• TSX +14.49 amid another dose of solid U.S. consumer data following a report from the U.S. Conference Board showing that its consumer confidence index rose to 52.5 in March, recovering about half of the nearly 11 points it lost in February. Analysts had been expecting a reading of 50 for March.
• DOW +11.56
• Dollar +.12c to 98.09cUS hit a one-week high against the U.S. dollar, helped by a positive tone in oil and stock markets
• Oil +$.20 to $82.37US per barrel.
• Gold -$5.80 to $1,104.50 USD per ounce
Roughly 20 per cent of Canadians struggle to afford their homes, study finds
THE CANADIAN PRESS
OTTAWA — A gap in the supply of affordable housing has left one-fifth of Canadians struggling to afford the homes they live in and there’s a risk that number could rise as mortgage rates increase from historic lows.
A Conference Board of Canada report released Tuesday, dubbed Building from the Ground Up, concludes 20 per cent of Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health — such as buying less nutritious food.
The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pre-tax income.
The report comes as CIBC and National Bank announced they were following the move of other major Canadian banks in raising mortgage rates by more than half a point ahead of an anticipated spike in the Bank of Canada’s lending rates this summer.
The biggest increase at five of Canada’s largest banks affects five-year mortgages. All are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
The rise in rates signals the end of an era of historically low borrowing costs that have contributed to an overheated rebound in the housing market, with some consumers taking on dangerously high debt loads.
The end to rock-bottom interest rates could pose a major housing affordability risk to those who have overextended themselves to get into the housing market, said Tom Carter, a University of Winnipeg professor and the Canada research chair in Urban Change and Adaptation.
Meanwhile, he added, income levels have remained relatively flat.
“There’s a lot of people who didn’t have to put very much down,” Carter said. “Mortgage rate lending has been fairly flexible in recent years, but they still have very high mortgages and when the rates go up we are going to have more people with a serious affordability problem.”
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points — an average increase during a rate-rising cycle — a homeowner with a variable rate could pay about 30 per cent more in mortgage costs per month, according to experts.
The Bank of Canada has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy, but rates could rise by 75 basis points by September as the central bank moves to fight growing inflationary pressures in the economy.
Meanwhile, high construction costs have led developers to focus on building homes that are affordable to people in higher income brackets, leaving a large segment of the population underserved, the report found.
Carter said there is also a severe affordability problem for renters because the number of rental units in major cities is declining as developers build condominiums instead of apartment units.
Carter said there could be more defaults on loans and more home foreclosures in the coming year, but added most people will scrimp on other spending to pay off their mortgages or rents, posing a risk to Canada’s economic recovery.
“If people really have to cut back in other areas to make their housing payments, it’s going to affect consumer spending overall,” he said.
“So if it becomes a significant problem I can see it slowing the recovery from recession because it’s simply going to reduce household spending.”
The Conference Board report calls upon governments to partner with real-estate developers and civil organizations to increase the amount of affordable housing in the country, saying such changes would have positive impacts on both Canadians’ health and the national productivity level. http://news.therecord.com/Business/article/691138
Wednesday, March 31, 2010
Tuesday, March 30, 2010
Financial Update for March 30, 2010
• TSX +.72.35 to 12,029 ahead for the first time in four sessions, as commodity prices rallied on U.S. dollar weakness, propping up the market's heavyweight resource shares.
• DOW +45.50 Also boosting risk appetite, data released on Monday showed U.S. consumers tapped their savings in February to keep spending on an upward path for a fifth straight month, implying that consumption may be strong enough in coming months to keep a recovery going.
• Dollar +.67c to 97.97cUS
• Oil +$2.17 to $82.17US per barrel.
• Gold +$6.10 to $1,110.30 USD per ounce
No GST hit for financial sector: Ottawa
Tara Perkins
Globe and Mail Update
Finance Minister Jim Flaherty has pledged to not impose any additional GST on financial services, suggesting that a rule change that appeared to cost the sector $1-billion was just badly worded.
“There's no intention of changing tax policy,” he said Friday at a press conference in Oshawa, Ont., on another subject.
The Finance Department issued a statement late Friday saying that the Canada Revenue agency will review and update the rules, and that it welcomes views and suggestions from the industry.
“Businesses need clear GST rules,” Mr. Flaherty said. “We are not imposing new taxes.”
Mr. Flaherty's comment was met with cautious optimism from the industry.
Barry Segal, a tax partner with Ogilvy Renault, said the comments “should be viewed as a positive step in the tax and financial communities.”
Mr. Flaherty's remarks suggest that the Canada Revenue Agency's February notice, which laid out what many experts in the financial sector viewed as a radical change to the way GST applied to a number of services, “may have gone beyond what the Department of Finance intended,” Mr. Segal said.
“We will have to see whether the government's legislation conforms to Minister Flaherty's comments,” he added.
The issue began when Ottawa said in December that it would clarify the rules that govern how GST applies to a number of financial services, in response to recent court cases on the topic. The CRA followed up with details in February. The changes applied retroactively to Dec. 14.
The financial sector says the CRA notice amounted to a drastic change in tax policy that would increase Ottawa's GST revenue by more than $1-billion a year.
It boils down to the definition of “financial service” in tax laws. Such services are usually exempt from GST but Ottawa altered the definition so that many activities that “facilitate” or “prepare” financial services appeared to be newly subject to tax.
Mr. Flaherty said Ottawa did not mean to do that. “We will have the tools in the first Budget Implementation Act to make sure we get back to the status quo before the court cases, so people can rest assured that the tax treatment of defined financial services will not change,” he said.
Some experts are not satisfied.
Mike Firth, a tax partner with PricewaterhouseCoopers, said that “what industry really needs is a clear response on the specific examples of [services] which the CRA has clearly declared are taxable effective Dec. 14, 2009, whereas they were clearly agreed as exempt before that date, such as commissions paid to car dealers to arrange for consumer credit and commissions paid to investment dealers for the sale of mutual fund units.”
Most industry voices were optimistic.
“Anybody that's trying to save for retirement or anybody that's trying to save using mutual funds or other financial products, this is good news for them,” said Barbara Amsden, director of strategy and research at the Investment Funds Institute of Canada.
However, she added that she remains cautious until she hears the final word from the Canada Revenue Agency.
“It gives us some assurance,” Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals, said of Mr. Flaherty's position.
“We hope the Minister's comments today reflect the government policy of not raising taxes on consumers,” said Steve Masnyk, a spokesman for the Insurance Brokers Association of Canada.
http://www.theglobeandmail.com/report-on-business/economy/no-gst-hit-for-financial-sector-ottawa/article1514043/
Big banks raise mortgage rates in sign era of historically low rates ending
Sunny Freeman, The Canadian Press TORONTO - Rising mortgage rates announced Monday signal the end of historically low home borrowing costs and present Canadian consumers with a dilemma: either stay flexible, hope for the best and ride out the next several months or lock in to long-term loans.
Three big banks raised their mortgage rates by more than half a point, effective Tuesday, and most industry watchers expect that's just the beginning of future small jumps that will hike the the cost of home ownership the rest of this year.
For consumers nervous about the changes, the security of five-year, or longer, fixed loans may be the best option, says one mortgage expert.
'If that (rising rates) causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be," said Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.
"If you're closing in the next six months, I suggest people do that quickly."
The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX: RY.TO), Laurentian Bank (TSX: LB.TO), and TD Canada Trust (TSX: TD.TO). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets, where mortgage loans are financed.
Other banks are expected to follow suit.
The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
That means a homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.
Many people with decent credit history who are applying for mortgages can negotiate better than posted rates.
The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.
The latest increases reflect real-time market interest rates, which usually signal future central bank rate jumps months in advance.
Looking ahead, potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?
Historically, staying short-term and flexible has been the best strategy over the long term. But banks advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk and sleep at night.
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points - an average increase during a rate-rising cycle - a homeowner with a variable mortgage should expect to pay about 30 per cent more on the monthly mortgage, says McLister.
Generally, long-term fixed rates rise by about half of the variable rate, he said.
While the fixed versus variable decision is specific to each individual, McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.
Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.
McLister said it's difficult to tell if bank prime rates will rise by 2.5 points, but he added the banks have begun a cycle of rate increases and rates in the near and medium term will continue to rise before falling again.
'They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable," he said.
McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year.
But using recent history as a guide, its not likely rates will rise much higher than 2.5 points.
'When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down."
CIBC (TSX: CM.TO) chief economist Avery Shenfeld also said mortgage rates hikes are a trend consumers should expect to continue.
'Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."
He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of September.
That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.
'Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.
'Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."
When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.
Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still comparatively low.
'Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much."
'We're coming off emergency level rates, and clearly the emergency has passed."
http://ca.news.finance.yahoo.com/s/29032010/2/biz-finance-big-banks-raise-mortgage-rates-sign-era-historically.html
• DOW +45.50 Also boosting risk appetite, data released on Monday showed U.S. consumers tapped their savings in February to keep spending on an upward path for a fifth straight month, implying that consumption may be strong enough in coming months to keep a recovery going.
• Dollar +.67c to 97.97cUS
• Oil +$2.17 to $82.17US per barrel.
• Gold +$6.10 to $1,110.30 USD per ounce
No GST hit for financial sector: Ottawa
Tara Perkins
Globe and Mail Update
Finance Minister Jim Flaherty has pledged to not impose any additional GST on financial services, suggesting that a rule change that appeared to cost the sector $1-billion was just badly worded.
“There's no intention of changing tax policy,” he said Friday at a press conference in Oshawa, Ont., on another subject.
The Finance Department issued a statement late Friday saying that the Canada Revenue agency will review and update the rules, and that it welcomes views and suggestions from the industry.
“Businesses need clear GST rules,” Mr. Flaherty said. “We are not imposing new taxes.”
Mr. Flaherty's comment was met with cautious optimism from the industry.
Barry Segal, a tax partner with Ogilvy Renault, said the comments “should be viewed as a positive step in the tax and financial communities.”
Mr. Flaherty's remarks suggest that the Canada Revenue Agency's February notice, which laid out what many experts in the financial sector viewed as a radical change to the way GST applied to a number of services, “may have gone beyond what the Department of Finance intended,” Mr. Segal said.
“We will have to see whether the government's legislation conforms to Minister Flaherty's comments,” he added.
The issue began when Ottawa said in December that it would clarify the rules that govern how GST applies to a number of financial services, in response to recent court cases on the topic. The CRA followed up with details in February. The changes applied retroactively to Dec. 14.
The financial sector says the CRA notice amounted to a drastic change in tax policy that would increase Ottawa's GST revenue by more than $1-billion a year.
It boils down to the definition of “financial service” in tax laws. Such services are usually exempt from GST but Ottawa altered the definition so that many activities that “facilitate” or “prepare” financial services appeared to be newly subject to tax.
Mr. Flaherty said Ottawa did not mean to do that. “We will have the tools in the first Budget Implementation Act to make sure we get back to the status quo before the court cases, so people can rest assured that the tax treatment of defined financial services will not change,” he said.
Some experts are not satisfied.
Mike Firth, a tax partner with PricewaterhouseCoopers, said that “what industry really needs is a clear response on the specific examples of [services] which the CRA has clearly declared are taxable effective Dec. 14, 2009, whereas they were clearly agreed as exempt before that date, such as commissions paid to car dealers to arrange for consumer credit and commissions paid to investment dealers for the sale of mutual fund units.”
Most industry voices were optimistic.
“Anybody that's trying to save for retirement or anybody that's trying to save using mutual funds or other financial products, this is good news for them,” said Barbara Amsden, director of strategy and research at the Investment Funds Institute of Canada.
However, she added that she remains cautious until she hears the final word from the Canada Revenue Agency.
“It gives us some assurance,” Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals, said of Mr. Flaherty's position.
“We hope the Minister's comments today reflect the government policy of not raising taxes on consumers,” said Steve Masnyk, a spokesman for the Insurance Brokers Association of Canada.
http://www.theglobeandmail.com/report-on-business/economy/no-gst-hit-for-financial-sector-ottawa/article1514043/
Big banks raise mortgage rates in sign era of historically low rates ending
Sunny Freeman, The Canadian Press TORONTO - Rising mortgage rates announced Monday signal the end of historically low home borrowing costs and present Canadian consumers with a dilemma: either stay flexible, hope for the best and ride out the next several months or lock in to long-term loans.
Three big banks raised their mortgage rates by more than half a point, effective Tuesday, and most industry watchers expect that's just the beginning of future small jumps that will hike the the cost of home ownership the rest of this year.
For consumers nervous about the changes, the security of five-year, or longer, fixed loans may be the best option, says one mortgage expert.
'If that (rising rates) causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be," said Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.
"If you're closing in the next six months, I suggest people do that quickly."
The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX: RY.TO), Laurentian Bank (TSX: LB.TO), and TD Canada Trust (TSX: TD.TO). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets, where mortgage loans are financed.
Other banks are expected to follow suit.
The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
That means a homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.
Many people with decent credit history who are applying for mortgages can negotiate better than posted rates.
The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.
The latest increases reflect real-time market interest rates, which usually signal future central bank rate jumps months in advance.
Looking ahead, potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?
Historically, staying short-term and flexible has been the best strategy over the long term. But banks advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk and sleep at night.
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points - an average increase during a rate-rising cycle - a homeowner with a variable mortgage should expect to pay about 30 per cent more on the monthly mortgage, says McLister.
Generally, long-term fixed rates rise by about half of the variable rate, he said.
While the fixed versus variable decision is specific to each individual, McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.
Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.
McLister said it's difficult to tell if bank prime rates will rise by 2.5 points, but he added the banks have begun a cycle of rate increases and rates in the near and medium term will continue to rise before falling again.
'They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable," he said.
McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year.
But using recent history as a guide, its not likely rates will rise much higher than 2.5 points.
'When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down."
CIBC (TSX: CM.TO) chief economist Avery Shenfeld also said mortgage rates hikes are a trend consumers should expect to continue.
'Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."
He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of September.
That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.
'Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.
'Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."
When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.
Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still comparatively low.
'Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much."
'We're coming off emergency level rates, and clearly the emergency has passed."
http://ca.news.finance.yahoo.com/s/29032010/2/biz-finance-big-banks-raise-mortgage-rates-sign-era-historically.html
Monday, March 29, 2010
Financial Update For March 29, 2010
• TSX -.74 Investors will receive guidance this week from some top-drawer economic data, including key reports on Canada's economic growth and the U.S. job situation
• DOW +9.15
• Dollar -.18c to 97.40cUS
• Oil -$.08 to $80.53US per barrel.
• Gold +$11.50 to $1,104.30 USD per ounce
The realtors' new realities
Garry Marr, Financial Post
The last thing Shauna Bailey wants to think about is what she makes on an hourly basis.
The 27-year-old Regina real estate agent's phone starts ringing at about 7:30 a.m. for the six listings she currently has on the market. She also works for a new home builder, which generates its own set of calls.
"A typical day is eight to 10 hours and I haven't had a weekend off in two years," says Ms. Bailey.
"I don't remember the last time I had a day off. On weekends, my mornings usually start with showings. In the afternoon, I'm either at [the builder's] showroom or doing an open house for a client. People want to see houses every day. I had two people phone me on Grey Cup day who wanted a viewing. The Riders were playing!"
Ms. Bailey is one of the more than 98,000 real estate agents in Canada, a group feeling under siege. From the volatility of the real estate market to increasingly commission-wary consumers to the continuing loss of business to the Internet, wholesale changes loom over their industry and the way they conduct business.
This week, realtors became even more uneasy with the attempts by the Competition Bureau to crack down on their industry. The bureau has filed a complaint with the Competition Tribunal against the Canadian Real Estate Association, sayings its practices are anti-competitive.
The battle centres around the proprietary Multiple Listings Service system, to which CREA owns the rights. It is estimated 90% of the country's homes are sold through MLS. The watchdog wants it opened up so that consumers and discount agents can list homes for a fee, as opposed to paying realtors commission for access to the service.
