down 23% from last year’s level — no surprise, as the real estate market has been saturated with overpriced homes, high volume of sales, and a wide variety of houses available for purchase for some time.
Toronto had to go through a real estate correction — not only because this is the way the market works, but also because asking (and final sale) home prices were out of whack, to put it mildly.
With housing rates falling, some people are concerned mortgage rates will start to rapidly increase — with Tuesday’s quarter-point hike being just the start.
The thinking is banks will need to hike 1-5 year mortgages to make up for the shortfall in sales. This will lead to more home defaults and foreclosures, reduce investor confidence, and create a drain on our economy — just like what happened in the U.S.
That’s what some people think. I’m not one of them.
I believe mortgage rates will gradually increase over the next year or two, but not as high as some fear.
Long-term mortgage rates (three years and up) follow the bond market. If bond yields are high, banks will usually spike mortgage rates to make up for funding costs. If bond yields remain low, mortgage rates also remain low.
Meanwhile, the correction in a real estate market does not mean market collapse. A repeat of the U.S. mortgage meltdown won’t happen here.
The subprime mortgage crisis was, in former U.S. Federal Reserve chairman Alan Greenspan’s view, “an accident waiting to happen.”
He’s right. It was a preventable accident. High-risk loans given to people with lousy credit was a bubble waiting to burst.
The late department store tycoon Marshall Field had a simple motto, “Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.”
That’s what happened in the U.S. While we blame “greedy” businessmen, “arrogant” government officials, or “dim-witted” low-income families for this financial mess, everyone had their fingers in the pie — and enjoyed the filling a bit too much.
In Canada, we don’t offer subprime mortgages to potential clients. Most importantly, credit checks matter.
If you don’t have sufficient personal income or assets, you ain’t getting the deed to the house.
As well, the Canadian economy continues to chug along. According to Statistics Canada, 93,000 new jobs were created in June, and most jobs lost during the recession have now been recovered. As long as our economy remains on track, real estate will not collapse in Toronto.
It’s up to federal politicians — and, to a lesser extent, provincial and municipal politicians — to ensure economic growth remains a priority so the real estate correction doesn’t become a real estate collapse.
But it’s also up to voters. If pro-business and pro-development forces are in charge of our political futures, the economy should remain on solid footing, bond yields should remain low, and mortgage rates should remain stable.
If not, the future of real estate in our fair city could be up in the air.
— Taube is a former speechwriter for PM Stephen Harper. His family has been involved in mortgages for more than 50 years
Tuesday, July 20, 2010
Interest rates expected to edge up
Bank of Canada announcement at 9 a.m. ET
Last Updated: Monday, July 19, 2010 2:23 PM ET
CBC News
The Bank of Canada, weighing strong domestic growth against weakness internationally, will likely raise its key lending rate by another quarter of a percentage point Tuesday morning, economists say.
That would bring the central bank's overnight lending rate to 0.75 per cent.Bank of Canada governor Mark Carney is shown during a panel discussion last month at the International Economic Forum of the Americas in Montreal. (Graham Hughes/Canadian Press)
Increases in the overnight lending rate generally lead directly to increases in lines of credit rates, variable-rate mortgages and other demand loans.
All 12 primary securities dealers expect the central bank to announce a quarter percentage point hike. A survey of 20 economists by Bloomberg found similar unanimity.
If that rate hike does materialize, it would be the second straight hike by the bank, which had left its benchmark lending rate at a rock-bottom 0.25 per cent for more than a year to provide a shot in the arm to a struggling economy.
Canada's central bank was the first in the G7 group of industrialized economies to raise interest rates since the global financial crisis began unfolding.
Canada's economy faring better than most
Recent data has shown the Canadian economy continuing to shake off the effects of the recent slowdown.
The most recent employment report issued showed that Canada created 93,200 jobs in June, far above economists' forecasts. The Canadian economy has now recouped almost all of the jobs lost in the recession.
The unemployment rate fell to 7.9 per cent — its lowest level in more than a year.
Bank of Canada surveys released last week suggest that Canadian businesses remain optimistic as far as sales and hiring are concerned.
"With solid employment growth powering consumers, and business investment now surging, Canada's domestic economy still looks solid," noted Bank of Montreal economist Benjamin Reitzes.
The international economic recovery has been more uncertain. Recent U.S. and European economic data, for instance, has been tentative at best.
Analysts say that weakness should be enough to keep the Bank of Canada from aggressively raising rates.
TD Bank economist Grant Bishop agrees that the central bank will hike by a quarter point Tuesday, but thinks the bank will underscore "the economic uncertainties in its communiqué, leaving an open door to a pause on rate hikes if conditions warrant."
A survey of 20 economists by Reuters finds that most expect the central bank's key lending rate will be at 1.25 per cent the end of the year, meaning that a couple of additional small rate hikes may be in the offing after Tuesday's, along with a pause or two.
Last Updated: Monday, July 19, 2010 2:23 PM ET
CBC News
The Bank of Canada, weighing strong domestic growth against weakness internationally, will likely raise its key lending rate by another quarter of a percentage point Tuesday morning, economists say.
That would bring the central bank's overnight lending rate to 0.75 per cent.Bank of Canada governor Mark Carney is shown during a panel discussion last month at the International Economic Forum of the Americas in Montreal. (Graham Hughes/Canadian Press)
Increases in the overnight lending rate generally lead directly to increases in lines of credit rates, variable-rate mortgages and other demand loans.
All 12 primary securities dealers expect the central bank to announce a quarter percentage point hike. A survey of 20 economists by Bloomberg found similar unanimity.
If that rate hike does materialize, it would be the second straight hike by the bank, which had left its benchmark lending rate at a rock-bottom 0.25 per cent for more than a year to provide a shot in the arm to a struggling economy.
Canada's central bank was the first in the G7 group of industrialized economies to raise interest rates since the global financial crisis began unfolding.
Canada's economy faring better than most
Recent data has shown the Canadian economy continuing to shake off the effects of the recent slowdown.
The most recent employment report issued showed that Canada created 93,200 jobs in June, far above economists' forecasts. The Canadian economy has now recouped almost all of the jobs lost in the recession.
