Canada's housing market among world's best

Canada's housing market among world's best Australia's market red hot, while Ireland hits the skids Last Updated: Thursday, December 23, 2010 2:48 PM ET .CBC News Canada's housing market was among only six in advanced nations that posted growth in 2010, according to the latest Global Real Estate Trends report issued by Scotia Economics.
With its asking price of close to $1.5 million, this home in Vancouver's Kitsilano area demonstrates why a new report calls Canada's housing market a top performer internationally.(Jonathan Hayward/Associated Press) But while the Canadian home market was among the best performing, it was also one of the most volatile, the report notes.
Home sales were unusually active during the winter and spring, but dropped off substantially during the summer, according to the report. It says that over the fall, sales returned to a more typical level.
"We are neither overtly optimistic nor pessimistic regarding the outlook for 2011," said Adrienne Warren, a senior economist with Scotia Economics.
'Overall, we anticipate a fairly lacklustre year for residential housing.'—Adrienne Warren, Scotia Economics She expects interest rates to remain low well into 2011, providing an inducement for first-time and move-up buyers, which will keep sales at a decent level.
However modest employment and income growth is expected to restrain the market somewhat.
"Overall, we anticipate a fairly lacklustre year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices," Warren said. "The bigger risk likely awaits in 2012, when more significant interest rate increases, combined with record-high home prices, will notably strain affordability."
Australia had the hottest real estate market in 2010, according to the report, with home prices rising nearly 10 per cent over the year.
Demand there was supported by low unemployment and a tight housing supply.
"While Australia's close trade ties with Asia and resource wealth will continue to underpin a solid pace of domestic activity, higher interest rates will worsen already strained affordability," Warren said.
France, Sweden, Switzerland and the U.K. also recorded growth in their housing markets.
Germany and the United States were flat in 2010, even as the U.S. market struggled to rebound from a 30 per cent price correction over the previous four years.
Ireland, Italy, Japan and Spain all recorded price drops. Ireland's market was the worst among the 12 nations tracked. It posted double-digit price declines in 2010. Weak demand, oversupply and high unemployment are expected to keep Ireland's housing market in decline well into 2011.

Bankers sound alarm on loans

John Greenwood, Financial Post · Thursday, Dec. 9, 2010

Some of Canada’s top bank executives are growing increasingly uncomfortable with the level of debt Canadians are taking on through long-amortization mortgages.

“I think all of us are looking at [what to do],” said Ed Clark, chief executive of Toronto-Dominion Bank, adding the current situation “is not a good thing.”Speaking in an interview, Mr. Clark said TD has already acted to slow lending but it’s now up to the federal government to take steps such as reducing maximum amortization periods on home loans to 25 years from 35 years or lowering loan-to-value ratios.“These are exactly the things that government should be doing and there’s been a lot of discussion,” he said. Bank of Montreal CEO Bill Downe said his organization is also doing what it can to rein in customer borrowing, but fixing the problem without hurting the economy is “the challenge for Canada.”

“I think [tighter mortgage rules] is consistent with maintaining healthy consumer debt levels,” he said, suggesting the changes could be included in the next federal budget.

Meanwhile, the Bank of Canada is again raising the alarm about the perilous state of household finances. In the December issue of the Financial System Review released Thursday, it singled out elevated consumer debt as a “key risk” for the Canadian economy.

Fuelled by rock-bottom interest rates and a rising real estate market, Canadians have been borrowing at a rate much faster than their income has grown — especially over the last two years — raising concern that they are becoming vulnerable to economic shocks such as rising unemployment and stagnant wages.

For the first time, the value of mortgages outstanding — the biggest chunk of consumer debt — recently topped $1-trillion, according to Bank of Canada statistics.

A spokesman for Canadian Bankers Association declined to comment on whether it is lobbying the government for tougher regulations.

“Banks have contributed with their own economic research to the ongoing public discussion about household borrowing and debt levels in Canada, and there is broad agreement that this is a matter that merits close attention,” said Terry Campbell, vice-president of policy at the Canadian Bankers Association.