Realtors have fought back, with CREA passing new rules that would allow consumers to decide how much they use an agent on a deal and to conduct parts of a transaction without using an agent at all. The amendments, an attempt to ward off further action by the competition watchdog, were rejected by the bureau. In particular, the watchdog took issue with a clause which would allow local real estate boards to make their own rules about who could access the MLS.
In its legal defence filed with the tribunal Friday, CREA has referred to the position taken by the Commissioner of Competition Melanie Aitken as "preposterous," and says it has always followed competition law.
Although realtors have been more successful than other agent-model industries - travel agents, stock brokers, insurance agents - at fending off major upheaval, it appears their time has come. The industry is bracing for change.
This week, in the midst of CREA's battle with the Competition Bureau, Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, sent out an email to his 8,500 agents, to calm the troops. "Let me assure you that I did not say that we should throw in the towel," said Mr. Polzler, referring to a news story in which it claimed he wanted CREA to give up its battle with the bureau.
"However, I've also been in the business too long not to recognize the fact that our industry is changing," he wrote.
Century 21 Canada chief executive Don Lawby plans to send a similar note to his agents on Monday, telling them there will always be a place for the full-service real estate agent.
Agents are obviously worrying about the impact on their livelihood. Bank of Nova Scotia economist Derek Holt has estimated that if the Competition Bureau wins its battle to open up the MLS, real estate agent commissions could fall by as much as $15,750 per transaction. He is basing this on the difference between what a full-service broker and discount broker earn; discount brokers charge a flat-fee or 1% commission.
On Thursday, in a letter obtained by the Financial Post, CREA accused Ms. Aitken of the Competition Bureau of harming the reputation of Canadian real estate agents. "The unfounded allegations made by you tarnish the reputation not only of CREA and its member boards but of all Realtors," wrote Georges Pahud, CREA's new president, who stepped into the role this week.
There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing homes sales. At a 5% commission rate - the average in Canada - consumers forked out almost $7.5-billion in commissions. In the hot real estate market of 2007, when there was $160-billion in buying activity, realtors would have earned a total of $8-billion in commission (based on the 5% rule).
A decade ago, there was 335,490 sales across the country at an average sale price of $158,145. That works out to an estimated $2.6-billion paid in total commissions to the industry. In 10 years, the industry has reaped an 188% increase in total commissions paid, not adjusted for inflation, thanks to rising real estate prices.
Statistics Canada data backs that up. Residential ownership transfer costs jumped to more than $19-billion last year, up from almost $7.4-billion a decade ago. Those figures include land transfer fees, legal fees, inspection and surveying, but the largest component is believed to be commissions.
Yet, agents say they've never worked harder for clients. "I probably get to keep half of my revenue, but the rest goes to expenses. It is like running a small business," says Ms. Bailey who, like most agents, ends up giving a cut to the brokerage firm, in this case Royal LePage Regina Realty. "I was an accountant before I was real estate agent. The hours were easier but it wasn't as exciting."
Last year, she was part of 32 deals. She doesn't want to reveal her total commissions, but the average home in Regina sold for $244,328 last year, which would translate into about $7.8-million in property changing hands for her 32 sales. Commissions are about 5% of the sale price in her area and each realtor gets about half of that. By her estimates, she is doing well but hardly getting rich.
Ms. Bailey knows her industry is evolving, but she says there will always be a role for full-service agents. "I don't worry about it. People who want to work with me will want my help. They don't have time to do their open houses and market their property," she says.
There are similar optimistic views across the country. "I'm not just an agent. Half the time I'm acting as psychologist, holding the buyer's hand," says Ellie Silver, a 12-year industry veteran who works in Montreal's exclusive Westmount area. She adds people will never be able to effectively negotiate when it comes to the price of their home. "They are just too close to it," she says.
"Not everybody is going to want to have their services managed by a realtor from start to finish," says Re/Max's Mr. Polzler. "With some of the changes coming down the pipe through the Competition Bureau and CREA, there will be more à la carte services."
But he says the majority of consumers are still going to want to use a realtor to handle their transaction - whether the market is hot or cold.
"Right now, a realtor is not often needed in the selling process, but you sure need a realtor in the buying process. If you don't have a good realtor in this market, finding the right property and going in at the right price, people are being rejected all over the place," says Mr. Polzler.
He acknowledges that industry changes might put pressure on commissions, but he also predicts there will be fewer agents to share the pie in the new environment. "The number of non-producing agents in the industry is obscene. They are going to get squeezed because they generally do not provide a service," says Mr. Polzler.
He thinks it's time for the industry to toughen up the requirements for selling property. "I'm a proponent of increasing education. I'd like to see a one-year apprenticeship program," says Mr. Polzler.
The rules for selling real estate vary from province to province, but in Ontario, a realtor can be licensed and in business in less than three months. In Nova Scotia, you are entitled to sell real estate under the designation of sales person after a three-week course.
Mike Graham is the Surrey-B.C.-based owner of Usellahome.com, a site promoting "for-sale-by-owner" real estate transactions. Not even he sees the disappearance of real estate agents anytime soon. "You are still going to have people who want to use an agent. Half the people out there don't want to make a $500,000 decision without someone holding their hand," he says.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2731912#ixzz0jUtFzOs9
• DOW +9.15
• Dollar -.18c to 97.40cUS
• Oil -$.08 to $80.53US per barrel.
• Gold +$11.50 to $1,104.30 USD per ounce
The realtors' new realities
Garry Marr, Financial Post
The last thing Shauna Bailey wants to think about is what she makes on an hourly basis.
The 27-year-old Regina real estate agent's phone starts ringing at about 7:30 a.m. for the six listings she currently has on the market. She also works for a new home builder, which generates its own set of calls.
"A typical day is eight to 10 hours and I haven't had a weekend off in two years," says Ms. Bailey.
"I don't remember the last time I had a day off. On weekends, my mornings usually start with showings. In the afternoon, I'm either at [the builder's] showroom or doing an open house for a client. People want to see houses every day. I had two people phone me on Grey Cup day who wanted a viewing. The Riders were playing!"
Ms. Bailey is one of the more than 98,000 real estate agents in Canada, a group feeling under siege. From the volatility of the real estate market to increasingly commission-wary consumers to the continuing loss of business to the Internet, wholesale changes loom over their industry and the way they conduct business.
This week, realtors became even more uneasy with the attempts by the Competition Bureau to crack down on their industry. The bureau has filed a complaint with the Competition Tribunal against the Canadian Real Estate Association, sayings its practices are anti-competitive.
The battle centres around the proprietary Multiple Listings Service system, to which CREA owns the rights. It is estimated 90% of the country's homes are sold through MLS. The watchdog wants it opened up so that consumers and discount agents can list homes for a fee, as opposed to paying realtors commission for access to the service.
Realtors have fought back, with CREA passing new rules that would allow consumers to decide how much they use an agent on a deal and to conduct parts of a transaction without using an agent at all. The amendments, an attempt to ward off further action by the competition watchdog, were rejected by the bureau. In particular, the watchdog took issue with a clause which would allow local real estate boards to make their own rules about who could access the MLS.
In its legal defence filed with the tribunal Friday, CREA has referred to the position taken by the Commissioner of Competition Melanie Aitken as "preposterous," and says it has always followed competition law.
Although realtors have been more successful than other agent-model industries - travel agents, stock brokers, insurance agents - at fending off major upheaval, it appears their time has come. The industry is bracing for change.
This week, in the midst of CREA's battle with the Competition Bureau, Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, sent out an email to his 8,500 agents, to calm the troops. "Let me assure you that I did not say that we should throw in the towel," said Mr. Polzler, referring to a news story in which it claimed he wanted CREA to give up its battle with the bureau.
"However, I've also been in the business too long not to recognize the fact that our industry is changing," he wrote.
Century 21 Canada chief executive Don Lawby plans to send a similar note to his agents on Monday, telling them there will always be a place for the full-service real estate agent.
Agents are obviously worrying about the impact on their livelihood. Bank of Nova Scotia economist Derek Holt has estimated that if the Competition Bureau wins its battle to open up the MLS, real estate agent commissions could fall by as much as $15,750 per transaction. He is basing this on the difference between what a full-service broker and discount broker earn; discount brokers charge a flat-fee or 1% commission.
On Thursday, in a letter obtained by the Financial Post, CREA accused Ms. Aitken of the Competition Bureau of harming the reputation of Canadian real estate agents. "The unfounded allegations made by you tarnish the reputation not only of CREA and its member boards but of all Realtors," wrote Georges Pahud, CREA's new president, who stepped into the role this week.
There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing homes sales. At a 5% commission rate - the average in Canada - consumers forked out almost $7.5-billion in commissions. In the hot real estate market of 2007, when there was $160-billion in buying activity, realtors would have earned a total of $8-billion in commission (based on the 5% rule).
A decade ago, there was 335,490 sales across the country at an average sale price of $158,145. That works out to an estimated $2.6-billion paid in total commissions to the industry. In 10 years, the industry has reaped an 188% increase in total commissions paid, not adjusted for inflation, thanks to rising real estate prices.
Statistics Canada data backs that up. Residential ownership transfer costs jumped to more than $19-billion last year, up from almost $7.4-billion a decade ago. Those figures include land transfer fees, legal fees, inspection and surveying, but the largest component is believed to be commissions.
Yet, agents say they've never worked harder for clients. "I probably get to keep half of my revenue, but the rest goes to expenses. It is like running a small business," says Ms. Bailey who, like most agents, ends up giving a cut to the brokerage firm, in this case Royal LePage Regina Realty. "I was an accountant before I was real estate agent. The hours were easier but it wasn't as exciting."
Last year, she was part of 32 deals. She doesn't want to reveal her total commissions, but the average home in Regina sold for $244,328 last year, which would translate into about $7.8-million in property changing hands for her 32 sales. Commissions are about 5% of the sale price in her area and each realtor gets about half of that. By her estimates, she is doing well but hardly getting rich.
Ms. Bailey knows her industry is evolving, but she says there will always be a role for full-service agents. "I don't worry about it. People who want to work with me will want my help. They don't have time to do their open houses and market their property," she says.
There are similar optimistic views across the country. "I'm not just an agent. Half the time I'm acting as psychologist, holding the buyer's hand," says Ellie Silver, a 12-year industry veteran who works in Montreal's exclusive Westmount area. She adds people will never be able to effectively negotiate when it comes to the price of their home. "They are just too close to it," she says.
"Not everybody is going to want to have their services managed by a realtor from start to finish," says Re/Max's Mr. Polzler. "With some of the changes coming down the pipe through the Competition Bureau and CREA, there will be more à la carte services."
But he says the majority of consumers are still going to want to use a realtor to handle their transaction - whether the market is hot or cold.
"Right now, a realtor is not often needed in the selling process, but you sure need a realtor in the buying process. If you don't have a good realtor in this market, finding the right property and going in at the right price, people are being rejected all over the place," says Mr. Polzler.
He acknowledges that industry changes might put pressure on commissions, but he also predicts there will be fewer agents to share the pie in the new environment. "The number of non-producing agents in the industry is obscene. They are going to get squeezed because they generally do not provide a service," says Mr. Polzler.
He thinks it's time for the industry to toughen up the requirements for selling property. "I'm a proponent of increasing education. I'd like to see a one-year apprenticeship program," says Mr. Polzler.
The rules for selling real estate vary from province to province, but in Ontario, a realtor can be licensed and in business in less than three months. In Nova Scotia, you are entitled to sell real estate under the designation of sales person after a three-week course.
Mike Graham is the Surrey-B.C.-based owner of Usellahome.com, a site promoting "for-sale-by-owner" real estate transactions. Not even he sees the disappearance of real estate agents anytime soon. "You are still going to have people who want to use an agent. Half the people out there don't want to make a $500,000 decision without someone holding their hand," he says.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2731912#ixzz0jUtFzOs9
Friday, March 26, 2010
Financial Update For March 26, 2010
• TSX -4.86 to 11,962
• DOW +5.06
• Dollar +.05c to 97.58cUS on a growing conviction that Canadian interest rates could rise sooner than later.
• Oil -$.08 to $80.53US per barrel.
• Gold +$4.10 to $1,092.70 USD per ounce
Ottawa changes GST rules, setting up finance battle
Tara Perkins
From Friday's Globe and Mail
Ottawa has quietly moved to tax some financial services , setting up a fight the sector says will cost more than $1-billion a year.
The government has changed the rules on a goods and services tax exemption in a way that the industry says applies GST for the first time to a number of financial services offered by, for example, mortgage brokers and insurance advisers. The industry says the costs will be passed on to consumers. Banks, insurers, mortgage and insurance brokers, and investment companies are urging the Finance Department to retract its amendments and hold broad consultations before going back to the drawing board.
At issue is the definition of “financial service” in the tax laws. Such services are generally exempt from GST but Ottawa has changed the definition so that many activities that “facilitate” or “prepare” financial services are now subject to tax. The industry says Ottawa hasn't clarified how broadly the rules will apply but it appears that many services offered by brokers and advisers are newly taxable, including, for example, trailer commissions paid to mutual fund dealers, commissions paid to a car dealer to arrange credit for a car buyer, and some work telemarketers do for insurers.
Mike Firth, a tax partner with PricewaterhouseCoopers, has written a paper for the CCH GST Monitor, a tax publication, in which he calls the situation a “ghastly mess.”
In an interview he said that Ottawa either made a “deliberate decision to extract billions more in revenue from the financial sector, presented as a ‘clarification,’ or the intention was much more limited but the combination of legislation drafted by the Finance Department and execution by the [Canada Revenue Agency] has mutated into a very radical policy shift. Neither possibility is very attractive.”
Ottawa issued a press release in December saying it was clarifying the rules, and the CRA followed up with a notice in February. Legal and accounting experts with financial services clients say that notice went far beyond what the sector was expecting and made a number of services that have been exempt from the GST since 1991 taxable.
A finance department official said Ottawa issued its release to address the uncertainty that some recent court cases created respecting the scope of the definition of “financial service” in the Excise Tax Act, and to “affirm the longstanding tax policy.”
“We are aware that some industry representatives have raised concerns,” the official said. “They have been invited to contact Finance and the CRA with further information, so that we have a better understanding of their concerns.”
The GST is currently 5 per cent but the relevant services would be charged 12 per cent and 13 per cent in British Columbia and Ontario respectively when they roll out the harmonized sales tax, said Barry Segal, a partner at Ogilvy Renault with concerned mutual fund industry clients.
“The big concern for our members would be it applying to commissions,” said Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. “There would probably be a significant net reduction in income to mortgage brokers.”
The Canadian Life and Health Insurance Association says the move could cost life insurers half a billion dollars a year.
For example, insurance advisers are paid commissions that could now be taxable, said Ron Sanderson, the CLHIA’s director of policy-holder taxation. “Ultimately these things are going to show up in customer costs.”
Joanne De Laurentiis, chief executive of the Investment Funds Institute of Canada, wrote to the Finance Department saying the amendments have created “tremendous concern” and asked for them to be withdrawn.
“During our consultations over the last several months, you have consistently indicated that policy changes to the GST regime will not be contemplated until after implementation of the newly harmonized regimes has occurred,” she wrote. “These announcements are a reversal of that position.”
Like many, Ms. De Laurentiis argued the announcements were not “clarifications” but “a significant policy change.”
IFIC has questions about how the GST and HST will now apply to commissions on buying and selling stocks and mutual funds, as well as redemption fees paid by investors.
Advocis, the financial advisers association, is concerned the moves will create an uneven playing field between financial products sold by commissioned-based financial advisers and products sold by banks using non-commissioned employees.
“The CRA notice amounts to an expansion of the GST tax base,” the group said in a bulletin.
Ottawa has said it plans to tackle the deficit without raising taxes.
There is fear that work will leave Canada as a result of this issue, Mr. Segal said. “A lot of the services that are provided, particularly many of the administrative services, are portable.”