The unemployment rate fell to 7.9 per cent — its lowest level in more than a year.
Bank of Canada surveys released last week suggest that Canadian businesses remain optimistic as far as sales and hiring are concerned.
"With solid employment growth powering consumers, and business investment now surging, Canada's domestic economy still looks solid," noted Bank of Montreal economist Benjamin Reitzes.
The international economic recovery has been more uncertain. Recent U.S. and European economic data, for instance, has been tentative at best.
Analysts say that weakness should be enough to keep the Bank of Canada from aggressively raising rates.
TD Bank economist Grant Bishop agrees that the central bank will hike by a quarter point Tuesday, but thinks the bank will underscore "the economic uncertainties in its communiqué, leaving an open door to a pause on rate hikes if conditions warrant."
A survey of 20 economists by Reuters finds that most expect the central bank's key lending rate will be at 1.25 per cent the end of the year, meaning that a couple of additional small rate hikes may be in the offing after Tuesday's, along with a pause or two.
Some experts see peril in call for higher interest rates
The Canadian PressDate: Mon. Jul. 19 2010 8:09 PM ET
OTTAWA — Bank of Canada governor Mark Carney has seldom heard such unanimity about what he should do with interest rates at a time of economic uncertainty.
The consensus of 12 economists surveyed is that the governor will hike the policy rate by a quarter point for the second time in as many months Tuesday to 0.75 per cent, still an extremely low level.
It's the same verdict for the 11 private sector and academic analysts who made up the C.D. Howe Institute's monetary policy council this month -- all casting their vote for further rate increases. Four even called for a half-point jump to one per cent.
As well, the markets have priced in a quarter-point hike for weeks.
But a few bearish economists are urging Carney to ignore the dubious wisdom of crowds, warning of potential danger if he succumbs to the pressure to raise borrowing costs as the economy is starting to recover from recession.
"I don't believe the case for hiking rates is valid, and I think Canada will pay for this," says Carl Weinberg, chief economist with U.S.-based High Frequency Economics.
Higher interest rates drive the cost of borrowing higher, discouraging consumer spending and business investment that are key to economic growth. As well, Canada will open up a three-quarter point interest rate differential with the U.S., which will raise the value of the loonie and squeeze Canadian exports to the United States.
"You could push the economy back down into the hole again," Weinberg warns.
Brian Bethune of IHS Global Insight concurs, saying Carney's first mistake was to signal a leaning towards higher rates in April, then following through with the first rate hike in three years on June 1.
The result was that markets pushed up mortgage rates in the spring by a full point percentage point, helping to kill off the housing rally, which had been a key driver of Canadian growth.
Carney himself appeared to express some reticence last month, noting that the global recovery was uneven and in advanced economies, "heavily dependent" on government and central bank stimulus. He wrapped up by cautioning against counting on a second hike on July 20, as many had and still do.
"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," he advised.
Since, almost all indicators have gone south. Along with the European debt worries is concern that the U.S. may be heading toward a double-dip recession. China has advised its growth will be more moderate going forward.
In Canada, the economy followed an extraordinary 6.1 per cent acceleration in the first quarter with a sudden thud in April -- no growth. Retail sales, housing, manufacturing and balance of trade have all turned negative.
The argument for further interest rate hikes, as expressed by the C.D. Howe panel, was that the need for so-called emergency-level rates had ceased and that financial-market indicators point to inflation above two per cent -- the central bank's target -- in the next few years.
Royal Bank chief economist Craig Wright, who is a member of the panel, said the bears are exaggerating the impact of modest rate increases from what are unsustainably low rates.
He points out that Canada had the best two months of job creation on record in April and June, when employment grew by 109,000 and 93,000 respectively.
"The crisis has eased, and in that environment the crisis setting for both interest rates and fiscal policy can be eased as well," he argued. "The Bank of Canada is not looking at inflation today, it's trying to extrapolate where it will be in 12 to 18 months and if we don't moderate growth, we will run into inflationary concerns."
Wright does agree with the bears that this is no time to be aggressively tightening policy.
But labour economist Erin Weir of the United Steelworkers says any increase, even a small one, is without basis.
While 372,000 new jobs were created during the past year as of June, 270,000 more people joined the labour force during that period, he notes. This explains why the unemployment rate remains relatively high at 7.9 per cent, two points higher than it was before the recession.
And Bethune calls inflation a bogeyman. It is currently a tame 1.4 per cent, and with the global economy braking, unlikely to rear its head any time soon.
Bethune suggests an almost psychological fear of low rates may be behind the push to raise them. He reflects back to the summer of 2008, a few months before the economy caved in, when the consensus was near unanimous that rates were still too low. The concern looks absurd now.
"They are discomfited, they get twitchy, their feet are jumping because rates are too low," he says of monetary economists.
"Even in the Fed (U.S.'s central bank), there was an emerging consensus early in 2010 that it would have to have an exit strategy and start implementing it within months ... and now look where we are." Last week, the Fed was considering further stimulus as it downgraded American's economic outlook.
Bethune says Carney should look past the temporary strong jobs numbers and already past first quarter growth, and instead focus on the weak U.S. recovery and the drag it is bound to have on Canada going forward.
"It would be hard for them (Bank of Canada) not to raise rates when there are so many people saying raise rates, but this is when the central bankers earn their money," he said.
Mark Carney’s balancing act: Need for higher rates vs. global risk
Published On Mon Jul 19 2010
Les Whittington
Ottawa Bureau OTTAWA-Forced into a high-risk balancing act by the sputtering world economy, the Bank of Canada is expected to continue with marginal increases in its trend-setting rate Tuesday. But the central bank will temper the decision with a strong note of caution.
Analysts expect Bank Governor Mark Carney to hike the key lending rate by 0.25 per cent to 0.75 per cent.
If so, it would be only the second increase since April 2009, when Carney dropped the overnight rate to a rock-bottom 0.25 per cent—and promised to keep it there for a year—to combat the recession.
He abandoned that strategy on June 1 when the rate was set at 0.50 per cent.
Higher Bank of Canada rates will result in increased borrowing costs for business, consumers and some homebuyers.
