• TSX -77.68
• DOW -122.36
• Dollar -.18c to 95.06cUS
• Oil -$.58 to $73.97US per barrel.
• Gold +$.30 to $1,212.20 USD per ounce
Canada won't fall victim to foreclosure wave: Report
John Shmuel, Financial Post
Canada's housing market is expected to cool off this year and next, but isn't at risk of falling victim to a U.S.-style foreclosure crisis anytime soon, according to a new report by debt-rating firm DBRS Ltd.
DBRS said in the report that Canada will continue to fare well in comparison to its neighbour to the south when the Canadian housing market corrects itself and interest rates are tightened. That is because lending practices here are much more sound than in the U.S.
"The likelihood of us having the kind of situation they had in the U.S. is extremely low," said Jerry Marriott, managing director of structured finance at DBRS . "It's a combination of the lending practices prior to the peak in 2007 - they were more restrained, so there were better underwriting practices in Canada. We also think there are a number of factors in the Canadian market which have lent themselves to more prudent lending."
Those factors includes less aggressive lenders in the market, as well as systems designed to keep people paying their mortgages.
Mr. Marriott said that a cooling effect is gradually taking hold in the housing market as credit availability begins to tighten, and the HST factors into home buying decisions in Ontario and British Columbia.
That means there's a greater likelihood this year that there will be a correction in housing prices rather than a continued increase. Mr. Marriott said the DBRS expects the market to cool throughout the year and continue to cool into 2011. That echoes analysts expectations, who also expect prices to drop as well. A recent report by TD Bank predicts prices will fall by 2.7% in 2011.
"If you add up the factors you would look at as to whether there's going to be further price increases or the potential for a correction, we don't see there's a lot of factors supporting further price increases," Mr. Marriott said. "But there are a number of factors that show there might be some moderation in housing prices."
That may bode well for potential buyers after a report by CIBC this week said that on average, Canadian home prices are currently 14% over their "fair" value - that represents about 1.5 million homes, or 17% of all dwellings.
The report also highlights that Canadian households continue to have a particularly high level of debt, something that the DBRS notes is part of an ongoing trend. But it tempers that by adding that household debt is not as worrying as some analysts have suggested.
"We think the measurement of household leverage is subject to a fair amount of interpretation," said Mr. Marriott.
For instance, the debt-to-disposable income shows Canadians are generally more indebted than Americans - however, the report outlines that this doesn't reflect certain differences between the two countries that affect income, such as the fact that the U.S. has lower taxes but that Americans pay more money toward their health-care bills.
"At the end of 2009, Canadian households remained financially less leveraged by 10% to 45% compared with U.S. households," the report said. Overall, after adjustments, Canada had a household liabilities-to-total gross income ratio of 116.8% at the end of 2009, while the United States's ratio was 161.5%.
But Canadian household debt is growing faster. Household liabilities increased by 29.5% in Canada between 2007 and 2009. In the use, household debt grew just 5.3% during the same period.
Overall, mortgage lending in Canada reached $958.8 billion at the end of 2009. That's more than double the $414.1 billion ten years ago. When including home equity lines of credit, outstanding mortgage-related credit was more than $1 trillion.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=3081970#ixzz0pVaLC07i
Carney's big call
Paul Vieira, Financial Post
Ottawa -- Bank of Canada governor Mark Carney has had a busy time of it since taking over as the country's central banker 27 months ago, mostly tackling the financial crisis, mapping out the road to recovery and reassuring Canadians that at the end of the day the bank's extraordinary policies would work.
The one thing he has yet to do during his term, however, is raise interest rates. That might be about to change on Tuesday. If he does pull the trigger - and that is what most analysts expect - it won't be after grappling with competing forces that convey two starkly different messages about the economic outlook.
"We are at point where it is a tug of war between structural issues that are facing the eurozone and a very strong economic cyclical backdrop," says Stéfane Marion, chief economist at National Bank Financial.
Weighing on the governor are the economic data, which call out for a rate hike - as much as 50 basis points, some reckon. The data have been consistently strong and surprising to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target. The sterling fundamentals prompted the central bank last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July, leading traders to price in a nearly 100% chance of a rate hike on June 1.
That was until sovereign debt worries exploded in Europe, once Greece formally asked for international help days after the last Bank of Canada rate decision. That sparked an across-the-board retreat in global equity markets, down 9.3% since the beginning of May, as traders sold stocks and poured into risk-averse U.S. treasuries and other government securities on fears that another credit crunch was at hand. Mr. Carney is likely aware of this better than most, given his capital markets background from Goldman Sachs.