Another problem is that the changes apply retroactively to Dec. 14, he said. “I know there is grave concern in the financial community about the operational complexity that this is going to cause. There may be GST or HST owing on transactions back to that date that hasn’t been collected.”
http://www.theglobeandmail.com/report-on-business/ottawa-changes-gst-rules-setting-up-finance-battle/article1512595/
• DOW +5.06
• Dollar +.05c to 97.58cUS on a growing conviction that Canadian interest rates could rise sooner than later.
• Oil -$.08 to $80.53US per barrel.
• Gold +$4.10 to $1,092.70 USD per ounce
Ottawa changes GST rules, setting up finance battle
Tara Perkins
From Friday's Globe and Mail
Ottawa has quietly moved to tax some financial services , setting up a fight the sector says will cost more than $1-billion a year.
The government has changed the rules on a goods and services tax exemption in a way that the industry says applies GST for the first time to a number of financial services offered by, for example, mortgage brokers and insurance advisers. The industry says the costs will be passed on to consumers. Banks, insurers, mortgage and insurance brokers, and investment companies are urging the Finance Department to retract its amendments and hold broad consultations before going back to the drawing board.
At issue is the definition of “financial service” in the tax laws. Such services are generally exempt from GST but Ottawa has changed the definition so that many activities that “facilitate” or “prepare” financial services are now subject to tax. The industry says Ottawa hasn't clarified how broadly the rules will apply but it appears that many services offered by brokers and advisers are newly taxable, including, for example, trailer commissions paid to mutual fund dealers, commissions paid to a car dealer to arrange credit for a car buyer, and some work telemarketers do for insurers.
Mike Firth, a tax partner with PricewaterhouseCoopers, has written a paper for the CCH GST Monitor, a tax publication, in which he calls the situation a “ghastly mess.”
In an interview he said that Ottawa either made a “deliberate decision to extract billions more in revenue from the financial sector, presented as a ‘clarification,’ or the intention was much more limited but the combination of legislation drafted by the Finance Department and execution by the [Canada Revenue Agency] has mutated into a very radical policy shift. Neither possibility is very attractive.”
Ottawa issued a press release in December saying it was clarifying the rules, and the CRA followed up with a notice in February. Legal and accounting experts with financial services clients say that notice went far beyond what the sector was expecting and made a number of services that have been exempt from the GST since 1991 taxable.
A finance department official said Ottawa issued its release to address the uncertainty that some recent court cases created respecting the scope of the definition of “financial service” in the Excise Tax Act, and to “affirm the longstanding tax policy.”
“We are aware that some industry representatives have raised concerns,” the official said. “They have been invited to contact Finance and the CRA with further information, so that we have a better understanding of their concerns.”
The GST is currently 5 per cent but the relevant services would be charged 12 per cent and 13 per cent in British Columbia and Ontario respectively when they roll out the harmonized sales tax, said Barry Segal, a partner at Ogilvy Renault with concerned mutual fund industry clients.
“The big concern for our members would be it applying to commissions,” said Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. “There would probably be a significant net reduction in income to mortgage brokers.”
The Canadian Life and Health Insurance Association says the move could cost life insurers half a billion dollars a year.
For example, insurance advisers are paid commissions that could now be taxable, said Ron Sanderson, the CLHIA’s director of policy-holder taxation. “Ultimately these things are going to show up in customer costs.”
Joanne De Laurentiis, chief executive of the Investment Funds Institute of Canada, wrote to the Finance Department saying the amendments have created “tremendous concern” and asked for them to be withdrawn.
“During our consultations over the last several months, you have consistently indicated that policy changes to the GST regime will not be contemplated until after implementation of the newly harmonized regimes has occurred,” she wrote. “These announcements are a reversal of that position.”
Like many, Ms. De Laurentiis argued the announcements were not “clarifications” but “a significant policy change.”
IFIC has questions about how the GST and HST will now apply to commissions on buying and selling stocks and mutual funds, as well as redemption fees paid by investors.
Advocis, the financial advisers association, is concerned the moves will create an uneven playing field between financial products sold by commissioned-based financial advisers and products sold by banks using non-commissioned employees.
“The CRA notice amounts to an expansion of the GST tax base,” the group said in a bulletin.
Ottawa has said it plans to tackle the deficit without raising taxes.
There is fear that work will leave Canada as a result of this issue, Mr. Segal said. “A lot of the services that are provided, particularly many of the administrative services, are portable.”
Another problem is that the changes apply retroactively to Dec. 14, he said. “I know there is grave concern in the financial community about the operational complexity that this is going to cause. There may be GST or HST owing on transactions back to that date that hasn’t been collected.”
http://www.theglobeandmail.com/report-on-business/ottawa-changes-gst-rules-setting-up-finance-battle/article1512595/
Thursday, March 25, 2010
Financial Update For March 25, 2010
Higher interest rates could be coming sooner, says Bank of Canada governor
• TSX -81.57 to 11,962
• DOW -52.68
• Dollar -.89c to 97.53cUS
• Oil -$1.30 to $80.61US per barrel.
• Gold -$14.90 to $1,108.60 USD per ounce
Higher interest rates could be coming sooner, says Bank of Canada governor
By Julian Beltrame, The Canadian Press
OTTAWA - Canadians could be facing higher interest rates sooner than previously thought as a result of stubborn inflation and stronger economic growth, Bank of Canada Mark Carney said Wednesday.
Carney did not declare higher rates were on the way, but issued his clearest signal to date that his year-old commitment to keep the policy rate at the record 0.25 per cent until July was "expressly conditional" on inflation remaining tame.
In a speech to a business audience, the bank governor noted that both underlying core inflation and economic growth have grown slightly stronger, although broadly proceeding as expected.
The tip-off to economists was that he changed his language on his conditional commitment on interest rates, which has led to historically low rates for both consumers and businesses in Canada and helped the country recover from recession.
"This commitment is expressly conditional on the outlook for inflation," he told the Ottawa Economic Association.
It was the first time Carney has undercut the commitment in such pointed language.
Later, Carney downplayed the significance, joking with reporters that he needed to used different words to keep the media's attention.
But economists said the distinction was significant.
"They still have considerable latitude, but the changes that would be required to their forecast are consistent with hiking rates sooner than markets are anticipating," said Derek Holt, Scotiabank's vice-president of economics. He said Carney may move as early as June 1.
But Holt stressed that Carney's overall message to Canadians is that rates will remain low by historical standards for some time.
"No matter what, we emerge from this with lower rates at the end point of the hiking campaign than in past cycles. He's saying the outlook is clouded with risks and there's a number of reasons to expect growth to be lower than past cycles."
Core inflation - which excludes volatile items like energy - has been stubbornly sticky the past few months, with the index rising to 2.1 per cent in February. That's the first time it has been above the central bank's target of two per cent in more than a year.
And Carney pointed out that the economy has performed better than he thought when the bank issued its last forecast in January, predicting growth of 2.9 per cent this year. Since then, several private sector economists have increased their projections and Carney is expected to do the same at the next scheduled forecast date on April 22.
At a news conference following his speech, Carney warned against reading in too much optimism in his assessment.
"It wasn't that rosy a message," he said.
He cautioned that low U.S. demand and the high Canadian dollar, which was trading below 98 cents US on Wednesday but still high by recent standards, were acting as "significant drags" on the economy.
On a longer term basis, Carney's message to Canadians was positively dark, warning that the country needs to address its "abysmal" productivity record and that the world needs to follow through with reforms to address global imbalances, particularly China's undervalued currency.
Carney calculated that unless the country improves its productivity or output per unit of work, Canadians can expect to lose a total of $30,000 in real income over the next decade.
"Canada does underperform," he said. "We are not as productive as we could be. Our potential growth is slowing. Moreover, this is occurring as the very nature of the global economy ... is under threat."
Canada's productivity has advanced a meagre 0.7 per cent annually over the last decade, he noted, less than half the rate in the U.S. and half the rate Canada managed between 1980 and 2000.
He placed the blame on the doorstep of Canadian business, which he said needs to make much bigger investments in equipment and machinery and in information technologies.
Canadian workers have about half the information and communication technology at their disposal as their American counterparts, he said, adding that changes must be make quickly because the landscape of the global economy has shifted and it requires a "big response."
Carney also said a key to future prospects for the Canadian and global economies is adoption of the G20 framework for economic sustainability. That will require addressing global imbalances which, in part, are caused by fixed currencies like China's yuan which are kept artificially low to boost exports and discourage imports.
He produced a chart showing that unless the G20 measures are adopted, global growth will be about one percentage point lower in the next five years than it might otherwise be. The worse case scenario is a prolonged global recession that triggers protectionism, deepening the crisis. The irony, he said, is that China loses out in the long run as well.
Carney is the second Canadian policy-maker in as many days to warn about the devalued yuan. On Tuesday, Finance Minister Jim Flaherty said Canada will push the issue at the upcoming G20 meetings in Toronto in June. A revaluation of the yuan would likely lead to adjustments in other fixed currencies in Asia, economists said.
The U.S. has taken the lead in pressuring China on the yuan, but so far the emerging economic superpower has dismissed such calls and said it would move on its own schedule.
"An adjustment in global exchange rates is part and parcel of global rebalancing," said Carney. "What's at stake here is enormous and the adjustment of those real, effective exchange rates of all major currencies is an important component of rebalancing." http://ca.news.finance.yahoo.com/s/24032010/2/biz-finance-higher-interest-rates-coming-sooner-says-bank-canada.html
Consumer credit experts call on homebuyers to exercise caution
THE CANADIAN PRESS
TORONTO — Potential homebuyers spurred into action by fears of an imminent interest rate hike may be better off to wait and avoid bidding wars that can prove even more costly, according to consumer credit experts.
Laurie Campbell, executive director of Credit Counselling Canada, says Canadians already feeling societal pressure to be homeowners are more likely to engage in bidding wars and overspend when they hear that their ability to fulfil that “North American dream” could soon erode.
“We’re not only enticed by agents and those who market mortgages and the whole concept but ... society as a whole,” she said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
“They’re overpaying for houses because they’re all trying to get into the market before interest rates go up,” Campbell said. “Especially right now with this whole time bomb of interest rates, for sure there’s a lot of people out there thinking they better get in the market today.”
Two bank surveys released Wednesday found that potential homebuyers are feeling pressure to buy homes sooner, but are worried about their ability to pay for their homes when mortgage rates rise.
The Bank of Montreal said as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.
About 15 per cent of potential homebuyers said they have been in bidding wars, and for those who had their housing bids rejected, 14 per cent believe it caused them to overspend on their next offer.
“There’s definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.
“While we encourage Canadians to pursue their home ownership dreams, we recognize it’s easy to get caught up in the emotions of the purchase and this can lead to stretching one’s budget too thin.”
Meanwhile, Royal Bank’s annual home ownership survey found about 64 per cent of mortgage holders are concerned about higher rates over the next year. Almost three-quarters of homeowners, 73 per cent, felt strongly that homebuyers needed to think ahead to ensure they will still be able to make their mortgage payment if rates rise.
The bank said six in 10 mortgage holders said they had taken advantage of current low interest rates to pay more principal on their loans.
Most economists say low interest rates are behind the continued strength in the housing market and expect the Bank of Canada to raise interest rates in late spring or early summer.
The cost of servicing a mortgage fell 5.8 per cent in February as a result of record-low interest rates, but with many Canadians taking on ever larger mortgages in expensive markets across the country, higher rates could create problems for some.
BMO’s senior economist, Sal Guatieri, says that with a cooler housing market “just around the corner,” prudence may be a good choice for many new entrants. http://news.therecord.com/Business/article/688274
• TSX -81.57 to 11,962
• DOW -52.68
• Dollar -.89c to 97.53cUS
• Oil -$1.30 to $80.61US per barrel.
• Gold -$14.90 to $1,108.60 USD per ounce
Higher interest rates could be coming sooner, says Bank of Canada governor
By Julian Beltrame, The Canadian Press
OTTAWA - Canadians could be facing higher interest rates sooner than previously thought as a result of stubborn inflation and stronger economic growth, Bank of Canada Mark Carney said Wednesday.
Carney did not declare higher rates were on the way, but issued his clearest signal to date that his year-old commitment to keep the policy rate at the record 0.25 per cent until July was "expressly conditional" on inflation remaining tame.
In a speech to a business audience, the bank governor noted that both underlying core inflation and economic growth have grown slightly stronger, although broadly proceeding as expected.
The tip-off to economists was that he changed his language on his conditional commitment on interest rates, which has led to historically low rates for both consumers and businesses in Canada and helped the country recover from recession.
"This commitment is expressly conditional on the outlook for inflation," he told the Ottawa Economic Association.
It was the first time Carney has undercut the commitment in such pointed language.
Later, Carney downplayed the significance, joking with reporters that he needed to used different words to keep the media's attention.
But economists said the distinction was significant.
"They still have considerable latitude, but the changes that would be required to their forecast are consistent with hiking rates sooner than markets are anticipating," said Derek Holt, Scotiabank's vice-president of economics. He said Carney may move as early as June 1.
But Holt stressed that Carney's overall message to Canadians is that rates will remain low by historical standards for some time.
"No matter what, we emerge from this with lower rates at the end point of the hiking campaign than in past cycles. He's saying the outlook is clouded with risks and there's a number of reasons to expect growth to be lower than past cycles."
Core inflation - which excludes volatile items like energy - has been stubbornly sticky the past few months, with the index rising to 2.1 per cent in February. That's the first time it has been above the central bank's target of two per cent in more than a year.
And Carney pointed out that the economy has performed better than he thought when the bank issued its last forecast in January, predicting growth of 2.9 per cent this year. Since then, several private sector economists have increased their projections and Carney is expected to do the same at the next scheduled forecast date on April 22.
At a news conference following his speech, Carney warned against reading in too much optimism in his assessment.
"It wasn't that rosy a message," he said.
He cautioned that low U.S. demand and the high Canadian dollar, which was trading below 98 cents US on Wednesday but still high by recent standards, were acting as "significant drags" on the economy.
On a longer term basis, Carney's message to Canadians was positively dark, warning that the country needs to address its "abysmal" productivity record and that the world needs to follow through with reforms to address global imbalances, particularly China's undervalued currency.
Carney calculated that unless the country improves its productivity or output per unit of work, Canadians can expect to lose a total of $30,000 in real income over the next decade.
"Canada does underperform," he said. "We are not as productive as we could be. Our potential growth is slowing. Moreover, this is occurring as the very nature of the global economy ... is under threat."
Canada's productivity has advanced a meagre 0.7 per cent annually over the last decade, he noted, less than half the rate in the U.S. and half the rate Canada managed between 1980 and 2000.
He placed the blame on the doorstep of Canadian business, which he said needs to make much bigger investments in equipment and machinery and in information technologies.
Canadian workers have about half the information and communication technology at their disposal as their American counterparts, he said, adding that changes must be make quickly because the landscape of the global economy has shifted and it requires a "big response."
Carney also said a key to future prospects for the Canadian and global economies is adoption of the G20 framework for economic sustainability. That will require addressing global imbalances which, in part, are caused by fixed currencies like China's yuan which are kept artificially low to boost exports and discourage imports.
He produced a chart showing that unless the G20 measures are adopted, global growth will be about one percentage point lower in the next five years than it might otherwise be. The worse case scenario is a prolonged global recession that triggers protectionism, deepening the crisis. The irony, he said, is that China loses out in the long run as well.
Carney is the second Canadian policy-maker in as many days to warn about the devalued yuan. On Tuesday, Finance Minister Jim Flaherty said Canada will push the issue at the upcoming G20 meetings in Toronto in June. A revaluation of the yuan would likely lead to adjustments in other fixed currencies in Asia, economists said.
The U.S. has taken the lead in pressuring China on the yuan, but so far the emerging economic superpower has dismissed such calls and said it would move on its own schedule.