A gradual run-up in Canadian interest rates is warranted by the renewed strength of the Canadian economy in early 2010 and the need to head off any chance of runaway inflation as economic conditions brighten, economists say.
Having weathered the recession better than most industrialized countries, Canada has returned to a position of growth. While business conditions have weakened in the past few months, the economy experienced red-hot 6.1-per cent growth in the January-through-March period.
And the job situation is slowly improving. Most of the 300,000-plus jobs lost in the recession have been recouped even though a growing workforce has left unemployment at a still-high 7.9 per cent.
“Domestic conditions continue to argue powerfully for further rate increases,” TD Bank Financial Group said in an analysis of Carney’s options.
Under current conditions, the central bank is expected to gradually rachet up its key lending rate over the next six months to the 1.25-per cent range at the end 2010.
But Carney is likely to balance Tuesday’s decision with serious warnings about the uncertainties ahead, particularly the risky direction of the international economy and its potential impact on Canada.
The central bank has to walk a fine line, says TD Bank economist Eric Lascelles.
“It’s one of those very tricky situations where traditional economic analysis—and just looking at the forecasts—suggests ‘Yeah, sure, they should hike,’” he said. “Then suddenly you take into account all of these risks that are disproportionately skewed downwards and it’s a much tougher call.
“The strategy that the Bank of Canada probably employs is it sticks to the assumption that all is reasonably well as the forecasts suggest and continues to raise rates but stays on guard for surprises and keeps the market on guard for surprises.”
The major risks to the world economy are the shaky financial situation of European countries in the wake of the Greek debt crisis and the weak recovery in the U.S., which takes 75 per cent of Canada’s exports.
This picture is clouded by a less robust housing market in Canada, an impending decline in Ottawa’s stimulus spending and reluctance so far by Canadian companies to pick up the slack by increasing business investment.
“You can’t automatically assume that all will be well” with Canada’s economy, said Lascelles. “I think that growth is still the likely outcome but how strong will that growth be?”
United Steelworkers economist Erin Weir disagrees with the view that Carney should gradually tighten monetary policy.
He said inflation is still below the central bank’s 2-per cent target and, even if hiring is increasing, wages have been so flat that there is no threat of a wave of wage-driven price increases.
With the U.S. Federal Reserve Board keeping rates low to bolster the American business climate, higher rates in Canada could worsen the outlook. That’s because rising interest rates tend to increase demand for a currency as investors anticipate better returns, thus driving up the loonie on exchange markets. This in turn makes it harder for Canadian manufacturers to compete for sales south of the border.
“I don’t see any need to raise rates,” said Weir. “And I think the downside to raising them is that, especially in a context where the American Federal Reserve is holding steady, it will tend to push up the Canadian dollar, which is certainly a huge challenge for a lot of Canadian export industries that are struggling to try to recover.”
Les Whittington
Ottawa Bureau OTTAWA-Forced into a high-risk balancing act by the sputtering world economy, the Bank of Canada is expected to continue with marginal increases in its trend-setting rate Tuesday. But the central bank will temper the decision with a strong note of caution.
Analysts expect Bank Governor Mark Carney to hike the key lending rate by 0.25 per cent to 0.75 per cent.
If so, it would be only the second increase since April 2009, when Carney dropped the overnight rate to a rock-bottom 0.25 per cent—and promised to keep it there for a year—to combat the recession.
He abandoned that strategy on June 1 when the rate was set at 0.50 per cent.
Higher Bank of Canada rates will result in increased borrowing costs for business, consumers and some homebuyers.
A gradual run-up in Canadian interest rates is warranted by the renewed strength of the Canadian economy in early 2010 and the need to head off any chance of runaway inflation as economic conditions brighten, economists say.
Having weathered the recession better than most industrialized countries, Canada has returned to a position of growth. While business conditions have weakened in the past few months, the economy experienced red-hot 6.1-per cent growth in the January-through-March period.
And the job situation is slowly improving. Most of the 300,000-plus jobs lost in the recession have been recouped even though a growing workforce has left unemployment at a still-high 7.9 per cent.
“Domestic conditions continue to argue powerfully for further rate increases,” TD Bank Financial Group said in an analysis of Carney’s options.
Under current conditions, the central bank is expected to gradually rachet up its key lending rate over the next six months to the 1.25-per cent range at the end 2010.
But Carney is likely to balance Tuesday’s decision with serious warnings about the uncertainties ahead, particularly the risky direction of the international economy and its potential impact on Canada.
The central bank has to walk a fine line, says TD Bank economist Eric Lascelles.
“It’s one of those very tricky situations where traditional economic analysis—and just looking at the forecasts—suggests ‘Yeah, sure, they should hike,’” he said. “Then suddenly you take into account all of these risks that are disproportionately skewed downwards and it’s a much tougher call.
“The strategy that the Bank of Canada probably employs is it sticks to the assumption that all is reasonably well as the forecasts suggest and continues to raise rates but stays on guard for surprises and keeps the market on guard for surprises.”
The major risks to the world economy are the shaky financial situation of European countries in the wake of the Greek debt crisis and the weak recovery in the U.S., which takes 75 per cent of Canada’s exports.
This picture is clouded by a less robust housing market in Canada, an impending decline in Ottawa’s stimulus spending and reluctance so far by Canadian companies to pick up the slack by increasing business investment.
“You can’t automatically assume that all will be well” with Canada’s economy, said Lascelles. “I think that growth is still the likely outcome but how strong will that growth be?”
United Steelworkers economist Erin Weir disagrees with the view that Carney should gradually tighten monetary policy.
He said inflation is still below the central bank’s 2-per cent target and, even if hiring is increasing, wages have been so flat that there is no threat of a wave of wage-driven price increases.
With the U.S. Federal Reserve Board keeping rates low to bolster the American business climate, higher rates in Canada could worsen the outlook. That’s because rising interest rates tend to increase demand for a currency as investors anticipate better returns, thus driving up the loonie on exchange markets. This in turn makes it harder for Canadian manufacturers to compete for sales south of the border.