The most worrying sign on Mr. Carney's radar screen might be the small but steady increases in the cost of borrowing among banks, a signal European lenders are finding it tough to access cash from their peers on concern over how much Greek, Portuguese and Spanish debt they hold.
In the end, the consensus is Mr. Carney is leaning toward a rate hike - a modest one, though, of 25 basis points. The thinking is, an ounce of prevention now is worth a pound of cure later.
"We can't look at things in a vacuum, because there are so many other factors besides Europe's issues" says Jonathan Basile, an economist with Credit Suisse in New York who closely watches Canadian markets. "The truth is the macroeconomic evidence is outweighing the financial risks right now."
The last time the Bank of Canada raised its benchmark rate was in July 2007, by 25 basis points to 4.5%. At the time, former governor David Dodge said the economy was operating above its production potential, and inflation was likely to stay above its 2% inflation target for longer than forecast.
Little did Mr. Dodge know that the U.S. subprime crisis would morph into the worst financial crisis since the Great Depression, roiling markets and economies around the world. This is why Europe's recent fiscal woes have triggered a case of nerves, and might prompt Mr. Carney to rethink any rate move.
"The Bank of Canada wants to raise rates, but it doesn't have a crystal ball," CIBC World Markets said in a note to clients. "It can't be certain that the recent financial market downturn isn't going to morph into something more severe that would make a rate hike look out of place."
There's another school of thought, though, that suggests markets have overreacted to a regional problem. In this context, it is key to remember the Bank of Canada didn't expect the eurozone to contribute much to global growth, envisaging only 1.2% expansion this year and 1.6% in 2011.
"The European picture will calm down and people will realize it is not as dramatic as being played out," says Carlos Leitao, chief economist at Laurentian Bank Securities.
Yes, he acknowledges, the debt-ridden southern European economies have tough years ahead. But other countries, led by Germany and France, are going to capitalize on the lower euro and boost their exports to emerging economies and North America, which will help offset the drag from the so-called Club Med nations.
Besides Europe, Mr. Carney has other factors to consider.
Canada's sovereign debt levels are indeed much better than the industrialized world, as our politicians like to remind us. But the amount of debt held by households, measured as a percentage of disposable income, stood at a historical high of 146% - of which 98% is mortgage related - at the end of 2009, rating agency DBRS estimates. That would put Canadian households ahead of the United States but behind Britain on this measure. A rate hike would signal it might be time to live more modestly and refrain from too much debt-financed consumption (which helped fuel those nasty asset bubbles that central banks may want to pay more attention to in the aftermath of the subprime debacle).
Mr. Carney's other challenge is to explain why, and what's ahead. He has come off a period where he provided extraordinary guidance to markets. Don't expect similar language from the governor.
If anything, Mr. Marion warns the central bank should refrain from using the type of guidance the U.S. Federal Reserve deployed in 2004, when it signalled a period of "moderate" rate hikes were in the offing.
In retrospect, the Fed's use of the word moderate "encouraged more financial excesses," leading to the subprime bust, Mr. Marion says. "Carney doesn't have to be brusque about it. He has the luxury to start slowly, and leave his options open," from pausing should Europe deteriorate to hiking aggressively, by 50 basis points, if conditions warrant.
Mr. Carney reminded us recently that "nothing is pre-ordained" at the Bank of Canada. He's likely to drive home that point on Tuesday, rate hike or not.
Read more: http://www.financialpost.com/news-sectors/story.html?id=3084621#ixzz0pVYuP0cD
Monday, May 31, 2010
Financial Update For May 28th, 2010
• TSX +205.22 higher for a second straight session as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.
• DOW +284.54 back over 10,000 to 10,259
• Dollar +1.66c to 95.24cUS as concern eased that Europe’s debt turmoil will worsen
• Oil +$3.04 to $74.55US per barrel.
• Gold -$1.50 to $1,211.90 USD per ounce
• DOW +284.54 back over 10,000 to 10,259
• Dollar +1.66c to 95.24cUS as concern eased that Europe’s debt turmoil will worsen
• Oil +$3.04 to $74.55US per barrel.
• Gold -$1.50 to $1,211.90 USD per ounce
Wednesday, May 26, 2010
Financial Update For May 26, 2010
• TSX -3.27 only slightly lower after a sharp fall early in the day on worries that Europe's banking problems could derail global economic recovery
• DOW -22.82 .