"An adjustment in global exchange rates is part and parcel of global rebalancing," said Carney. "What's at stake here is enormous and the adjustment of those real, effective exchange rates of all major currencies is an important component of rebalancing." http://ca.news.finance.yahoo.com/s/24032010/2/biz-finance-higher-interest-rates-coming-sooner-says-bank-canada.html
Consumer credit experts call on homebuyers to exercise caution
THE CANADIAN PRESS
TORONTO — Potential homebuyers spurred into action by fears of an imminent interest rate hike may be better off to wait and avoid bidding wars that can prove even more costly, according to consumer credit experts.
Laurie Campbell, executive director of Credit Counselling Canada, says Canadians already feeling societal pressure to be homeowners are more likely to engage in bidding wars and overspend when they hear that their ability to fulfil that “North American dream” could soon erode.
“We’re not only enticed by agents and those who market mortgages and the whole concept but ... society as a whole,” she said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
“They’re overpaying for houses because they’re all trying to get into the market before interest rates go up,” Campbell said. “Especially right now with this whole time bomb of interest rates, for sure there’s a lot of people out there thinking they better get in the market today.”
Two bank surveys released Wednesday found that potential homebuyers are feeling pressure to buy homes sooner, but are worried about their ability to pay for their homes when mortgage rates rise.
The Bank of Montreal said as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.
About 15 per cent of potential homebuyers said they have been in bidding wars, and for those who had their housing bids rejected, 14 per cent believe it caused them to overspend on their next offer.
“There’s definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.
“While we encourage Canadians to pursue their home ownership dreams, we recognize it’s easy to get caught up in the emotions of the purchase and this can lead to stretching one’s budget too thin.”
Meanwhile, Royal Bank’s annual home ownership survey found about 64 per cent of mortgage holders are concerned about higher rates over the next year. Almost three-quarters of homeowners, 73 per cent, felt strongly that homebuyers needed to think ahead to ensure they will still be able to make their mortgage payment if rates rise.
The bank said six in 10 mortgage holders said they had taken advantage of current low interest rates to pay more principal on their loans.
Most economists say low interest rates are behind the continued strength in the housing market and expect the Bank of Canada to raise interest rates in late spring or early summer.
The cost of servicing a mortgage fell 5.8 per cent in February as a result of record-low interest rates, but with many Canadians taking on ever larger mortgages in expensive markets across the country, higher rates could create problems for some.
BMO’s senior economist, Sal Guatieri, says that with a cooler housing market “just around the corner,” prudence may be a good choice for many new entrants. http://news.therecord.com/Business/article/688274
Wednesday, March 24, 2010
Financial Update For March 24, 2010
• TSX +77.37 led by a rally in financial and mining shares that lifted the index back over the 12,000 mark.
• DOW +102.94
• Dollar +.27c to 98.42cUS
• Oil +$.31 to $81.91US per barrel.
• Gold +$4.20 to $1,103.50 USD per ounce
Canada's housing boom continues to outpace recovery in developed countries
By Sunny Freeman, The Canadian Press
TORONTO - Canada's housing boom will continue this spring as exceptionally low mortgage rates - and the expectation that borrowing costs will soon be headed higher - add a sense of urgency to consumer buying.
A Scotiabank global real estate trends report released Tuesday predicts most Canadian regions will remain sellers' markets for the first half of the year, as strong demand and rising prices continue.
"I think you're going to have a very active spring market, probably some cooling off in the second half of the year," Adrienne Warren, the Scotiabank economist who wrote the report said in a presentation Tuesday.
"We're looking at once in a lifetime interest rates that people are taking advantage of...but certainly confidence is coming back, the job markets are stabilizing," she said.
Scotiabank expects about 510,000 home sales this year, up ten per cent from 2009, but just shy of the 2007 record. Average prices are forecast to increase about eight per cent to a record $345,000, while housing starts are expected to reach 190,000, up from 149,000 last year.
The economic recovery from last year's painful recession has improved consumer confidence, although a bounceback in the jobs market is taking more time. Just over a third of the 417,000 jobs lost in the 2008-2009 recession have been replaced and the jobless rate is still at 8.2 per cent, only half a point below its high last August.
Most experts predict the rise in consumer confidence about the economy, and low interest rates, are behind the continued strength in the housing market.
Warren said the spring rush will be driven by an influx of buyers hoping to preempt tighter lending rules for mortgages and the introduction of the harmonized sales tax in Ontario and B.C. But a steady increase in the number of listings and a rise in construction are helping to restore a more balanced market.
"We're starting to see better balance, we're seeing more listings. There was a real lack of listings for the better part of last year...we're moving back into a better balanced situation," Warren said.
Warren said the hot spring market should give way to more subdued activity in the second half of the year, as higher interest rates and higher home prices erode affordability.
Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning in late spring or early summer to fight inflationary pressures in the economy.
With many Canadians taking on larger and larger mortgage debt in expensive markets across the country, higher rates could create financial problems for some homeowners.
Warren added that the incentive for builders to add new houses to the market should also fade as supply increases and prices cool.
The front-loaded activity in the first half of the year will also contribute to lower sales, prices and construction in 2011, she said.
Canada's recovery continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year. The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009.
Warren said that year-ago comparisons are amplified by the sharp drop in sales and prices at the end of 2008, but still represent a remarkable turnaround in a short time.
"We're not seeing a lot of evidence of speculative activity, I think you're just looking at a tight market, more buyers than sellers and people have to pay a premium in that environment,"she said.
She added that milder that usual temperatures across the country may have also put a bit of spring into a typically slow winter sales season.
Meanwhile, housing prices in countries including the U.K., Japan and the U.S. were still below year-earlier levels in the final quarter of 2009.
http://ca.news.finance.yahoo.com/s/23032010/2/biz-finance-canada-s-housing-boom-continues-outpace-recovery-developed.html
• DOW +102.94
• Dollar +.27c to 98.42cUS
• Oil +$.31 to $81.91US per barrel.
• Gold +$4.20 to $1,103.50 USD per ounce
Canada's housing boom continues to outpace recovery in developed countries
By Sunny Freeman, The Canadian Press
TORONTO - Canada's housing boom will continue this spring as exceptionally low mortgage rates - and the expectation that borrowing costs will soon be headed higher - add a sense of urgency to consumer buying.
A Scotiabank global real estate trends report released Tuesday predicts most Canadian regions will remain sellers' markets for the first half of the year, as strong demand and rising prices continue.
"I think you're going to have a very active spring market, probably some cooling off in the second half of the year," Adrienne Warren, the Scotiabank economist who wrote the report said in a presentation Tuesday.
"We're looking at once in a lifetime interest rates that people are taking advantage of...but certainly confidence is coming back, the job markets are stabilizing," she said.
Scotiabank expects about 510,000 home sales this year, up ten per cent from 2009, but just shy of the 2007 record. Average prices are forecast to increase about eight per cent to a record $345,000, while housing starts are expected to reach 190,000, up from 149,000 last year.
The economic recovery from last year's painful recession has improved consumer confidence, although a bounceback in the jobs market is taking more time. Just over a third of the 417,000 jobs lost in the 2008-2009 recession have been replaced and the jobless rate is still at 8.2 per cent, only half a point below its high last August.
Most experts predict the rise in consumer confidence about the economy, and low interest rates, are behind the continued strength in the housing market.
Warren said the spring rush will be driven by an influx of buyers hoping to preempt tighter lending rules for mortgages and the introduction of the harmonized sales tax in Ontario and B.C. But a steady increase in the number of listings and a rise in construction are helping to restore a more balanced market.
"We're starting to see better balance, we're seeing more listings. There was a real lack of listings for the better part of last year...we're moving back into a better balanced situation," Warren said.
Warren said the hot spring market should give way to more subdued activity in the second half of the year, as higher interest rates and higher home prices erode affordability.
Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning in late spring or early summer to fight inflationary pressures in the economy.
With many Canadians taking on larger and larger mortgage debt in expensive markets across the country, higher rates could create financial problems for some homeowners.
Warren added that the incentive for builders to add new houses to the market should also fade as supply increases and prices cool.
The front-loaded activity in the first half of the year will also contribute to lower sales, prices and construction in 2011, she said.
Canada's recovery continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year. The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009.
Warren said that year-ago comparisons are amplified by the sharp drop in sales and prices at the end of 2008, but still represent a remarkable turnaround in a short time.
"We're not seeing a lot of evidence of speculative activity, I think you're just looking at a tight market, more buyers than sellers and people have to pay a premium in that environment,"she said.
She added that milder that usual temperatures across the country may have also put a bit of spring into a typically slow winter sales season.
Meanwhile, housing prices in countries including the U.K., Japan and the U.S. were still below year-earlier levels in the final quarter of 2009.
http://ca.news.finance.yahoo.com/s/23032010/2/biz-finance-canada-s-housing-boom-continues-outpace-recovery-developed.html
Financial Update For March 23, 2010
• TSX +19.19 .
• DOW +43.91
• Dollar -.24c to 98.15cUS The Canadian dollar touched a one-week low against the U.S. dollar, weakened by mixed commodity prices and uncertainty about Europe's handling of Greece's debt
• Oil +$.63 to $81.60US per barrel.
• Gold -$8.10 to $1,099.50 USD per ounce
Fight over real estate fees not over
Michael Babad Globe and Mail
The fight over the Multiple Listing Service run by Canada's realtors isn't over yet. The Canadian Real Estate Association said today it approved changes that would give home buyers and sellers more power over their transactions on MLS. Under the change, a consumer will now be able to pay an agent a flat fee to list on the service, where about nine out of 10 of all deals are done. Agents must now pass along a seller's home phone number, if that's what the seller wants, to a potential buyer if asked. The association said in a statement that it believes it has now addressed the issues raised by the Competition Bureau, which has taken the issue to the Competition Tribunal.
But the Competition Bureau immediately responded that it plans to continue to challenge the “anti-competitive rules that deny consumer choice and stifle competition” despite the CREA changes.
“There is nothing in these proposals that we haven't seen before and they do not solve the problem,” Melanie Aitken, the Commissioner of Competition, said in a statement. “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”
The bureau said CREA's amendments do not remove “existing roadblocks to real estate agents who list properties on the MLS from offering innovative services and pricing options to consumers.”
• DOW +43.91
• Dollar -.24c to 98.15cUS The Canadian dollar touched a one-week low against the U.S. dollar, weakened by mixed commodity prices and uncertainty about Europe's handling of Greece's debt
• Oil +$.63 to $81.60US per barrel.
• Gold -$8.10 to $1,099.50 USD per ounce
Fight over real estate fees not over
Michael Babad Globe and Mail
The fight over the Multiple Listing Service run by Canada's realtors isn't over yet. The Canadian Real Estate
But the Competition Bureau immediately responded that it plans to continue to challenge the “anti-competitive rules that deny consumer choice and stifle competition” despite the CREA changes.
“There is nothing in these proposals that we haven't seen before and they do not solve the problem,” Melanie Aitken, the Commissioner of Competition, said in a statement. “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”
The bureau said CREA's amendments do not remove “existing roadblocks to real estate agents who list properties on the MLS from offering innovative services and pricing options to consumers.”
Monday, March 22, 2010
Financial Update For March 22, 2010
• TSX -92.03 after uncertainty over the Greek financial crisis pushed the U.S. dollar higher, which in turn helped drive down prices for oil and metals.
• DOW -37.19 Investors were taken aback after India's central bank unexpectedly raised interest rates for the first time since July, 2008 after inflation ran ahead to a 16-month high. The Reserve Bank of India increased the benchmark reverse repurchase rate by a quarter point to 3.5 per cent. That move rekindled concerns about central banks removing stimulus too early
• Dollar -.46c to 98.61cUS The greenback continued to gain strength after Greece's prime minister said the country might turn to the International Monetary Fund for support if European leaders can't agree on a bailout plan that would reduce high borrowing costs. However the loonie had run up strongly to above the 99-cent level earlier Friday after Statistics Canada said consumer prices rose 1.6 per cent last month, following a 1.9 per cent increase the previous month. Economists had been expecting prices to rise at an annualized rate of 1.4 per cent.
• Oil -$1.52 to $80.68US per barrel.
• Gold +$19.90 to $1,107.60 USD per ounce
When you start to earn, you should start to save
BY LUISA D’AMATO
CAMBRIDGE — Young people who are just starting their careers have a lot to think about in terms of finances, says Irene Vassalo, a financial consultant with Investors Group in Cambridge.
Anyone who is self-employed, or doesn’t get benefits, should be thinking about covering themselves with a benefits plan that includes financial protection if they’re hit with a disease like cancer, a stroke, a heart attack or disability from a car accident.
It may be hard for someone in his or her 20s to imagine being disabled, but it can happen to anyone. “They definitely need to look at protection,” said Vassalo.
People in their 20s are often getting married, buying their first home and having their first child — although not necessarily in that order
Vassalo believes in putting money away for a registered retirement savings plan — even if it’s only $25 a month — as soon as you start earning.
Maybe you can’t imagine yourself retiring, but you can keep that money away from government taxes. You can use it as a down payment on your first home, and you can use it as a long-term savings plan.
Also, you need a special fund — of at least two to three months’ income — for “emergencies and opportunities,” she says.
An emergency would be losing your job, becoming ill, your car breaking down, or your roof or furnace needing replacement. An opportunity is the happier prospect of buying a new car or piece of furniture, or going on a trip.
If you’re getting married, “watch the wedding expenses,” she says. “It doesn’t have to be a $50,000 wedding.”
In an ideal world, you should save 10 per cent of your income by putting it into registered retirement savings, put another 20 per cent into the emergency fund, and spend the remaining 70 per cent on your bills and daily needs.
When you get to buying your first home, you can lend yourself the money you put away into retirement savings plans for that down payment. You’ll have to pay yourself back over time.
It’s best to get your mortgage pre-approved before you find your dream home. Banks will look at how much income you have and how much debt.
Should you go for a larger mortgage because interest rates are low? What if they start to go up?
For that question, Vassalo recommends this strategy: Assume interest rates are double what they now are, then see if you can still afford the home.
Also, consider other costs: The biggest expenses in a home apart from the mortgage are property taxes, heat and utilities.
If you are considering renting out the home, or part of it, check the situation and be realistic. How is the vacancy rate in your community? How handy are you? How will you feel about being called in the middle of the night to fix the toilet or get rid of a mouse? What will happen if your tenant is badly behaved and doesn’t pay the rent?
“You have to be prepared for all circumstances,” says Vassalo.
If you’re starting a family, start a registered education savings plan immediately. The government matches 20 per cent of your contribution to a maximum of $400 a year. And you can use it to pay for all sorts of educational institutions, even a performing arts conservatory or correspondence courses.
Help your children become financially smart by training them to save part of their allowance or birthday money. Some should be saved for their education, and some should be saved for a short-term goal like buying a bicycle or video game system. http://news.therecord.com/article/686919
• DOW -37.19 Investors were taken aback after India's central bank unexpectedly raised interest rates for the first time since July, 2008 after inflation ran ahead to a 16-month high. The Reserve Bank of India increased the benchmark reverse repurchase rate by a quarter point to 3.5 per cent. That move rekindled concerns about central banks removing stimulus too early
• Dollar -.46c to 98.61cUS The greenback continued to gain strength after Greece's prime minister said the country might turn to the International Monetary Fund for support if European leaders can't agree on a bailout plan that would reduce high borrowing costs. However the loonie had run up strongly to above the 99-cent level earlier Friday after Statistics Canada said consumer prices rose 1.6 per cent last month, following a 1.9 per cent increase the previous month. Economists had been expecting prices to rise at an annualized rate of 1.4 per cent.
• Oil -$1.52 to $80.68US per barrel.
• Gold +$19.90 to $1,107.60 USD per ounce
When you start to earn, you should start to save
BY LUISA D’AMATO
CAMBRIDGE — Young people who are just starting their careers have a lot to think about in terms of finances, says Irene Vassalo, a financial consultant with Investors Group in Cambridge.