“I don’t see any need to raise rates,” said Weir. “And I think the downside to raising them is that, especially in a context where the American Federal Reserve is holding steady, it will tend to push up the Canadian dollar, which is certainly a huge challenge for a lot of Canadian export industries that are struggling to try to recover.”
What to expect from Bank of Canada
Paul Vieira, Financial Post · Monday, Jul. 19, 2010OTTAWA -- Bank of Canada governor Mark Carney returns to the spotlight this week as he unveils the central bank’s latest interest-rate decision -- another increase is expected -- and economic outlook. He’ll also appear before Ottawa journalists Thursday to offer his view in his own words on the outlook on the economy, and whether it is headed for a dreaded double-dip as some have feared. Here’s a rundown of the key things to watch for this week from the Bank of Canada.
What is likely to happen to rates?
The Bank of Canada is widely expected Tuesday to raise its benchmark interest rate by 25 basis points, to 0.75%, as Canadian economic data -- especially on the jobs front -- remain relatively robust. Core inflation, which removes volatile items, remains close to the central bank’s 2% target. And indications are Canada’s economic growth, the best by far among Group of Seven countries, is beginning to chip away at the spare capacity the recession created. In all, analysts argue there is no need for the central bank to keep its key policy rate at emergency-like levels.
There are those, led by academics who sit on the C.D. Howe Institute’s monetary policy council, who suggest a 50-basis-point hike is required in an effort to get the policy rate back to a sustainable level before inflationary pressure builds. Meanwhile, analysts such as Brian Bethune of IHS Global Insight believe the Bank of Canada should hold off on rate hikes due to the increased risk of a “synchronized slowdown” among industrialized economies -- notably the United States and Europe.
What the Bank of Canada statement is likely to say?
Expect the central bank statement to mimic the pattern followed when it last raised rates on June 1 -- namely, hawkish action followed by dovish language. This gives Mark Carney, the Bank of Canada, enough flexibility to keep markets guessing, plus allow him to shift gears on a moment’s notice should the global economy deteriorate.
“This hawkish action/dovish language tag-teaming will keep markets on their heels, with the effect that although the market will usually gravitate towards the belief that the next decision will be a hike, it will remain slightly queasy about this assumption, and distinctly uncomfortable about later prospects,” said Eric Lascelles, chief Canadian strategist at TD Securities.
Further, this statement will provide a sneak peak of the Bank of Canada’s latest economic outlook, to be published Thursday. It is possible the central bank scales back its growth forecasts for the Canadian economy, given the set of weak data emerging from the United States and elsewhere. Previously, the central bank expected 3.7% expansion this year and 3.1% in 2011. There should be little mention of the Canadian dollar, as it has traded at roughly the mid-US90¢ range over the past two months.
What about interest rates for the rest of 2010 and 12 months out?
This is where opinions differ sharply, and that is best illustrated in the latest recommendations from the C.D. Howe Institute’s monetary policy committee -- which sort of acts like a shadow central bank. Council members believe a series of overnight rate increases over the coming year are necessary, as the output gap narrows and an emergency approach become less appropriate. However, the pace at which rates increase is up for debate.
Some Bay Street economists on the council lean toward just two more rate hikes, at 25-basis-point apiece, for the remainder of 2010. One of those analysts, Avery Shenfeld of CIBC World Markets, said the central bank would hike its benchmark rate to 1.25% before it pauses for “at least” two quarters, as relatively low borrowing costs will be required as the global economy grapples with widespread budget cutting and weakening consumer demand.
Meanwhile, most of the academics on the C.D. Howe council envisage the central bank’s rate hitting 2% and above by the end of 2010, and as high as 3.75% in one-year’s time. These academics argue that current rapid growth in money supply and higher-than-expected inflation will force the central bank’s hand.
pvieira@nationalpost.com
Waiting on Bank of Canada
Of the 19 major economists in Canada, all 19 of them expect that the Bank of Canada will raise its lending rate by 1/4% tomorrow. Depending on how the statement reads, the hike could affect mortgage rates. If its tone is easy and safe there could be a drop in yields. A more confident tone could lead to a rise in yields. A drop would be good for mortgage rates, a rise, not so good.
Fingers crossed.
Monday, July 19, 2010
Eliminating Mortgage Mayhem
Saturday, July 17, 2010
Anja Sonnenberg
Whether you’re purchasing, refinancing or renewing your mortgage, you may have more options than you realize. It’s not just about choosing the best rate, says Eleonora Salerno, mortgage broker of The Mortgage Centre. In today’s market, most people share the same dilemma – should they choose a fixed or variable rate?
A fixed rate product means you’ll get a guaranteed fixed payment for the term you choose. A variable rate product means you’ll have a fluctuating interest rate throughout the term of your mortgage.
“On a fixed rate product you’ll be making the same payment for the next few years. This is the type of mortgage product for a conservative borrower,” says Salerno. “A variable product is more for a risk taker. It fluctuates with the Canada prime rate, so we can’t determine what your mortgage payment will be next year. But history does dictate that a variable rate does float below the fixed rate,” says Salerno. With a variable rate, Salerno says a borrower will see significant savings at the end of their mortgage, so for some, it may be worth a few sleepless nights.
If you’ve signed up for a fixed mortgage, but now you’re thinking about switching to a variable, you can break your mortgage, but you will pay a penalty.
“Another advantage to a variable mortgage is that you can switch to a fixed rate mortgage whenever you want and you won’t pay a penalty,” says Salerno.
Finding the right mortgage may sound overwhelming, but a mortgage broker can help you shop around for the best product. “Our job is to make you feel comfortable when choosing a mortgage,” suggests Salerno.
Call me to discuss your options: Leon Martin 519-503-2753 or visiting my website.
Anja Sonnenberg
Whether you’re purchasing, refinancing or renewing your mortgage, you may have more options than you realize. It’s not just about choosing the best rate, says Eleonora Salerno, mortgage broker of The Mortgage Centre. In today’s market, most people share the same dilemma – should they choose a fixed or variable rate?
A fixed rate product means you’ll get a guaranteed fixed payment for the term you choose. A variable rate product means you’ll have a fluctuating interest rate throughout the term of your mortgage.