The banks first approached Ottawa asking for tighter lending rules at the start of the year. In February, Finance Minister Jim Flaherty gave them what they wanted, unveiling a list of changes to mortgage rules, including a requirement forcing all homebuyers to meet the standards for a five-year, fixed-rate loan even if they chose a variable mortgage with a shorter term. There were also rules lowering the maximum amount consumers could borrow against their homes to 90% from 95%.

The trouble was consumers barely noticed as the spending spree went on largely unabated. According Moody’s Investors Service Inc., household debt levels relative to income are following a similar trajectory as in the United States during the credit bubble.

Bank officials argue it’s unfair to compare the two countries because mortgage lending standards have always been much tougher in this country and there was never a major subprime mortgage sector.

Nevertheless, requirements did get loosened in the bubble years when the government allowed the amortization period on mortgages rise to 40 years.

“Originally, we said moving from 25 years to 40 years was a mistake,” Mr. Clark said. “We didn’t think it was a good idea. [When the crisis hit] the government moved back from 40 to 35 and I think from a public policy view, over the long run, it would better to get back to 25.”

He said it’s the responsibility of the government and not the banks to tighten the rules because it’s the government that regulates the market.

“If CMHC policy is 35-year [amortization], not 25 years it’s very hard for the industry to say, OK, let’s move to 25 years,” Mr. Clark said.

For his part, Mr. Downe said, he’s not trying to tell the Department of Finance what to do.

“I’m not prescriptive but I think those kinds of ideas [such as shortening amortizations] resonate,” he said in an interview earlier this week.

Moving to shorter amortizations would likely have a significant impact on the market. Statistics Canada finds 42% of all new mortgages are for amortization periods of more than 25 years.

Planning ahead key to getting top value when selling

KATE ROBERTSON

Special to Globe and Mail Update

Published Friday, Dec. 03, 2010 9:19AM EST

As with every exit strategy, experts advise owners to plan early if they think they will eventually sell their business.

According to the business monitor survey published for the first quarter of this year by the Canadian Institute of Chartered Accountants and Royal Bank of Canada, the top two challenges business owners believe they will face in selling are getting the right value for their company and finding the right successor.

Lawrence Wilder, a corporate lawyer with Cassels Brock, said that companies can get a start long before the actual sale date by staying on top of financial reporting and other bits of housekeeping.

“You certainly will get a better value if you have your ducks in a row than if you don't,” Mr. Wilder said.

Business owners who already have comprehensive financial and tax reports completed by third-party advisers will have a leg up on the due diligence process that eventually comes in an acquisition.

Once a business owner has decided to sell, he or she will have to hire an auditor, legal counsel, a business valuator (who does not take a commission on a sale) and, sometimes, a mergers and acquisition adviser (who does take a commission).

The team completes a company review, Mr. Wilder said. Everything from sales projections to employee and intellectual property agreements inform both the sales memorandum document that is used to market the company and the valuation of the business.

Some work with a business broker to market the company, but many owners want to maintain confidentiality during the process. Often, they rely on their adviser's networks to look for potential buyers.

“Most accounting firms have divisions that will assist in finding a buyer,” Mr. Wilder said. “They'll quietly market it around the street, and, very often, they won't name the company. They'll just say it has approximately x…revenues, and to please contact the accounting firm to get the name of the person who's selling.”

Interested buyers can then begin to negotiate the terms of the sale agreement to see if a deal can be made.

Even though the economy will have an effect on M&A activity, there are key factors every business owner should consider to maximize value when they sell, said Farley Cohen, a certified business valuator.

For one, it's important to have developed a business plan that goes beyond the owner's final day. said Mr. Cohen, chair of the board of the Canadian Institute of Chartered Business Valuators and a principal with Cohen, Hamilton, Steger & Co.

“The key thing to keep in mind is that value is prospective,” Mr. Cohen said. “It's looking into the future.”

Along with having comprehensive tax returns and financial statements that put the company in good standing, business owners must have answers for questions about how the company will continue to grow.