Anyone who is self-employed, or doesn’t get benefits, should be thinking about covering themselves with a benefits plan that includes financial protection if they’re hit with a disease like cancer, a stroke, a heart attack or disability from a car accident.
It may be hard for someone in his or her 20s to imagine being disabled, but it can happen to anyone. “They definitely need to look at protection,” said Vassalo.
People in their 20s are often getting married, buying their first home and having their first child — although not necessarily in that order
Vassalo believes in putting money away for a registered retirement savings plan — even if it’s only $25 a month — as soon as you start earning.
Maybe you can’t imagine yourself retiring, but you can keep that money away from government taxes. You can use it as a down payment on your first home, and you can use it as a long-term savings plan.
Also, you need a special fund — of at least two to three months’ income — for “emergencies and opportunities,” she says.
An emergency would be losing your job, becoming ill, your car breaking down, or your roof or furnace needing replacement. An opportunity is the happier prospect of buying a new car or piece of furniture, or going on a trip.
If you’re getting married, “watch the wedding expenses,” she says. “It doesn’t have to be a $50,000 wedding.”
In an ideal world, you should save 10 per cent of your income by putting it into registered retirement savings, put another 20 per cent into the emergency fund, and spend the remaining 70 per cent on your bills and daily needs.
When you get to buying your first home, you can lend yourself the money you put away into retirement savings plans for that down payment. You’ll have to pay yourself back over time.
It’s best to get your mortgage pre-approved before you find your dream home. Banks will look at how much income you have and how much debt.
Should you go for a larger mortgage because interest rates are low? What if they start to go up?
For that question, Vassalo recommends this strategy: Assume interest rates are double what they now are, then see if you can still afford the home.
Also, consider other costs: The biggest expenses in a home apart from the mortgage are property taxes, heat and utilities.
If you are considering renting out the home, or part of it, check the situation and be realistic. How is the vacancy rate in your community? How handy are you? How will you feel about being called in the middle of the night to fix the toilet or get rid of a mouse? What will happen if your tenant is badly behaved and doesn’t pay the rent?
“You have to be prepared for all circumstances,” says Vassalo.
If you’re starting a family, start a registered education savings plan immediately. The government matches 20 per cent of your contribution to a maximum of $400 a year. And you can use it to pay for all sorts of educational institutions, even a performing arts conservatory or correspondence courses.
Help your children become financially smart by training them to save part of their allowance or birthday money. Some should be saved for their education, and some should be saved for a short-term goal like buying a bicycle or video game system. http://news.therecord.com/article/686919
Friday, March 19, 2010
Financial Update For March 19, 2010
• TSX -60.65 A continuing Greek debt crisis helped push the TSX lower, with commodity stocks dampened by worries an already shaky global economic recovery could have the wind knocked out of it should EU bailout efforts fail.
• DOW +45.50
• Dollar -.46c to 98.61cUS
• Oil -$.92 to $82.01US per barrel.
• Gold +$1.00 to $1,125.00 USD per ounce
Generating 70% replacement ratio to retire at 65, requires 35 years of saving 10-20% of income Jonathon Chevreau, Financial Post
Canadians hoping to "replace" 70% of their working income when retiring at 65 will need to save a "very high" portion of their annual pre-retirement earnings, says a C.D. Howe Institute study released today. Depending on their earned income while working, they will need to save between 10 and 21% of their pre-tax earnings every year: for 35 consecutive years between age 30 and 65, says the report, titled The Piggy Bank Index: Matching Canadians' Savings Rates to Their Retirement Dreams. The full 10-page e-brief can be found by clicking here. [If you have trouble with the link, as I did, copy it and paste it directly into your browser.]
Limits on tax-assisted savings prevent most high-earners from replacing 70% of working incomes
The authors -- David A. Dodge, Alexandre Laurin and Colin Busby -- say Canadians face obstacles in saving more. "The problem is that although private savings allow choice about retirement age and income, the Income Tax Act limits on tax-recognized savings may prevent many higher income earners from accumulating sufficient RRSP savings to securely replace 70% of their final earnings."
In a press release, former Governor of the Bank of Canada David Dodge [pictured above] said the findings provide "a ‘reality check' about the saving rates required to meet [Canadians'] retirement goals and inform the choices they could have to make between working longer or consuming less and saving more."
The authors assume a 3% real return on investments, despite the fact 4% is the historical norm. They assume inflation will average 2% a year and that public pensions like the CPP/QPP and Old Age Security will continue in their present form.
While a 70% replacement ratio is considered the "gold standard" an appendix provides calculations for more modest income replacement ratios of 60% and 50%.
Only "working poor" can get by saving less than 10% of gross earnings
It finds that with the exception of what it calls "the working poor," most Canadians must save 10 to 21% of gross earnings every year to get to the 70% replacement ratio in retirement. "This fraction is likely higher than many Canadians believe and higher than is set aside in most employer-based group RSPs or defined-contribution plans," the authors write, "It is also higher than the effective contribution over time to many employer-sponsored defined-benefits plans, and for high-income earners exceeds the annual limits placed on RRSP contributions."
Note that last point, given an earlier CD Howe recommendation that RRSP contribution limits be almost doubled from the current 18% of earned income and $22,000 maximum to 34% and $42,000 respectively, as reported in this blog here early in February. The recent federal budget ignored the recommendation but indicated further consultation will occur in the spring. In today's e-brief, the institute adds that "Income Tax Act limits would prevent many earners from accumulating enough RRSP savings over 33 years (by age 63) to replace 70% or more of their working income."
Delaying retirement to age 67 so you save for 37 years reduces the fraction that must be saved somewhat, "but the required saving rate still remains high," the brief says, "People wishing to retire even earlier at 63 face even higher costs."
Delaying saving past 30 means saving more than 20% of income
And as all the nation's banks tell us during RRSP season, delaying the commencement of saving past age 30 means eventually having to save what the institute calls "extraordinarily large fractions of income -- more than 20%" for many above-average earners during the last decade of one's working years.
The paper concludes on a public policy note, saying the debate on how to improve our pension system is "well founded." Policy changes can improve incentives to save for retirement and to more efficiently manage retirement savings. But CD Howe's final line in the brief could have been written by virtually any financial planner or advisor: "In the end, if Canadians want high incomes and consumption in their retirement years, they will have to save more of their incomes and forgo more consumption during their earning years."
Malcolm Hamilton: dreams "shattered" only if you accept 70% replacement target
Asked for his reaction to the paper, Mercer's actuary Malcolm Hamilton -- pictured left from a Wealthy Boomer video interview last year -- said he had read an earlier draft but little appears to have changed. Here, unfiltered by me and only lightly edited, is his input sent by email. I've italicized it to make it clear the authorship is his, not mine. I've added the subheads in bold:
The paper shows that:
* If you want to replace 70% of your gross income when you retire at 65, and
* If you earn an above average wage,
then you need to save quite a bit from a rather young age (30). If you want to retire early with that same standard of living, you need to save even more. The conclusions are very sensitive to assumptions about future returns, but that's the way it is.
The big question is whether you need to replace 70% of your gross income to preserve your standard of living when you retire. Most Canadians retire with closer to 50% replacement. Most say that their quality of life is as good or better after retirement than before. As you know, I always felt that 50% would preserve the standard of living of the average family of 4 because a large percentage of their pre retirement income (often 40% to 50%) is consumed by kids, mortgages and taxes.
50% replacement ratio may suffice to preserve low standard of living while working
All of these burdens are hopefully gone by the time they retire. Their pre retirement standard of living is low. The good news is that they don't need to save much to preserve this low standard of living. One of the tables in the report concludes that those with average earnings can retire with 50% replacement at age 65 by saving only 5% of their incomes ... as compared to 11% if they want 70% replacement.
I do worry about the message accompanying the paper ... in essence that Canadians are saving too little and that their dreams will be shattered when they retire. This is true if we accept the 70% target. But it is not true if the target is wrong, and no evidence is offered in support of the 70% target. In essence, if you assume that everyone needs more than they really need when they retire, you conclude that everyone's dream will be shattered ... but so what?
Obsessive retirement saving shouldn't come at cost of raising families
We need to strive for a more balanced perspective. Yes, we want people to have adequate incomes when they retire. But we also want them to have adequate incomes when they are carrying a mortgage and raising their children. Telling them to save obsessively solves the first problem but exacerbates the second. And from my perspective, the second problem may
be the bigger one.
• DOW +45.50
• Dollar -.46c to 98.61cUS
• Oil -$.92 to $82.01US per barrel.
• Gold +$1.00 to $1,125.00 USD per ounce
Generating 70% replacement ratio to retire at 65, requires 35 years of saving 10-20% of income Jonathon Chevreau, Financial Post
Canadians hoping to "replace" 70% of their working income when retiring at 65 will need to save a "very high" portion of their annual pre-retirement earnings, says a C.D. Howe Institute study released today. Depending on their earned income while working, they will need to save between 10 and 21% of their pre-tax earnings every year: for 35 consecutive years between age 30 and 65, says the report, titled The Piggy Bank Index: Matching Canadians' Savings Rates to Their Retirement Dreams. The full 10-page e-brief can be found by clicking here. [If you have trouble with the link, as I did, copy it and paste it directly into your browser.]
Limits on tax-assisted savings prevent most high-earners from replacing 70% of working incomes
The authors -- David A. Dodge, Alexandre Laurin and Colin Busby -- say Canadians face obstacles in saving more. "The problem is that although private savings allow choice about retirement age and income, the Income Tax Act limits on tax-recognized savings may prevent many higher income earners from accumulating sufficient RRSP savings to securely replace 70% of their final earnings."
In a press release, former Governor of the Bank of Canada David Dodge [pictured above] said the findings provide "a ‘reality check' about the saving rates required to meet [Canadians'] retirement goals and inform the choices they could have to make between working longer or consuming less and saving more."
The authors assume a 3% real return on investments, despite the fact 4% is the historical norm. They assume inflation will average 2% a year and that public pensions like the CPP/QPP and Old Age Security will continue in their present form.
While a 70% replacement ratio is considered the "gold standard" an appendix provides calculations for more modest income replacement ratios of 60% and 50%.
Only "working poor" can get by saving less than 10% of gross earnings
It finds that with the exception of what it calls "the working poor," most Canadians must save 10 to 21% of gross earnings every year to get to the 70% replacement ratio in retirement. "This fraction is likely higher than many Canadians believe and higher than is set aside in most employer-based group RSPs or defined-contribution plans," the authors write, "It is also higher than the effective contribution over time to many employer-sponsored defined-benefits plans, and for high-income earners exceeds the annual limits placed on RRSP contributions."
Note that last point, given an earlier CD Howe recommendation that RRSP contribution limits be almost doubled from the current 18% of earned income and $22,000 maximum to 34% and $42,000 respectively, as reported in this blog here early in February. The recent federal budget ignored the recommendation but indicated further consultation will occur in the spring. In today's e-brief, the institute adds that "Income Tax Act limits would prevent many earners from accumulating enough RRSP savings over 33 years (by age 63) to replace 70% or more of their working income."
Delaying retirement to age 67 so you save for 37 years reduces the fraction that must be saved somewhat, "but the required saving rate still remains high," the brief says, "People wishing to retire even earlier at 63 face even higher costs."
Delaying saving past 30 means saving more than 20% of income
And as all the nation's banks tell us during RRSP season, delaying the commencement of saving past age 30 means eventually having to save what the institute calls "extraordinarily large fractions of income -- more than 20%" for many above-average earners during the last decade of one's working years.
The paper concludes on a public policy note, saying the debate on how to improve our pension system is "well founded." Policy changes can improve incentives to save for retirement and to more efficiently manage retirement savings. But CD Howe's final line in the brief could have been written by virtually any financial planner or advisor: "In the end, if Canadians want high incomes and consumption in their retirement years, they will have to save more of their incomes and forgo more consumption during their earning years."
Malcolm Hamilton: dreams "shattered" only if you accept 70% replacement target
The paper shows that:
* If you want to replace 70% of your gross income when you retire at 65, and
* If you earn an above average wage,
then you need to save quite a bit from a rather young age (30). If you want to retire early with that same standard of living, you need to save even more. The conclusions are very sensitive to assumptions about future returns, but that's the way it is.
The big question is whether you need to replace 70% of your gross income to preserve your standard of living when you retire. Most Canadians retire with closer to 50% replacement. Most say that their quality of life is as good or better after retirement than before. As you know, I always felt that 50% would preserve the standard of living of the average family of 4 because a large percentage of their pre retirement income (often 40% to 50%) is consumed by kids, mortgages and taxes.
50% replacement ratio may suffice to preserve low standard of living while working
All of these burdens are hopefully gone by the time they retire. Their pre retirement standard of living is low. The good news is that they don't need to save much to preserve this low standard of living. One of the tables in the report concludes that those with average earnings can retire with 50% replacement at age 65 by saving only 5% of their incomes ... as compared to 11% if they want 70% replacement.
I do worry about the message accompanying the paper ... in essence that Canadians are saving too little and that their dreams will be shattered when they retire. This is true if we accept the 70% target. But it is not true if the target is wrong, and no evidence is offered in support of the 70% target. In essence, if you assume that everyone needs more than they really need when they retire, you conclude that everyone's dream will be shattered ... but so what?
Obsessive retirement saving shouldn't come at cost of raising families
We need to strive for a more balanced perspective. Yes, we want people to have adequate incomes when they retire. But we also want them to have adequate incomes when they are carrying a mortgage and raising their children. Telling them to save obsessively solves the first problem but exacerbates the second. And from my perspective, the second problem may
be the bigger one.
Thursday, March 18, 2010
Financial Update For March 18, 2010
High Canadian dollar here to stay, economists say
• TSX +80.60 to 12,100 as commodity prices rose in the wake of the U.S. Federal Reserve's announcement that it will leave interest rates at historic lows and said it would keep rates unchanged "for an extended period."
• DOW +47.69 after the U.S. and Japanese central banks chose to keep interest rates low and the Senate passed a key jobs bill.
• Dollar +.36c to 98.98cUS A solid reading on January wholesale sales helped push the loonie as high as 99.31 cents US at one point during the session.
• Oil +$1.01 to $82.71US per barrel.
• Gold +$2.00 to $1,125.20 USD per ounce
In economic news, Statistics Canada said wholesales sales in current dollars rose the strongest in three years by 3% to $44.4 billion in January. The growth in January was contributed by all the sectors, with automotive products, building materials, machinery and electronic equipments recording notable gains
High Canadian dollar here to stay, economists say
By The Canadian Press OTTAWA - The high Canadian dollar appears to be here to stay despite what the Bank of Canada or inflation do to impact the currency.
Economists say the loonie, which jumped past 99 cents US on Wednesday, could hit parity at any time.
And unlike two years ago when the currency fell off the parity perch against the U.S. greenback as quickly as it had climbed, this time there will be no sudden retreat.
Under normal circumstances, Friday's inflation numbers should provide a downward draft to the loonie's flight.
The consensus of economists is for inflation, which hit 1.9 per cent in January, to fall all the way back to 1.4 per cent in February's data.
That won't matter, however, says TD deputy chief economist Craig Alexander.
He says the markets have already priced in that inflation will be low going forward, as they have that the Bank of Canada will likely move well before the U.S. Federal Reserve in raising interests rates.
Whether the loonie is slightly below parity, at parity or a little above, Alexander says the key point is that Canadians should expect the currency to remain strong for some time.
Also pushing up the currency is the perception that Canada's resources-based economy will continue to benefit from high oil and mineral prices.
Industry Minister Tony Clement said Canadian businesses are learning to live with the new reality.
"Obviously, historically it's been an issue for Canada," he said of the negative impact of a strong currency on industry.