“On a fixed rate product you’ll be making the same payment for the next few years. This is the type of mortgage product for a conservative borrower,” says Salerno. “A variable product is more for a risk taker. It fluctuates with the Canada prime rate, so we can’t determine what your mortgage payment will be next year. But history does dictate that a variable rate does float below the fixed rate,” says Salerno. With a variable rate, Salerno says a borrower will see significant savings at the end of their mortgage, so for some, it may be worth a few sleepless nights.
If you’ve signed up for a fixed mortgage, but now you’re thinking about switching to a variable, you can break your mortgage, but you will pay a penalty.
“Another advantage to a variable mortgage is that you can switch to a fixed rate mortgage whenever you want and you won’t pay a penalty,” says Salerno.
Finding the right mortgage may sound overwhelming, but a mortgage broker can help you shop around for the best product. “Our job is to make you feel comfortable when choosing a mortgage,” suggests Salerno.
Call me to discuss your options: Leon Martin 519-503-2753 or visiting my website.
Friday, July 16, 2010
Canadian real estate: A soft landing or something worse?
CTV News - July 16, 2010
Michael Babad
These are stories Report on Business is following today. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Housing market pace slows
Canada's housing market is cooling off after its record-setting pace in the post-recession period. The Canadian Real Estate Association said today existing home sales fell 8.2 per cent in June from a month earlier, largely because of a slower pace in Toronto and Calgary. The national average resale price dipped 1.2 per cent, to $342,662, from May's record $346,881. That's still almost 5 per cent above last year's prices. Here are the views of four economists:
Adrienne Warren, Bank of Nova Scotia: "We expect to see a further slowing in sales over the second half of the year as interest rates gradually drift up. (It should be noted, however, that sales are still at a historically high level despite this year’s pullback, supported by improving employment conditions and still-low borrowing costs.) While this in turn will likely put some further modest downward pressure on prices, listings are also beginning to trend lower, which will help to maintain a fairly healthy balance between buyers and sellers."
David Rosenberg, Gluskin Sheff + Associates: "The Canadian housing market at one point during last year's parabolic surge in sales and pricing got as much as 20 per cent overvalued. In recent months, demand has weakened under the weight of eroding homeowner affordability. At the same time, the rush of new construction has elevated the supply side of the equation. and so what falls out these shifting demand and supply curves is a reduction in prices - the long awaited correction is here. Remember - excesses in one direction are generally followed by excesses in the other direction. And bubbles never correct by going sideways. In a nutshell, there's more air to come out of this Canadian housing balloon."
Douglas Porter, BMO Nesbitt Burns: "By some appearances, Canadian home sales have done their best impression of a capsized canoe in the wake of the new tighter mortgage insurance rules and the modest back-up in borrowing costs in the spring. Sales were also front-end loaded in 2010 ahead of the [harmonized sales tax] and are now in rapid reverse. While the headlines may look soggy for the next few months, there are reasons to believe the market could soon regain its balance - long-term mortgage rates have dropped, employment remains on a roll, and prices have stabilized."
Pascal Gauthier, Toronto-Dominion Bank: "After improving markedly in 2008, home affordability eroded significantly in 2009. With the typical lag, this is naturally slowing the pace of sales. Nonetheless, the housing market slowdown should be cushioned by an improving employment and income picture. The level of interest rates remains quite supportive of sales activity, and rising interest rates would only occur against a stronger overall economic backdrop."
Michael Babad
These are stories Report on Business is following today. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Housing market pace slows
Canada's housing market is cooling off after its record-setting pace in the post-recession period. The Canadian Real Estate Association said today existing home sales fell 8.2 per cent in June from a month earlier, largely because of a slower pace in Toronto and Calgary. The national average resale price dipped 1.2 per cent, to $342,662, from May's record $346,881. That's still almost 5 per cent above last year's prices. Here are the views of four economists:
Adrienne Warren, Bank of Nova Scotia: "We expect to see a further slowing in sales over the second half of the year as interest rates gradually drift up. (It should be noted, however, that sales are still at a historically high level despite this year’s pullback, supported by improving employment conditions and still-low borrowing costs.) While this in turn will likely put some further modest downward pressure on prices, listings are also beginning to trend lower, which will help to maintain a fairly healthy balance between buyers and sellers."
David Rosenberg, Gluskin Sheff + Associates: "The Canadian housing market at one point during last year's parabolic surge in sales and pricing got as much as 20 per cent overvalued. In recent months, demand has weakened under the weight of eroding homeowner affordability. At the same time, the rush of new construction has elevated the supply side of the equation. and so what falls out these shifting demand and supply curves is a reduction in prices - the long awaited correction is here. Remember - excesses in one direction are generally followed by excesses in the other direction. And bubbles never correct by going sideways. In a nutshell, there's more air to come out of this Canadian housing balloon."
Douglas Porter, BMO Nesbitt Burns: "By some appearances, Canadian home sales have done their best impression of a capsized canoe in the wake of the new tighter mortgage insurance rules and the modest back-up in borrowing costs in the spring. Sales were also front-end loaded in 2010 ahead of the [harmonized sales tax] and are now in rapid reverse. While the headlines may look soggy for the next few months, there are reasons to believe the market could soon regain its balance - long-term mortgage rates have dropped, employment remains on a roll, and prices have stabilized."
Pascal Gauthier, Toronto-Dominion Bank: "After improving markedly in 2008, home affordability eroded significantly in 2009. With the typical lag, this is naturally slowing the pace of sales. Nonetheless, the housing market slowdown should be cushioned by an improving employment and income picture. The level of interest rates remains quite supportive of sales activity, and rising interest rates would only occur against a stronger overall economic backdrop."
Mortgage rates remain at lowest level in decades
Average rates on 30-year fixed mortgages unchanged at 4.57 pct, lowest level in decades
Thursday July 15, 10:32 am ET
By Alan Zibel, AP Real Estate Writer
WASHINGTON (AP) -- Mortgage rates were unchanged this week at the lowest point in decades, but it hasn't been enough to jump-start the housing market.