What assets and liabilities does the company have today and what are its prospects for the future? What is the value of the real estate and the equipment? How are sales expected to grow? Are there any unusual expenditures coming up?

Secondly, a business valuator will measure the internal risks of the company, which include how it is structured, how it is operated and by whom.

Whether or not a management team has a chief financial officer and a vice-president of sales and marketing will affect how much value he or she can ascribe to the company.

The valuator will also look at how competitive a business's pricing is, the level of customer satisfaction and a company's awareness of its competitors.

“You have to know what's going on in your industry and act accordingly,” Mr. Cohen said. “If there's new machinery that everybody's using, you should have that. I don't want to buy last year's way of doing things. I want to buy this year's – or, even better, next year's.”

Lastly, Mr. Cohen will look at the external risks to the business, which are largely outside of most owners’ control. But any owner would be wise to ask himself or herself the same questions a business valuator will be asking.

“It's sort of like a house,” Mr. Cohen said. “When you're selling your house, you'll look to find out what your neighbour sold their house for.”

Special to The Globe and Mail

Brokers agree BoC rate hikes unlikely until late 2011

Taken from Canadian Mortgage Broker News
Friday, 3 December 2010



A poll released by Reuters reveals that primary dealers and global forecasters unanimously agree the Bank of Canada will hold interest rates at its next policy announcement, but the timing of the next hike in 2011 is up for some debate.

The Reuters poll, released on Dec. 2 showed 93% median probability that the Bank of Canada will keep its key rate at 1% at its policy announcement on Dec. 7, with all 44 forecasters polled predicting no move.

Among the 42 that forecast the central bank’s next hike, the majority saw it happening in the first half. The median forecast for the May 31 policy date has the rate rising to 1.25%.

But among the 12 Canadian primary dealers — the institutions that deal directly with the central bank to help it carry out monetary policy — the majority forecast rate hikes in the second half with a median prediction of a first hike in July.

When compared with a similar poll taken in October, the more recent survey showed rate hike forecasts had been moved deeper into 2011.

Thirty of the 44 forecasters surveyed say the central bank will still be at 1 percent after March 1, a more pessimistic view than the last poll.

Martin Marshall, Ontario Sales Manager with Homeguard Funding Ltd. (Verico) is firmly on side with the Canadian forecasters and thinks continued low rates could be a boon for brokers.

“The economy has still not fully recovered from the recession, both here in North America and in Europe,” he says. “To raise rates at this time would be premature and therefore I do not see rates rising until the second half of 2011,” he said.

“This is great news for prospective home buyers and even existing home owners. Rates are at historic lows and we may never see them this low again.”

Morgan Vaughan, a mortgage broker with The Mortgage Group Ontario sees a steady stream of business for brokers in 2011.

“With recent numbers coming out, I don’t see any reason to raise interest rates and I believe it means brokers will continue to be busy next year, especially with refinancing.

“The spring real estate market will be strong and even if there’s a one per cent increase in interest rates I don’t see it affecting too many people because of the recent changes that require buyers qualify for the five-year posted rate.”

“Given that the Bank of Canada had indicated that they didn’t want to see that great a divergence with U.S. rates and the Fed was actually doing quantitative easing, it made sense to push out the Canadian rate hike as well as opposed to adamantly defending a Q1 move,” David Watt, senior fixed income and currency strategist at RBC Capital Markets told Reuters.

“We’ve had a lot of recovery and we’re seeing some fade at the present time, so you get that caution that maybe the domestic side of the economy is not strong enough to offset the still sizable trade hit and currency strength.”

A report earlier this week from Statistics Canada showed the economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.
Bank of Canada Governor Mark Carney in October gave a blunt assessment of the global and Canadian economic recoveries, saying the central bank would plot its next move with extreme caution.

According to CIBC World Markets senior economist Benjamin Tal at the recent CAAMP Forum, massive new monetary stimulus by the U.S. Federal Reserve to support a sagging U.S. economy also prolongs low rates south of the border, and Canada is seen not wanting to race too far ahead of its largest trading partner.

– John Tenpenny, Editor, CMP