"What we're seeing," he added, "is that Canadian manufacturers and other exporters are learning to live with the higher dollar."
http://ca.news.finance.yahoo.com/s/17032010/2/biz-finance-high-canadian-dollar-stay-economists-say.html
When it comes to mortgage details, most people just 'zone out'
James Pasternak, Financial Post
It is a legal document that stretches about 30 pages and runs about 10,000 words. Its execution takes no more than a couple minutes and when the ink dries on the signature lines, more times than not it is never read and gets slipped into a file folder, largely forgotten.
But despite its casual handling, the residential mortgage agreement governs the largest debt of over 5 million Canadians and within its fine print are the provisions that can make or break a household's financial future. There's a lot at stake. At the beginning of 2004, Canadians held $517.7-billion in mortgages.
"I think most of the major bank representatives do a good job of explaining these provisions to their clients but I think most people zone out and don't really listen. All they think about is getting a mortgage at 3.8% and ‘I want to get this done'," says Len Rodness, Partner, of Toronto-based law firm Torkin Manes (www.torkinmanes.com)
But beyond the interest rate there are a wide range of options and clauses in the mortgage agreement that deserve scrutiny. In a competitive lending environment, shopping for the right mortgage can bring significant savings and peace of mind through the amortization period.
Take the case of Hamilton, Ont., couple Kathy Funke and Dan Perryman. When they were shopping for a home in 2003, the interest rate was the top priority. They also wanted flexible prepayment options and accelerated weekly mortgage payments. To leverage the competitive interest rate they received, they went with a variable rate mortgage. They paid off a $230,000 mortgage in 5 ½ years.
"The power in these things comes from people who know how to manage [the] various privileges. It has a huge [savings] effect on amortization....The ideal thing is to understand what your privileges are and then combine them to your advantage -- to what you can afford to do; to fit your lifestyle and ability to pay," says Jeff Atlin of Thornhill, Ont. based Abacus Mortgages Inc.
And privileges there are. You just have to shop for them.
Accelerated Payment Options: Getting the loan paid earlier
It just seemed like yesteryear when everyone was paying their mortgage on the 1st of every month. Now, in addition to the first of the month option, some of the more common options are accelerated weekly and biweekly or semi-monthly options.
These frequency options result in long term savings. For example if one selects the accelerated biweekly option one is making 26 payments in a year, the equivalent of two prepayments per year over the monthly option. When a $150,000 mortgage amortized over 25 years is paid under an accelerated bi-weekly option, the debt is retired in 21 years and the interest savings are around $18,000.
Toronto resident and electrician Karl Klos, 26, selected "weekly rapid" payments on a mortgage amortized over 35 years. The mortgage payments are made each week but he added the "rapid" option by increasing the amount paid. Mr. Klos says that the payment frequency will pay off his mortgage in 25 years instead of 35 years.
"I can't understand why anybody would do monthly payments anymore now that the banks offer the ability to have weekly payments. It may be a cash flow situation. If you do a weekly mortgage payment it could save you a significant amount of money," says real estate lawyer Len Rodness.
Restating mortgage agreement vows
It doesn't take long after one signs a mortgage agreement to hear from a neighbour or friend that they received a better rate. So when you dig out the mortgage agreement see if there's a clause that allows borrowers to renegotiate their agreement before the end of the term. The bank might use a model called "blend and extend." For example, if one has a $100,000 mortgage at 6% mortgage with two years to go they might blend it with the current five year rate of 3.79%. So according to mortgage broker Atlin when they average out 2/5 of the mortgage at 6% and 3/5 are at 3.79%, the customer will get a new reduced rate of about 4.6%. But the borrower is tied to the bank for another 5 years.
Putting spare cash against the mortgage with no penalty
Almost all mortgage agreements have options for mortgage prepayment without penalty. Klos's mortgage agreement allows prepayments of up to 15% of the annual balance. Most financial institutions provide prepayment options in the 10-20% range. Some lenders allow borrowers to make the prepayment any time during the year while other agreements restrict the prepayment to the anniversary date.
Also, some financial institutions allow customers to make multiple smaller prepayments during the year as long as they don't exceed the annual limit. Funke and Perryman were able to retire their $230,000 mortgage in 5 ½ years primarily because of the prepayment provisions in their mortgage.
Coming up with more money for each payment
Some lenders will allow borrowers to increase the payments without penalty. Depending on the wording of the mortgage agreement the increased payments can range from around 15% to 100% of the current payment. So if one is paying $1,000 per month under the 15% rule, a borrower can raise it to $1,150 per month. Klos's weekly rapid payment plan was based on him raising the weekly payments by 5%.
"Payment and amortization are a function of each other. Any time you raise the payments you shorten the amortization; any time you shorten the amortization you raise the payment," says Mr. Atlin.
The mortgage prenuptial: Penalties for getting out of your mortgage
"A mortgage is a contract first and foremost. It is a contract between a borrower and the lender," Atlin says. And if someone hasn't felt that cold business approach during the course of their mortgage, they certainly will if they try to leave early. Most borrowers pay out their mortgages when they sell their house, win a lottery or are offered a better interest rate by another company. Until recent years, the standard penalty for breaking a mortgage agreement was three months of interest. Paying out a $200,000 mortgage could amount to a $2,500 penalty.
In many current mortgage agreements, the penalty for an early exit (and not extending) is either three months of interest or an interest differential, whichever is greatest.
The mortgage differential penalty can be quite expensive. If a mortgage is at 5% interest rate and you have three years left in your term, the bank will use the difference between the agreement rate and the current market rate to calculate the penalty. Using the 5% case above, let's say the current 3-year mortgage is available at 3.5%. The bank will charge the difference between 5% and 3.5% for the balance of your term.
Bank customers who have an open mortgage with a variable rate can usually pay them out with little or no penalty. Some mortgages are closed for the first few years and then revert to an open option. The penalties, if there are any, would be much lower once the mortgage converts to an open one. If one can, it would be best to wait until the mortgage kicks into open status.
When paying out the mortgage try to have some of it calculated as your annual no-penalty prepayment option. Therefore, if you are paying out a $200,000 mortgage and you also have a 20% per annum prepayment option you might be able to save penalties on $40,000. If the mortgage prepayments can only be done on the anniversary date, make sure that is the day you select to pay out the mortgage.
Mortgage Lifelines
Mortgages are often signed and sealed with the borrower having every intention to pay. However, the world is paved with best intentions and recessions are everyone else's problem until the boss comes into your office with the bad news.
"That is something that nobody turns their attention to at the time. The original document is done. The legal issues are in that original document. For a practical point of view given the state of the economy these [clauses] might be something beneficial," said Len Rodness of Torkin Manes.
Some mortgages include a Rainy Day option. This option allows the borrower to skip one principal and interest payment each mortgage year. The interest portion of the skipped payment or payments will be added to the outstanding principal balance.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2631845#ixzz0iTZkol9e
• TSX +80.60 to 12,100 as commodity prices rose in the wake of the U.S. Federal Reserve's announcement that it will leave interest rates at historic lows and said it would keep rates unchanged "for an extended period."
• DOW +47.69 after the U.S. and Japanese central banks chose to keep interest rates low and the Senate passed a key jobs bill.
• Dollar +.36c to 98.98cUS A solid reading on January wholesale sales helped push the loonie as high as 99.31 cents US at one point during the session.
• Oil +$1.01 to $82.71US per barrel.
• Gold +$2.00 to $1,125.20 USD per ounce
In economic news, Statistics Canada said wholesales sales in current dollars rose the strongest in three years by 3% to $44.4 billion in January. The growth in January was contributed by all the sectors, with automotive products, building materials, machinery and electronic equipments recording notable gains
High Canadian dollar here to stay, economists say
By The Canadian Press OTTAWA - The high Canadian dollar appears to be here to stay despite what the Bank of Canada or inflation do to impact the currency.
Economists say the loonie, which jumped past 99 cents US on Wednesday, could hit parity at any time.
And unlike two years ago when the currency fell off the parity perch against the U.S. greenback as quickly as it had climbed, this time there will be no sudden retreat.
Under normal circumstances, Friday's inflation numbers should provide a downward draft to the loonie's flight.
The consensus of economists is for inflation, which hit 1.9 per cent in January, to fall all the way back to 1.4 per cent in February's data.
That won't matter, however, says TD deputy chief economist Craig Alexander.
He says the markets have already priced in that inflation will be low going forward, as they have that the Bank of Canada will likely move well before the U.S. Federal Reserve in raising interests rates.
Whether the loonie is slightly below parity, at parity or a little above, Alexander says the key point is that Canadians should expect the currency to remain strong for some time.
Also pushing up the currency is the perception that Canada's resources-based economy will continue to benefit from high oil and mineral prices.
Industry Minister Tony Clement said Canadian businesses are learning to live with the new reality.
"Obviously, historically it's been an issue for Canada," he said of the negative impact of a strong currency on industry.
"What we're seeing," he added, "is that Canadian manufacturers and other exporters are learning to live with the higher dollar."
http://ca.news.finance.yahoo.com/s/17032010/2/biz-finance-high-canadian-dollar-stay-economists-say.html
When it comes to mortgage details, most people just 'zone out'
James Pasternak, Financial Post
It is a legal document that stretches about 30 pages and runs about 10,000 words. Its execution takes no more than a couple minutes and when the ink dries on the signature lines, more times than not it is never read and gets slipped into a file folder, largely forgotten.
But despite its casual handling, the residential mortgage agreement governs the largest debt of over 5 million Canadians and within its fine print are the provisions that can make or break a household's financial future. There's a lot at stake. At the beginning of 2004, Canadians held $517.7-billion in mortgages.
"I think most of the major bank representatives do a good job of explaining these provisions to their clients but I think most people zone out and don't really listen. All they think about is getting a mortgage at 3.8% and ‘I want to get this done'," says Len Rodness, Partner, of Toronto-based law firm Torkin Manes (www.torkinmanes.com)
But beyond the interest rate there are a wide range of options and clauses in the mortgage agreement that deserve scrutiny. In a competitive lending environment, shopping for the right mortgage can bring significant savings and peace of mind through the amortization period.
Take the case of Hamilton, Ont., couple Kathy Funke and Dan Perryman. When they were shopping for a home in 2003, the interest rate was the top priority. They also wanted flexible prepayment options and accelerated weekly mortgage payments. To leverage the competitive interest rate they received, they went with a variable rate mortgage. They paid off a $230,000 mortgage in 5 ½ years.
"The power in these things comes from people who know how to manage [the] various privileges. It has a huge [savings] effect on amortization....The ideal thing is to understand what your privileges are and then combine them to your advantage -- to what you can afford to do; to fit your lifestyle and ability to pay," says Jeff Atlin of Thornhill, Ont. based Abacus Mortgages Inc.
And privileges there are. You just have to shop for them.
Accelerated Payment Options: Getting the loan paid earlier
It just seemed like yesteryear when everyone was paying their mortgage on the 1st of every month. Now, in addition to the first of the month option, some of the more common options are accelerated weekly and biweekly or semi-monthly options.
These frequency options result in long term savings. For example if one selects the accelerated biweekly option one is making 26 payments in a year, the equivalent of two prepayments per year over the monthly option. When a $150,000 mortgage amortized over 25 years is paid under an accelerated bi-weekly option, the debt is retired in 21 years and the interest savings are around $18,000.
Toronto resident and electrician Karl Klos, 26, selected "weekly rapid" payments on a mortgage amortized over 35 years. The mortgage payments are made each week but he added the "rapid" option by increasing the amount paid. Mr. Klos says that the payment frequency will pay off his mortgage in 25 years instead of 35 years.
"I can't understand why anybody would do monthly payments anymore now that the banks offer the ability to have weekly payments. It may be a cash flow situation. If you do a weekly mortgage payment it could save you a significant amount of money," says real estate lawyer Len Rodness.
Restating mortgage agreement vows
It doesn't take long after one signs a mortgage agreement to hear from a neighbour or friend that they received a better rate. So when you dig out the mortgage agreement see if there's a clause that allows borrowers to renegotiate their agreement before the end of the term. The bank might use a model called "blend and extend." For example, if one has a $100,000 mortgage at 6% mortgage with two years to go they might blend it with the current five year rate of 3.79%. So according to mortgage broker Atlin when they average out 2/5 of the mortgage at 6% and 3/5 are at 3.79%, the customer will get a new reduced rate of about 4.6%. But the borrower is tied to the bank for another 5 years.
Putting spare cash against the mortgage with no penalty
Almost all mortgage agreements have options for mortgage prepayment without penalty. Klos's mortgage agreement allows prepayments of up to 15% of the annual balance. Most financial institutions provide prepayment options in the 10-20% range. Some lenders allow borrowers to make the prepayment any time during the year while other agreements restrict the prepayment to the anniversary date.
Also, some financial institutions allow customers to make multiple smaller prepayments during the year as long as they don't exceed the annual limit. Funke and Perryman were able to retire their $230,000 mortgage in 5 ½ years primarily because of the prepayment provisions in their mortgage.
Coming up with more money for each payment
Some lenders will allow borrowers to increase the payments without penalty. Depending on the wording of the mortgage agreement the increased payments can range from around 15% to 100% of the current payment. So if one is paying $1,000 per month under the 15% rule, a borrower can raise it to $1,150 per month. Klos's weekly rapid payment plan was based on him raising the weekly payments by 5%.
"Payment and amortization are a function of each other. Any time you raise the payments you shorten the amortization; any time you shorten the amortization you raise the payment," says Mr. Atlin.
The mortgage prenuptial: Penalties for getting out of your mortgage
"A mortgage is a contract first and foremost. It is a contract between a borrower and the lender," Atlin says. And if someone hasn't felt that cold business approach during the course of their mortgage, they certainly will if they try to leave early. Most borrowers pay out their mortgages when they sell their house, win a lottery or are offered a better interest rate by another company. Until recent years, the standard penalty for breaking a mortgage agreement was three months of interest. Paying out a $200,000 mortgage could amount to a $2,500 penalty.
In many current mortgage agreements, the penalty for an early exit (and not extending) is either three months of interest or an interest differential, whichever is greatest.
The mortgage differential penalty can be quite expensive. If a mortgage is at 5% interest rate and you have three years left in your term, the bank will use the difference between the agreement rate and the current market rate to calculate the penalty. Using the 5% case above, let's say the current 3-year mortgage is available at 3.5%. The bank will charge the difference between 5% and 3.5% for the balance of your term.
Bank customers who have an open mortgage with a variable rate can usually pay them out with little or no penalty. Some mortgages are closed for the first few years and then revert to an open option. The penalties, if there are any, would be much lower once the mortgage converts to an open one. If one can, it would be best to wait until the mortgage kicks into open status.
When paying out the mortgage try to have some of it calculated as your annual no-penalty prepayment option. Therefore, if you are paying out a $200,000 mortgage and you also have a 20% per annum prepayment option you might be able to save penalties on $40,000. If the mortgage prepayments can only be done on the anniversary date, make sure that is the day you select to pay out the mortgage.
Mortgage Lifelines
Mortgages are often signed and sealed with the borrower having every intention to pay. However, the world is paved with best intentions and recessions are everyone else's problem until the boss comes into your office with the bad news.
"That is something that nobody turns their attention to at the time. The original document is done. The legal issues are in that original document. For a practical point of view given the state of the economy these [clauses] might be something beneficial," said Len Rodness of Torkin Manes.
Some mortgages include a Rainy Day option. This option allows the borrower to skip one principal and interest payment each mortgage year. The interest portion of the skipped payment or payments will be added to the outstanding principal balance.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2631845#ixzz0iTZkol9e
Wednesday, March 17, 2010
Financial Update for March 17, 2010
Flaherty not flinching as loonie nears parity
• TSX +80.60 to 12,089
• DOW +43.83
• Dollar +.55c to 98.62cUS closed higher for an 11th straight session hitting a 20 month high
• Oil +$1.90 to $81.70US per barrel.
• Gold +$17.10 to $1,122.20 USD per ounce
Flaherty not flinching as loonie nears parity
Nicolas Van Praet, Financial Post Montreal -- The era of fearing Canada's high-flying loonie might finally be passed.