Government-sponsored mortgage buyer Freddie Mac said Thursday the average rate for 30-year fixed loans this week was 4.57 percent. That's the same as a week earlier and the lowest since Freddie Mac began tracking rates in 1971.
The last time home loan rates were lower was the 1950s, when most mortgages lasted just 20 or 25 years.
Rates have fallen since the spring. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on U.S. debt.
However, low rates have yet to fuel home sales and have sparked only a modest increase in refinancing activity.
The housing market has slowed since federal tax credits for homebuyers expired at the end of April. And the latest decline in mortgage rates is unlikely to boost the market.
Mortgage rates have hovered near record lows for some time, so most people who can afford to buy homes or qualify to refinance their loans have already done so in the past 18 months. Doing so again wouldn't be worth the cost for most.
Meanwhile, millions of Americans are unable to take advantage of the low rates. Many have seen the value of their homes plummet and have little or no equity. Or they lack good credit or steady income to get or refinance a mortgage.
Rates could go lower and still not budge the housing market, analysts say. That's because a person without a job can't afford a home and a person worried about losing their job is unlikely to do so either.
To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
Rates on 15-year fixed-rate mortgages decreased to an average of 4.06 percent, down from 4.07 percent last week. Rates on five-year adjustable-rate mortgages averaged 3.85 percent, up from 3.75 percent a week earlier.
Rates on one-year adjustable-rate mortgages fell to an average of 3.74 percent from 3.75 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for all types of loans in Freddie Mac's survey averaged 0.7 a point.
Thursday July 15, 10:32 am ET
By Alan Zibel, AP Real Estate Writer
WASHINGTON (AP) -- Mortgage rates were unchanged this week at the lowest point in decades, but it hasn't been enough to jump-start the housing market.
Government-sponsored mortgage buyer Freddie Mac said Thursday the average rate for 30-year fixed loans this week was 4.57 percent. That's the same as a week earlier and the lowest since Freddie Mac began tracking rates in 1971.
The last time home loan rates were lower was the 1950s, when most mortgages lasted just 20 or 25 years.
Rates have fallen since the spring. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on U.S. debt.
However, low rates have yet to fuel home sales and have sparked only a modest increase in refinancing activity.
The housing market has slowed since federal tax credits for homebuyers expired at the end of April. And the latest decline in mortgage rates is unlikely to boost the market.
Mortgage rates have hovered near record lows for some time, so most people who can afford to buy homes or qualify to refinance their loans have already done so in the past 18 months. Doing so again wouldn't be worth the cost for most.
Meanwhile, millions of Americans are unable to take advantage of the low rates. Many have seen the value of their homes plummet and have little or no equity. Or they lack good credit or steady income to get or refinance a mortgage.
Rates could go lower and still not budge the housing market, analysts say. That's because a person without a job can't afford a home and a person worried about losing their job is unlikely to do so either.
To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
Rates on 15-year fixed-rate mortgages decreased to an average of 4.06 percent, down from 4.07 percent last week. Rates on five-year adjustable-rate mortgages averaged 3.85 percent, up from 3.75 percent a week earlier.
Rates on one-year adjustable-rate mortgages fell to an average of 3.74 percent from 3.75 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for all types of loans in Freddie Mac's survey averaged 0.7 a point.
Thursday, July 15, 2010
Drop in home sales may be sign of peak
The Toronto Real Estate Board said sales in June were down 23% from a year ago, leaving activity for the quarter up 1% from the same period a year earlier. Garry Marr, Financial Post · Tuesday, Jul. 6, 2010
Existing home sales dropped sharply in Canada’s two most expensive markets, a further indication that the real estate market may have peaked.
The Toronto Real Estate Board said sales in June were down 23% from a year ago, leaving activity for the quarter up 1% from the same period a year earlier.
“We experienced a record number of existing home sales during the first half of 2010 but these sales were weighted more towards the beginning of the year, said Bill Johnston, president of TREB.
“The pace of home sales has moderated from record levels over the past two months with the prospect of higher mortgage rates.”
In addition to the fear of higher mortgage rates, the housing market was impacted earlier in the year by new mortgage rules that made it tougher to borrow.
The real estate industry has said many customers simply pushed forward their purchase to beat the new rules, predicting slower sales through the spring.
The industry is also now dealing with the impact of the harmonized sales tax, which was introduced in British Columbia and Ontario on July 1. Consumers trying to beat that tax — which will be newly applied to services such as real estate commissions — are said to have pushed their purchases forward, which will deprive the summer and fall of a number of sales.
Vancouver’s market is also feeling the brunt of the new real estate reality. Sales in Canada’s most expensive market were off 30.2% in June from a year ago, the Real Estate Board of Greater Vancouver said earlier this week. President Jake Moldowan noted June 2010 sales are still up 22.6% from 2008 recession levels.
The slowing market appears to be a phenomenon right across the country with Calgary also reporting last week June sales were off about 42% from a year ago. June sales were 16% from May alone.
So far, the drop in demand has not hit prices dramatically, but coupled with increased supply, the double-digit year-over-year price increases we saw for most of 2010 have ended. The average sale price of a home in Toronto last month was $435,034, an 8% increase from a year earlier.
“With more to choose from in the second quarter, many home buyers have been making less-aggressive offers. This has resulted in less upward pressure in the average selling price,” said Jason Mercer, senior manager of market analysis for TREB, who said price increases will remain in single-digit territory for the rest of 2010.
New listings continue to put pressure on the Toronto market. New listings were up 13% in June from a year ago while total active listings climbed 28% during the same period.
In Vancouver, the total number of properties for sale is up 32% from a year ago. Prices in Vancouver were up 11.8% from a year ago with the board’s housing price index benchmark price climbing to $580,237 from $518,855. In Calgary, the average price of a home sold in June was $483,240, an increase of 8% from a year earlier.
The existing home market may get a break from the fact it looks likes builders are ramping down on construction. Statistics Canada said the value of building permits applied for in May was off 10.8% from a month earlier. Housing permits were off 4.4% from a month earlier.