Trading near US98.6¢, the dollar is now the closest it's been to one-on-one status with the U.S. greenback since July 2008. And Jim Flaherty, Canada's finance minister isn't flinching.
"We see where it's at now and it's competitive," Mr. Flaherty said of the currency's impact on the Canada's economy in an interview on Bloomberg Television. The economy could be at risk if the loonie rose to an uncompetitive level but that is not expected to happen, the minister said.
There was a time not so long ago when a loonie edging closer to parity with the U.S. dollar would trigger hoots of outrage from business leaders and federal opposition ranks alike, demanding the Canadian government do something to tame the bird or face ballooning welfare rolls and corporate bankruptcies. Just last summer, Mr. Flaherty himself expressed worry about the loonie's quick rise.
But the country has now lived with a Canadian currency that's stayed above US90¢ for much of the past year after hitting a high of US$1.10 in 2007. And today, that indignation may be over amid a raft of data suggesting Canada's economy is surging back to life.
The S&P/TSX Composite Index on Tuesday rose to its highest level has since September 2008. Oil prices firmed up past US$81 a barrel. New government data showed labour productivity improvements blasted past expectations to 1.4% in the fourth quarter -- the fastest rate in almost 12 years.
The governing Conservatives are also taking heart in this past Friday's labour force survey, which showed Canadian employers hired more people than expected. Employment has been on an upward trend since July 2009 as 159,000 jobs have been added over the past eight months. The economy grew at an annual rate of 5% in the fourth quarter.
But another key element is what's happening with manufacturers, who typically get hit when the Canadian dollar rises because the goods they sell outside the country become more expensive.
Fresh manufacturing figures Tuesday added to the evidence that Canadian companies are adjusting better than in the past to currency swings, as long as those swings aren't gigantic. January manufacturing sales rose 2.4% to $44.6-billion, a fifth straight month of growth for a sector hit hard by weak demand during the recession.
"For manufacturers, this situation now is really like a bad remake of Groundhog Day. We've seen this before," said Jeff Brownlee, spokesman for the Canadian Manufacturers and Exporters association. "What we've been saying to our members is that the new normal is the dollar at par or beyond. Par is not a ceiling. And if you can compete at par, and if the dollar doesn't go there, you're going to be making money."
Examples abound of Canadian exporters which have reinvented themselves or stepped up their game to stay alive and win in the face of a higher dollar. Kitchener, Ont.-based Christie Digital Systems Canada, Inc. realized the televisions it was making could no longer compete with cheaper-made Korean and Chinese rivals. So it switched its vocation and now makes advanced video projection systems used at concerts around the world.
Others have taken less dramatic steps, protecting themselves with currency option contracts, retooling plants with new machinery, or engineering their operations to ensure U.S. denominated revenue was used to pay U.S. suppliers.
"Exporters to the U.S. have had fair warning and they're tried to adjust to it. So maybe to some extent they've got used to it," said Dale Orr, an independent economist. "They've lost a little bit of steam in terms of getting public sympathy or government sympathy, that's for sure. It isn't there like it was."
Behind the latest numbers and the success stories however lies the stark fact that nothing dramatic has changed in the competitive fundamentals of Canadian companies over the past three years, warned Don Drummond, chief economist at TD Bank Financial group.
To take just one measure, although Canada's private sector productivity soared in the fourth quarter, it was its first uptick in more than a year and it fell during the recession as the United States' output per hour worked rose sharply. Productivity still trails that of our trading partner.
"Canadian businesses have not become more competitive this time around than they were the last time the dollar was reaching parity," Mr. Drummond said. "There's no tangible evidence looking at the productivity and the cost-effectiveness of the business sector to suggest that they're in a better position this time around. In fact if anything, they're worse."
Read more: http://www.financialpost.com/news-sectors/story.html?id=2690063#ixzz0iQxuJjCR
• TSX +80.60 to 12,089
• DOW +43.83
• Dollar +.55c to 98.62cUS closed higher for an 11th straight session hitting a 20 month high
• Oil +$1.90 to $81.70US per barrel.
• Gold +$17.10 to $1,122.20 USD per ounce
Flaherty not flinching as loonie nears parity
Nicolas Van Praet, Financial Post Montreal -- The era of fearing Canada's high-flying loonie might finally be passed.
Trading near US98.6¢, the dollar is now the closest it's been to one-on-one status with the U.S. greenback since July 2008. And Jim Flaherty, Canada's finance minister isn't flinching.
"We see where it's at now and it's competitive," Mr. Flaherty said of the currency's impact on the Canada's economy in an interview on Bloomberg Television. The economy could be at risk if the loonie rose to an uncompetitive level but that is not expected to happen, the minister said.
There was a time not so long ago when a loonie edging closer to parity with the U.S. dollar would trigger hoots of outrage from business leaders and federal opposition ranks alike, demanding the Canadian government do something to tame the bird or face ballooning welfare rolls and corporate bankruptcies. Just last summer, Mr. Flaherty himself expressed worry about the loonie's quick rise.
But the country has now lived with a Canadian currency that's stayed above US90¢ for much of the past year after hitting a high of US$1.10 in 2007. And today, that indignation may be over amid a raft of data suggesting Canada's economy is surging back to life.
The S&P/TSX Composite Index on Tuesday rose to its highest level has since September 2008. Oil prices firmed up past US$81 a barrel. New government data showed labour productivity improvements blasted past expectations to 1.4% in the fourth quarter -- the fastest rate in almost 12 years.
The governing Conservatives are also taking heart in this past Friday's labour force survey, which showed Canadian employers hired more people than expected. Employment has been on an upward trend since July 2009 as 159,000 jobs have been added over the past eight months. The economy grew at an annual rate of 5% in the fourth quarter.
But another key element is what's happening with manufacturers, who typically get hit when the Canadian dollar rises because the goods they sell outside the country become more expensive.
Fresh manufacturing figures Tuesday added to the evidence that Canadian companies are adjusting better than in the past to currency swings, as long as those swings aren't gigantic. January manufacturing sales rose 2.4% to $44.6-billion, a fifth straight month of growth for a sector hit hard by weak demand during the recession.
"For manufacturers, this situation now is really like a bad remake of Groundhog Day. We've seen this before," said Jeff Brownlee, spokesman for the Canadian Manufacturers and Exporters association. "What we've been saying to our members is that the new normal is the dollar at par or beyond. Par is not a ceiling. And if you can compete at par, and if the dollar doesn't go there, you're going to be making money."
Examples abound of Canadian exporters which have reinvented themselves or stepped up their game to stay alive and win in the face of a higher dollar. Kitchener, Ont.-based Christie Digital Systems Canada, Inc. realized the televisions it was making could no longer compete with cheaper-made Korean and Chinese rivals. So it switched its vocation and now makes advanced video projection systems used at concerts around the world.
Others have taken less dramatic steps, protecting themselves with currency option contracts, retooling plants with new machinery, or engineering their operations to ensure U.S. denominated revenue was used to pay U.S. suppliers.
"Exporters to the U.S. have had fair warning and they're tried to adjust to it. So maybe to some extent they've got used to it," said Dale Orr, an independent economist. "They've lost a little bit of steam in terms of getting public sympathy or government sympathy, that's for sure. It isn't there like it was."
Behind the latest numbers and the success stories however lies the stark fact that nothing dramatic has changed in the competitive fundamentals of Canadian companies over the past three years, warned Don Drummond, chief economist at TD Bank Financial group.
To take just one measure, although Canada's private sector productivity soared in the fourth quarter, it was its first uptick in more than a year and it fell during the recession as the United States' output per hour worked rose sharply. Productivity still trails that of our trading partner.
"Canadian businesses have not become more competitive this time around than they were the last time the dollar was reaching parity," Mr. Drummond said. "There's no tangible evidence looking at the productivity and the cost-effectiveness of the business sector to suggest that they're in a better position this time around. In fact if anything, they're worse."
Read more: http://www.financialpost.com/news-sectors/story.html?id=2690063#ixzz0iQxuJjCR
Tuesday, March 16, 2010
Financial Update for March 16, 2010
Cost of owning a home up slightly in late 2009; will continue to rise
• TSX -5.02 to 12,008 as its energy and materials sectors fell on worries that credit tightening in China could sap demand for Canada's resources. China's central bank is expected to tighten its monetary policy this week to temper its red-hot economy, following a government report that China's annual inflation rate jumped to 2.7 per cent in February from 1.5 per cent in January. spurring concern about the effect that could have on the global economy.
• DOW +17.46
• Dollar -.13c to 98.07cUS closed higher for an 11th straight session hitting a 20 month high
• Oil -$1.44 to $79.80US per barrel.
• Gold +$3.70 to $1,105.40 USD per ounce
Cost of owning a home up slightly in late 2009; will continue to rise: RBC
Sunny Freeman , The Canadian Press
TORONTO - Home prices will continue to rise this spring as buyers scramble to close deals ahead of expected higher interest rates, new mortgage rules and new taxes in two key markets.
A report by RBC Economics issued Monday found that the cost of owning a home in Canada increased slightly across all housing segments in the closing months of 2009.
Strong demand, fuelled by exceptionally low mortgage rates, has increased competition for the limited supply of homes for sale, which continues to drive prices up, the report said.
RBC senior economist Robert Hogue said the problem is likely to get worse with an anticipated rise in interest rates in the second half of the year.
The Bank of Canada has pledged to keep its key overnight rate at 0.25 per cent, where it has been since last spring, until the end of the second quarter. But economists anticipate it will begin rising as early as July.
Historically low interest rates have been cited among reasons for the strong housing market, with sales of existing homes moving higher again in February and setting monthly records in both Ontario and Quebec.
The Canadian Real Estate Association said 36,275 homes were sold across the country in February, up 44 per cent from the same month in 2009, when the recession was still impacting both consumer optimism and loan activity.
But February's year-over-year gain was much smaller than in the previous three months, CREA said. Part of the reason was that February home sales were down in Vancouver as the Olympics impacted activity there even as sales in Toronto logged an equally large gain.
Overall, seasonally adjusted home sales were down 1.5 per cent in February compared with January.
Economists predict that real estate markets in B.C. and Ontario will remain hot in the months prior to the introduction of the harmonized sales tax in those provinces on July 1, which will increase the transaction costs associated with a home purchase.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some buyers in Ontario and B.C., which combined account for over half of national sales, are advancing their purchases to avoid paying the HST.
"It's no coincidence that Ontario and B.C. have seen the biggest gain in sales in the country," he said.
CREA chief economist Gregory Klump said buyers in those provinces are driving national sales activity higher in the first part of the year.
"It should remain a tight market with negotiations favouring the seller in a number of major markets in the first half of this year," he said.
Klump said that strong resale housing demand continues to draw down inventories, but softer sales activity and an increase in new listings in recent months has helped slow the depletion of available properties.
"Those sellers who moved to the sidelines at the depth of the recession will be putting their homes back on the market in response to headline average price increases," he said. "
Porter said the increase in supply from ultra-low levels helps bring the market closer to balance, but that the still-tight market means prices will remain high.
"We're going to get a very hot market in the next few months but it won't overheat," he said.
"I think we'll get one more wave of relatively strong numbers over the spring and then we'll crest and the market will come off the boil in the second half of the year."
He added that Ottawa's recent efforts to "release some steam from the market" will help slow activity, and "the housing market will pull up just short of bubble territory."
Finance Minister Jim Flaherty announced new mortgage qualification rules last month to discourage homeowners from taking out mortgages on homes they might not be able to afford down the road when rates return to more normal levels.
In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year, fixed-rate mortgage even if the period they choose is shorter and the interest rate they pay is lower.
Porter said the changes will prompt those affected - primarily first-time buyers and investors - to buy in advance of the new rules, and bump up sales in March.
Still, other buyers could be hesitant to enter the frenzied market this spring and may tolerate a small spike in interest rates and wait for conditions to cool off, he said.
"Some cooler heads will decide they can get a better deal in the second half of the year even if it does come at a higher interest rate."
• TSX -5.02 to 12,008 as its energy and materials sectors fell on worries that credit tightening in China could sap demand for Canada's resources. China's central bank is expected to tighten its monetary policy this week to temper its red-hot economy, following a government report that China's annual inflation rate jumped to 2.7 per cent in February from 1.5 per cent in January. spurring concern about the effect that could have on the global economy.
• DOW +17.46
• Dollar -.13c to 98.07cUS closed higher for an 11th straight session hitting a 20 month high
• Oil -$1.44 to $79.80US per barrel.
• Gold +$3.70 to $1,105.40 USD per ounce
Cost of owning a home up slightly in late 2009; will continue to rise: RBC
Sunny Freeman , The Canadian Press
TORONTO - Home prices will continue to rise this spring as buyers scramble to close deals ahead of expected higher interest rates, new mortgage rules and new taxes in two key markets.
A report by RBC Economics issued Monday found that the cost of owning a home in Canada increased slightly across all housing segments in the closing months of 2009.
Strong demand, fuelled by exceptionally low mortgage rates, has increased competition for the limited supply of homes for sale, which continues to drive prices up, the report said.
RBC senior economist Robert Hogue said the problem is likely to get worse with an anticipated rise in interest rates in the second half of the year.
The Bank of Canada has pledged to keep its key overnight rate at 0.25 per cent, where it has been since last spring, until the end of the second quarter. But economists anticipate it will begin rising as early as July.
Historically low interest rates have been cited among reasons for the strong housing market, with sales of existing homes moving higher again in February and setting monthly records in both Ontario and Quebec.
The Canadian Real Estate Association said 36,275 homes were sold across the country in February, up 44 per cent from the same month in 2009, when the recession was still impacting both consumer optimism and loan activity.
But February's year-over-year gain was much smaller than in the previous three months, CREA said. Part of the reason was that February home sales were down in Vancouver as the Olympics impacted activity there even as sales in Toronto logged an equally large gain.
Overall, seasonally adjusted home sales were down 1.5 per cent in February compared with January.
Economists predict that real estate markets in B.C. and Ontario will remain hot in the months prior to the introduction of the harmonized sales tax in those provinces on July 1, which will increase the transaction costs associated with a home purchase.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some buyers in Ontario and B.C., which combined account for over half of national sales, are advancing their purchases to avoid paying the HST.
"It's no coincidence that Ontario and B.C. have seen the biggest gain in sales in the country," he said.
CREA chief economist Gregory Klump said buyers in those provinces are driving national sales activity higher in the first part of the year.
"It should remain a tight market with negotiations favouring the seller in a number of major markets in the first half of this year," he said.
Klump said that strong resale housing demand continues to draw down inventories, but softer sales activity and an increase in new listings in recent months has helped slow the depletion of available properties.
"Those sellers who moved to the sidelines at the depth of the recession will be putting their homes back on the market in response to headline average price increases," he said. "
Porter said the increase in supply from ultra-low levels helps bring the market closer to balance, but that the still-tight market means prices will remain high.
"We're going to get a very hot market in the next few months but it won't overheat," he said.
"I think we'll get one more wave of relatively strong numbers over the spring and then we'll crest and the market will come off the boil in the second half of the year."
He added that Ottawa's recent efforts to "release some steam from the market" will help slow activity, and "the housing market will pull up just short of bubble territory."
Finance Minister Jim Flaherty announced new mortgage qualification rules last month to discourage homeowners from taking out mortgages on homes they might not be able to afford down the road when rates return to more normal levels.
In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year, fixed-rate mortgage even if the period they choose is shorter and the interest rate they pay is lower.
Porter said the changes will prompt those affected - primarily first-time buyers and investors - to buy in advance of the new rules, and bump up sales in March.
Still, other buyers could be hesitant to enter the frenzied market this spring and may tolerate a small spike in interest rates and wait for conditions to cool off, he said.
"Some cooler heads will decide they can get a better deal in the second half of the year even if it does come at a higher interest rate."