“If there is hope for house prices in Canada, it lies in curtailing supply. That’s where any room for optimism lies in an otherwise bleak report that displayed widespread losses in value and volume terms within both the non-residential and residential categories,” said Derek Holt, an economist with Bank of Nova Scotia.
Financial Post
The Toronto Real Estate Board said sales in June were down 23% from a year ago, leaving activity for the quarter up 1% from the same period a year earlier.
“We experienced a record number of existing home sales during the first half of 2010 but these sales were weighted more towards the beginning of the year, said Bill Johnston, president of TREB.
“The pace of home sales has moderated from record levels over the past two months with the prospect of higher mortgage rates.”
In addition to the fear of higher mortgage rates, the housing market was impacted earlier in the year by new mortgage rules that made it tougher to borrow.
The real estate industry has said many customers simply pushed forward their purchase to beat the new rules, predicting slower sales through the spring.
The industry is also now dealing with the impact of the harmonized sales tax, which was introduced in British Columbia and Ontario on July 1. Consumers trying to beat that tax — which will be newly applied to services such as real estate commissions — are said to have pushed their purchases forward, which will deprive the summer and fall of a number of sales.
Vancouver’s market is also feeling the brunt of the new real estate reality. Sales in Canada’s most expensive market were off 30.2% in June from a year ago, the Real Estate Board of Greater Vancouver said earlier this week. President Jake Moldowan noted June 2010 sales are still up 22.6% from 2008 recession levels.
The slowing market appears to be a phenomenon right across the country with Calgary also reporting last week June sales were off about 42% from a year ago. June sales were 16% from May alone.
So far, the drop in demand has not hit prices dramatically, but coupled with increased supply, the double-digit year-over-year price increases we saw for most of 2010 have ended. The average sale price of a home in Toronto last month was $435,034, an 8% increase from a year earlier.
“With more to choose from in the second quarter, many home buyers have been making less-aggressive offers. This has resulted in less upward pressure in the average selling price,” said Jason Mercer, senior manager of market analysis for TREB, who said price increases will remain in single-digit territory for the rest of 2010.
New listings continue to put pressure on the Toronto market. New listings were up 13% in June from a year ago while total active listings climbed 28% during the same period.
In Vancouver, the total number of properties for sale is up 32% from a year ago. Prices in Vancouver were up 11.8% from a year ago with the board’s housing price index benchmark price climbing to $580,237 from $518,855. In Calgary, the average price of a home sold in June was $483,240, an increase of 8% from a year earlier.
The existing home market may get a break from the fact it looks likes builders are ramping down on construction. Statistics Canada said the value of building permits applied for in May was off 10.8% from a month earlier. Housing permits were off 4.4% from a month earlier.
“If there is hope for house prices in Canada, it lies in curtailing supply. That’s where any room for optimism lies in an otherwise bleak report that displayed widespread losses in value and volume terms within both the non-residential and residential categories,” said Derek Holt, an economist with Bank of Nova Scotia.
Financial Post
Home sales cool further in June
Last Updated: Thursday, July 15, 2010 | 9:22 AM ET
CBC News
A real estate slowdown appears well underway, as home resales fell by 8.2 per cent in June compared to May, the Canadian Real Estate Association said Thursday.
Home sales slowed in June, the Canadian Real Estate Association says. (Darren Calabrese/Canadian Press)
"The housing market is becoming more challenging for sellers," CREA president George Pahud said.
It's the second consecutive month of major sales declines, as sales were 9.5 per cent lower in May than they were in April. Just as was the case in May, sales were lower in 70 per cent of surveyed markets in June.
On an annual basis, sales declined by 19.7 per cent compared to June 2009, while prices were 4.9 per cent higher.
As sales declined, the nation's housing stock increased, with inventory hitting 6.9 months on a seasonally adjusted basis. Inventory is the number of months it would take to sell all the houses on the market at the current sales pace.
Inventory is now at its highest level since March 2009.
Prices also cooled but less so, with the average price of a home decreasing by 1.2 per cent to $342,662. In May, the average price of a resale Canadian home was $346,881.
There are fewer buyers now, and those who do buy are becoming more cautious, CREA economist Gregory Klump said.
"With interest rates on the rise, housing affordability and home sales activity are expected to continue to erode over the second half of 2010."
CBC News
Home sales slowed in June, the Canadian Real Estate Association says. (Darren Calabrese/Canadian Press)
"The housing market is becoming more challenging for sellers," CREA president George Pahud said.
It's the second consecutive month of major sales declines, as sales were 9.5 per cent lower in May than they were in April. Just as was the case in May, sales were lower in 70 per cent of surveyed markets in June.
On an annual basis, sales declined by 19.7 per cent compared to June 2009, while prices were 4.9 per cent higher.
As sales declined, the nation's housing stock increased, with inventory hitting 6.9 months on a seasonally adjusted basis. Inventory is the number of months it would take to sell all the houses on the market at the current sales pace.
Inventory is now at its highest level since March 2009.
Prices also cooled but less so, with the average price of a home decreasing by 1.2 per cent to $342,662. In May, the average price of a resale Canadian home was $346,881.
There are fewer buyers now, and those who do buy are becoming more cautious, CREA economist Gregory Klump said.
"With interest rates on the rise, housing affordability and home sales activity are expected to continue to erode over the second half of 2010."
Wednesday, July 14, 2010
Mortgage applications fall 2.9 percent despite best rates in decades
From The Associated Press, July 14, 2010 - 09:36 AM
WASHINGTON (AP)
Applications for home loans dipped last week even though consumers were able to refinance at the lowest rates in decades.
The Mortgage Bankers Associations says overall applications decreased nearly 3 percent from a week earlier. That incorporates an adjustment for the Independence Day holiday.
Applications to refinance home loans were down 2.9 percent. Applications taken out to purchase homes fell 3.1 percent, which the MBA said reduced its index to the lowest level since December 1996. The MBA doesn't publish the actual index.
Applications to refinance loans made up nearly 79 percent of total applications.
Mortgage rates have fallen since mid-April after investors, nervous about Europe's debt crisis and the global economy, have shifted money into safe Treasury bonds. That has caused the yields on those bonds to fall. Long-term fixed mortgage rates tend to track those yields.