Friday, March 12, 2010
Financial Update For March 12, 2010
• TSX +18.64 to 11,979 reaching its highest close in 17 months and finishing higher for a second straight session, thanks to strength in financials and gold miners
• DOW +44.51
• Dollar +.15c to 97.63cUS closed higher for an 10th straight session hitting its highest level in 5 months
• Oil +$.02 to $82.11US per barrel.
• Gold +$.10 to $1,108.20 USD per ounce
In Canadian economic news, Statistics Canada said the country's trade surplus with the world came in at $799 million in January as exports grew 0.5 per cent during the month while imports declined 1.7 per cent.
Understanding house prices
A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step. Find out more.
What factors affect the value of a home?
• Location: Real estate people always say “Location, location, location.” That’s because the area you live in will be the biggest factor affecting your home’s price. It’s smart to buy a home where housing prices are likely to increase. Also, the people who may buy your home from you one day may be willing to pay more for a home that is close to schools, sports centres, stores, services, and so on. Keep that in mind as you look.
• The condition of the home and the property it is on: Does the home need a lot of repairs? How is the roof, plumbing, and electrical wiring? A home in good repair may be worth more. Also, the condition of the outside of the home, the lawn, gardens, driveway, and trees will all affect the value of a home. These are the first things that buyers see, and are together known as curb appeal.
• Renovations and updates: An older home might need some work to keep it safe, modern, and comfortable. If you are buying at a home that has had some renovations, check the quality. When you do work on a home you own, do it as well as you can. Poor work can lower the value.
• The economy: There are some things you can’t control that affect house prices, like interest rates. Higher interest rates mean it costs more for a mortgage, so fewer people buy homes. When that happens, the prices of homes can fall. Lower interest rates, on the other hand, can boost buying and drive prices up. House prices often go up for a while, and then come down a bit. Try to find out as much as you can about how prices are changing, or may change, when deciding to buy or sell a home. Often there will be stories in the paper about housing prices.
How much is my home worth today?
If you’re considering buying a home, or you just bought one, you know how much it’s worth. But if you’ve owned your home for a while, its value has probably changed. Here’s how you can find out how much it’s worth now:
• Call a real estate agent: Ask them for an estimate of your home’s value. You may be able to get an agent to do this for free, because they hope to get your business in the future.
• Ask an appraiser: Your bank or a real estate agent should know a number of appraisers. Banks use them to estimate house values before they approve mortgages. You can also look in the yellow pages. An appraiser will charge a fee for the service.
• Check to see what other homes in your area have sold for recently: Compare your home with similar ones that have sold. Unless you keep up with what’s happening in your area, this information may be hard to get. Ask your real estate agent if you can’t find it yourself.
How much will my home be worth in the future?
To estimate a home’s future value, you will have to do some informed guessing. Start with finding out what has happened to prices in your location over several years.
City Price, 1990 Price, 2005 Total % increase, 1990–2005 Average % increase per year
Halifax 97,238 188,484 93.84% 6.26%
Saint John 78,041 119,718 53.40% 3.56%
Quebec City 81,462 141,485 73.68% 4.91%
Montreal 111,197 203,720 83.21% 5.55%
Ottawa 141,562 248,358 75.44% 5.03%
Toronto 254,890 336,176 31.89% 2.13%
Windsor 106,327 163,001 53.30% 3.55%
Greater Sudbury 108,596 134,440 23.80% 1.59%
Winnipeg 81,740 137,062 67.68% 4.51%
Saskatoon 76,008 144,787 90.49% 6.03%
Calgary 128,484 250,832 95.22% 6.35%
Vancouver 226,385 425,745 88.06% 5.87%
Source: Canadian Real Estate Association (MLS®) http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/understanding-house-prices/article658078/
Should I buy a home now, or wait and save more money?
Sometimes people can’t wait to buy a home because of family or personal reasons. For example, they may have a new baby coming and need more room. Or, they are worried about house prices going up faster than they can save.
What if you don’t have the down payment you need for the house of your dreams? Should you wait and save more, or find another way to borrow the money you need? You won’t be able to get a standard mortgage but you could get another type of loan.
Should I save more or borrow more?
Here is a summary of the reasons to buy now, or wait.
Should you: Reasons for: Reasons against:
Wait and build up a large down payment? You will pay less interest. You can avoid paying for mortgage insurance. You reduce the risk of not being able to pay back the loan if the value of your home drops and you have to sell. You have to wait to own a home and you will pay more rent. You could have put that rent towards paying a mortgage, and owning more of your home faster. You have to be disciplined or you could spend your savings on other things. In some areas, house prices may rise faster than you can save the down payment.
Buy earlier with some other type of loan? • You can stop paying rent sooner and get into a home faster. • You have the chance to own more of your home sooner. • You don’t risk house prices rising more than you can afford. • You will pay more interest. • You will have more worries if you take on more debt than you can handle. • If you have to sell and the value of your home drops, you may not be able to pay back the loan.
• DOW +44.51
• Dollar +.15c to 97.63cUS closed higher for an 10th straight session hitting its highest level in 5 months
• Oil +$.02 to $82.11US per barrel.
• Gold +$.10 to $1,108.20 USD per ounce
In Canadian economic news, Statistics Canada said the country's trade surplus with the world came in at $799 million in January as exports grew 0.5 per cent during the month while imports declined 1.7 per cent.
Understanding house prices
A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step. Find out more.
What factors affect the value of a home?
• Location: Real estate people always say “Location, location, location.” That’s because the area you live in will be the biggest factor affecting your home’s price. It’s smart to buy a home where housing prices are likely to increase. Also, the people who may buy your home from you one day may be willing to pay more for a home that is close to schools, sports centres, stores, services, and so on. Keep that in mind as you look.
• The condition of the home and the property it is on: Does the home need a lot of repairs? How is the roof, plumbing, and electrical wiring? A home in good repair may be worth more. Also, the condition of the outside of the home, the lawn, gardens, driveway, and trees will all affect the value of a home. These are the first things that buyers see, and are together known as curb appeal.
• Renovations and updates: An older home might need some work to keep it safe, modern, and comfortable. If you are buying at a home that has had some renovations, check the quality. When you do work on a home you own, do it as well as you can. Poor work can lower the value.
• The economy: There are some things you can’t control that affect house prices, like interest rates. Higher interest rates mean it costs more for a mortgage, so fewer people buy homes. When that happens, the prices of homes can fall. Lower interest rates, on the other hand, can boost buying and drive prices up. House prices often go up for a while, and then come down a bit. Try to find out as much as you can about how prices are changing, or may change, when deciding to buy or sell a home. Often there will be stories in the paper about housing prices.
How much is my home worth today?
If you’re considering buying a home, or you just bought one, you know how much it’s worth. But if you’ve owned your home for a while, its value has probably changed. Here’s how you can find out how much it’s worth now:
• Call a real estate agent: Ask them for an estimate of your home’s value. You may be able to get an agent to do this for free, because they hope to get your business in the future.
• Ask an appraiser: Your bank or a real estate agent should know a number of appraisers. Banks use them to estimate house values before they approve mortgages. You can also look in the yellow pages. An appraiser will charge a fee for the service.
• Check to see what other homes in your area have sold for recently: Compare your home with similar ones that have sold. Unless you keep up with what’s happening in your area, this information may be hard to get. Ask your real estate agent if you can’t find it yourself.
How much will my home be worth in the future?
To estimate a home’s future value, you will have to do some informed guessing. Start with finding out what has happened to prices in your location over several years.
City Price, 1990 Price, 2005 Total % increase, 1990–2005 Average % increase per year
Halifax 97,238 188,484 93.84% 6.26%
Saint John 78,041 119,718 53.40% 3.56%
Quebec City 81,462 141,485 73.68% 4.91%
Montreal 111,197 203,720 83.21% 5.55%
Ottawa 141,562 248,358 75.44% 5.03%
Toronto 254,890 336,176 31.89% 2.13%
Windsor 106,327 163,001 53.30% 3.55%
Greater Sudbury 108,596 134,440 23.80% 1.59%
Winnipeg 81,740 137,062 67.68% 4.51%
Saskatoon 76,008 144,787 90.49% 6.03%
Calgary 128,484 250,832 95.22% 6.35%
Vancouver 226,385 425,745 88.06% 5.87%
Source: Canadian Real Estate Association (MLS®) http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/understanding-house-prices/article658078/
Should I buy a home now, or wait and save more money?
Sometimes people can’t wait to buy a home because of family or personal reasons. For example, they may have a new baby coming and need more room. Or, they are worried about house prices going up faster than they can save.
What if you don’t have the down payment you need for the house of your dreams? Should you wait and save more, or find another way to borrow the money you need? You won’t be able to get a standard mortgage but you could get another type of loan.
Should I save more or borrow more?
Here is a summary of the reasons to buy now, or wait.
Should you: Reasons for: Reasons against:
Wait and build up a large down payment? You will pay less interest. You can avoid paying for mortgage insurance. You reduce the risk of not being able to pay back the loan if the value of your home drops and you have to sell. You have to wait to own a home and you will pay more rent. You could have put that rent towards paying a mortgage, and owning more of your home faster. You have to be disciplined or you could spend your savings on other things. In some areas, house prices may rise faster than you can save the down payment.
Buy earlier with some other type of loan? • You can stop paying rent sooner and get into a home faster. • You have the chance to own more of your home sooner. • You don’t risk house prices rising more than you can afford. • You will pay more interest. • You will have more worries if you take on more debt than you can handle. • If you have to sell and the value of your home drops, you may not be able to pay back the loan.
Wednesday, March 10, 2010
Financial Update For March 10, 2010
• TSX -45.13 as weaker oil and gold prices pulled resource issues lower and most bank stocks dropped amid profit-taking. Mar 9 marked 12 months after the market hit bottom in the depths of the financial crisis, which was sparked by the collapse of the U.S. housing sector. Stocks have surged since hitting multi-year lows on March 9 of last year, with the turnaround starting a day later when U.S. bank Citigroup said it was turning a profit.
• DOW +11.86.
• Dollar +.12c to 97.43cUS closed higher for an 8th straight session approaching the highest level of the year.
• Oil -$.38 to $81.49US per barrel.
• Gold -$1.70 to $1,122.300 USD per ounce
Canada's employment outlook looking up: Manpower
TORONTO (Reuters) - Canadian employers plan to hold staffing levels steady in the second quarter, though hiring intentions are up from a year ago, according to a survey released on Tuesday by employment services company Manpower Inc .
The vast majority, 75 percent, of employers expect to maintain their current staffing levels, suggesting stability in a moderate economic recovery.
But the survey also showed 17 percent plan to increase their staffing in the second quarter, while 6 percent expect cutbacks. Two percent are unsure of their hiring intentions.
Hiring intentions were steady across the regions.
The seasonally adjusted Canadian net employment outlook of 7 percent suggests employers see a modest hiring climate for the upcoming quarter. It was a 3 percentage point dip from the prior quarter, but up 6 percentage points from a year ago.
Manpower's index, based on interviews with more than 1,900 Canadian employers, measures the difference between those who plan to add to their workforce and those who expect to cut staff.
The survey comes ahead of Friday's employment report for February, where a median 20,000 jobs is expected to have been added, while the unemployment rate is seen steady at 8.3 percent.
Employers in the education and mining industries reported the most favorable results among the 10 surveyed sectors for the second quarter, with employment outlooks of 15 percent.
The Canadian results were part of the global company's quarterly employment survey, which showed hiring intentions were up in 19 of 35 countries.
• DOW +11.86.
• Dollar +.12c to 97.43cUS closed higher for an 8th straight session approaching the highest level of the year.
• Oil -$.38 to $81.49US per barrel.
• Gold -$1.70 to $1,122.300 USD per ounce
Canada's employment outlook looking up: Manpower
TORONTO (Reuters) - Canadian employers plan to hold staffing levels steady in the second quarter, though hiring intentions are up from a year ago, according to a survey released on Tuesday by employment services company Manpower Inc .
The vast majority, 75 percent, of employers expect to maintain their current staffing levels, suggesting stability in a moderate economic recovery.
But the survey also showed 17 percent plan to increase their staffing in the second quarter, while 6 percent expect cutbacks. Two percent are unsure of their hiring intentions.
Hiring intentions were steady across the regions.
The seasonally adjusted Canadian net employment outlook of 7 percent suggests employers see a modest hiring climate for the upcoming quarter. It was a 3 percentage point dip from the prior quarter, but up 6 percentage points from a year ago.
Manpower's index, based on interviews with more than 1,900 Canadian employers, measures the difference between those who plan to add to their workforce and those who expect to cut staff.
The survey comes ahead of Friday's employment report for February, where a median 20,000 jobs is expected to have been added, while the unemployment rate is seen steady at 8.3 percent.
Employers in the education and mining industries reported the most favorable results among the 10 surveyed sectors for the second quarter, with employment outlooks of 15 percent.
The Canadian results were part of the global company's quarterly employment survey, which showed hiring intentions were up in 19 of 35 countries.
Tuesday, March 9, 2010
Financial Update For March 9, 2010
• TSX -11.30
• DOW -13.68.
• Dollar +.27c to 97.31cUS closed higher for a 7th straight sessions and hit a seven-week high against its American counterpart as oil prices continued to rise amid signs of global economic improvement.
• Oil +$.37 to $81.87US per barrel.
• Gold -$11.20 to $1,123.60 USD per ounce
Home purchase intentions full steam ahead: RBC poll
Vast majority of Canadians view buying a home as a good investment
TORONTO, March 8 /CNW/ - Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study. Younger Canadians, aged 18 to 24, will lead the charge this year, with those very likely to buy almost doubling to 15 per cent from eight per cent in 2009.
The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.
"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. "Stress test" your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Take advantage of early renewal options.
Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
2. Consider a combination (hybrid) mortgage to manage your interest costs.
If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group
More young Canadians taking advantage of low interest rates in housing market
By Luann Lasalle, The Canadian Press
MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider "good prices," a bank survey says.
The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.
"Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices," Marcia Moffat, RBC's head of home equity financing in Toronto, said Monday.
The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.
Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.
CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.
Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.
"Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest," Tal said.
"So there's a sense of urgency to get into the market and young people are a part of it."
Tal described the coming real estate market of the next three or four years as "boring."
"I think that what we are doing now is that we are basically stealing activity from the future."
The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
Senior CMHC economist Bill Clark said the market is seeing a lot of "catch-up" and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.
"So if you roll all of that together it's really sort of one big recipe for housing starts to go up," Clark said.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
• DOW -13.68.
• Dollar +.27c to 97.31cUS closed higher for a 7th straight sessions and hit a seven-week high against its American counterpart as oil prices continued to rise amid signs of global economic improvement.
• Oil +$.37 to $81.87US per barrel.
• Gold -$11.20 to $1,123.60 USD per ounce
Home purchase intentions full steam ahead: RBC poll
Vast majority of Canadians view buying a home as a good investment
TORONTO, March 8 /CNW/ - Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study. Younger Canadians, aged 18 to 24, will lead the charge this year, with those very likely to buy almost doubling to 15 per cent from eight per cent in 2009.
The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.
"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. "Stress test" your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Take advantage of early renewal options.
Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
2. Consider a combination (hybrid) mortgage to manage your interest costs.
If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group
More young Canadians taking advantage of low interest rates in housing market
By Luann Lasalle, The Canadian Press
MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider "good prices," a bank survey says.
The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.
"Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices," Marcia Moffat, RBC's head of home equity financing in Toronto, said Monday.
The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.
Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.
CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.
Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.
"Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest," Tal said.
"So there's a sense of urgency to get into the market and young people are a part of it."
Tal described the coming real estate market of the next three or four years as "boring."
"I think that what we are doing now is that we are basically stealing activity from the future."
The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
Senior CMHC economist Bill Clark said the market is seeing a lot of "catch-up" and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.
"So if you roll all of that together it's really sort of one big recipe for housing starts to go up," Clark said.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
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