The average rate for a 30-year fixed loan sank to 4.57 percent last week, according to Freddie Mac. That was the lowest since the mortgage company began keeping records in 1971.
The Mortgage Bankers Association's survey covers more than 50 percent of all applications nationwide and has been conducted since 1990.
WASHINGTON (AP)
Applications for home loans dipped last week even though consumers were able to refinance at the lowest rates in decades.
The Mortgage Bankers Associations says overall applications decreased nearly 3 percent from a week earlier. That incorporates an adjustment for the Independence Day holiday.
Applications to refinance home loans were down 2.9 percent. Applications taken out to purchase homes fell 3.1 percent, which the MBA said reduced its index to the lowest level since December 1996. The MBA doesn't publish the actual index.
Applications to refinance loans made up nearly 79 percent of total applications.
Mortgage rates have fallen since mid-April after investors, nervous about Europe's debt crisis and the global economy, have shifted money into safe Treasury bonds. That has caused the yields on those bonds to fall. Long-term fixed mortgage rates tend to track those yields.
The average rate for a 30-year fixed loan sank to 4.57 percent last week, according to Freddie Mac. That was the lowest since the mortgage company began keeping records in 1971.
The Mortgage Bankers Association's survey covers more than 50 percent of all applications nationwide and has been conducted since 1990.
Variable Rates Quite Relevant, Still
Whenever rate-hike talk starts heating up (like it has since Friday) questions about term selection become more frequent.
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
Tuesday, July 13, 2010
Property Values Could Plummet If the Canadian Real Estate Bubble Bursts
The real estate market in Canada has performed well over the last few years but it could have resulted in a bubble that is ready to burst.
The Canadian residential sector has continued healthy despite the economic mortgage crisis that affected the US, and the forecasted nationwide real estate market bubble has yet to materialize. The Canada Mortgage and Housing Corporation's (CMHC) program to stimulate credit by approving high-risk mortgages had concerned experts because it pushed the ratio of housing values to a 7.4:1 ratio, which was over 50% more than American consumers experienced prior to their housing bubble collapse. As a consequence of the CMHC's policy shift, the average Canadian family debt experienced a 9.3 percent increase in only one year.
Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who has an estimated worth $1.85 billion -- said earlier this year that he believed that the strategy used by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not point to a future real estate bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy houses based on cheap mortgages. Evidence can be witnessed in the City of Toronto where the value of Toronto properties as increased by quite a bit over the years as purchasers rushed into the market.
An in-depth study of the Canadian real estate sector performed by the Wall Street Journal in February 2010 pointed out that the 2008 failure of the Lehman Brothers in the U.S. could have built a housing bubble backfire if the Canadian government did not change their lending tactics. But as early as January 2010, a representative of the Bank of Canada explained that "if the Bank were to increase interest rates to cool the housing market" that the result would be like "dousing the entire Canadian economy with cold water, just as it comes out from recession".
The Canadian Real Estate Association numbers that were released for the first half of 2010 does show that the start of the recession in 2008 translated into a sharp decline in residential real estate sales. But this did not last long, and the recovery has not been as dramatic as anticipated. Even though the May 2010 sales figures indicated a 9.5% drop, the year-over-year price increases actually balanced it to 8.4 percent. This stabilization in the housing market is a normal result of buyers not being quite as anxious to invest as the supply of properties increases and prices climb slowly, but proportionately.
Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of people nervous," fearing a huge crash comparable to the 30% decline in U.S. housing values. This summer, however, he is observing that the short-term elements that elevated property values resulted in only a modest decline in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Gauthier believes that the national average may feel a 7 percent drop, but that the areas such as Toronto and Vancouver will bear the brunt of that decrease, and some areas such as The Prairies and Maritimes could even begin to realize gains by the end of the year.
By Stefan Hyross
Published: 7/13/2010
The Canadian residential sector has continued healthy despite the economic mortgage crisis that affected the US, and the forecasted nationwide real estate market bubble has yet to materialize. The Canada Mortgage and Housing Corporation's (CMHC) program to stimulate credit by approving high-risk mortgages had concerned experts because it pushed the ratio of housing values to a 7.4:1 ratio, which was over 50% more than American consumers experienced prior to their housing bubble collapse. As a consequence of the CMHC's policy shift, the average Canadian family debt experienced a 9.3 percent increase in only one year.
Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who has an estimated worth $1.85 billion -- said earlier this year that he believed that the strategy used by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not point to a future real estate bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy houses based on cheap mortgages. Evidence can be witnessed in the City of Toronto where the value of Toronto properties as increased by quite a bit over the years as purchasers rushed into the market.
An in-depth study of the Canadian real estate sector performed by the Wall Street Journal in February 2010 pointed out that the 2008 failure of the Lehman Brothers in the U.S. could have built a housing bubble backfire if the Canadian government did not change their lending tactics. But as early as January 2010, a representative of the Bank of Canada explained that "if the Bank were to increase interest rates to cool the housing market" that the result would be like "dousing the entire Canadian economy with cold water, just as it comes out from recession".
The Canadian Real Estate Association numbers that were released for the first half of 2010 does show that the start of the recession in 2008 translated into a sharp decline in residential real estate sales. But this did not last long, and the recovery has not been as dramatic as anticipated. Even though the May 2010 sales figures indicated a 9.5% drop, the year-over-year price increases actually balanced it to 8.4 percent. This stabilization in the housing market is a normal result of buyers not being quite as anxious to invest as the supply of properties increases and prices climb slowly, but proportionately.
Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of people nervous," fearing a huge crash comparable to the 30% decline in U.S. housing values. This summer, however, he is observing that the short-term elements that elevated property values resulted in only a modest decline in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Gauthier believes that the national average may feel a 7 percent drop, but that the areas such as Toronto and Vancouver will bear the brunt of that decrease, and some areas such as The Prairies and Maritimes could even begin to realize gains by the end of the year.
By Stefan Hyross
Published: 7/13/2010
First Time Home Buyers Do Their Homework
Canada NewsWire
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. 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.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten 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."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed 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 than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. 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.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten 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."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed 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 than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
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