• Dollar -.94c to 93.46cUS
• Oil -$1.46 to $68.75US per barrel.
• Gold +$4.00 to $1,197.80 USD per ounce as bullion prices climbed on safe-haven buying
Loonie's plunge signals long-term risk for Canadian and global economies
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar plunged to its lowest level in eight months before recovering Tuesday, sending a clear signal that Europe's debt crisis has the potential to reach across the Atlantic and impact Canada's mending economy.
The loonie has lost about eight per cent of its value over the last month in reaction to fears in global equity and financial markets about the lasting imprint of government debt, and now a new risk — the threat of war on the Korean peninsula.
Over the weekend, the Bank of Spain had to bail out Cajasur — the second savings bank in that country to receive public money since March 2009. On Monday, four other Spanish savings banks announced plans to merge amid concerns over solvency in the sector.
Tension in Asia has also risen since last week after North Korea was accused of the sinking in March of a South Korean warship. Seoul has called for sanctions against the North.
The Canadian dollar closed down 0.94 of a cent at 93.46 cents US on Tuesday after bouncing off a low of 92.18 cents US earlier in the day.
The loonie is not alone in seeing its value eroded. Other commodity currencies have also taken a hit in the flight to dependable and liquid U.S. Treasury bills.
The short-term impact on the Canadian economy of frightened financial markets and a loonie closer to 90 cents than parity, ironically, may be mostly positive.
A weaker dollar will give a much-needed boost to manufacturers and exporters who prosper whenever they can sell their products abroad with a currency discount.
And the unsettling of financial markets has caused real interest rates to soften for mortgages and other loans. Many Canadian banks have dropped posted rates on five-year mortgages to below six per cent.
As a result, prospects that Bank of Canada governor Mark Carney will start hiking rates next Tuesday have gone from a virtual sure thing a month ago to a coin-flip today.
Export Development Canada's chief economist, Peter Hall, welcomed the fact that the loonie's wings have been clipped, saying that a dollar at par had the potential to take two or three points off economic growth next year — the equivalent of about $30 billion to $45 billion in output.
But the longer term implications may be that Canada's recovery won't go as smoothly as many had hoped. The loonie is acting as a proxy for the global economy: when the Canadian dollar is down, it means so are prospects for global expansion, say economists.
"Everything and anything that happens in the world affects Canada," said TD Bank chief economist Don Drummond, noting Canada's dependence on trade and on the prices of commodities it sells to the rest of the world.
The longer term outlook is that many governments, not just the poor cousins of Europe, will soon need to deal with debt burdens that cannot be sustained, and the ensuing clampdown on spending will stall the recovery.
Several economists, including David Rosenberg of Gluskin and Sheff, said the risk of a second downturn in key economies, including the United States as Washington withdraws stimulus spending, has become very real. Much like in 2008-09, Canada would become collateral damage, they said.
"For a small, open (and) commodity-sensitive economy whose entire recession in 2009 was imported from abroad and south of the border, the answer is yes," Rosenberg said when asked whether a second dip is possible.
That still remains a minority view, although the TD's Drummond puts the risk at about 20 per cent.
The key question is whether the European crisis is an overblown temporary crisis, or the precursor of government debt woes in the United Kingdom, the United States and other larger economies.
Scotiabank portfolio manager Andrew Pyle said he believes the fears over Europe will blow over in a matter of weeks, which will cause both oil prices and the loonie to recover to previous levels.
"I think people will be surprised to see how quickly that will happen. I wouldn't be surprised to see us back to parity in July," he said.
But it's the longer-term prospects that most worries Drummond. He says the perception that the situation will stabilize if the bailout of Greece and other countries works, or that things will implode if the bailout doesn't work, is simplistic.
"Those countries (with large debts) aren't getting out of this any time soon . . . easy bailout or not," he said.
http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-loonie-s-plunge-signals-long-term-risk-canadian.html
Transmitted by CNW Group
Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.
- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.
- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.
- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.
- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.
- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.
The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.
• DOW -22.82 .
• Dollar -.94c to 93.46cUS
• Oil -$1.46 to $68.75US per barrel.
• Gold +$4.00 to $1,197.80 USD per ounce as bullion prices climbed on safe-haven buying
Loonie's plunge signals long-term risk for Canadian and global economies
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar plunged to its lowest level in eight months before recovering Tuesday, sending a clear signal that Europe's debt crisis has the potential to reach across the Atlantic and impact Canada's mending economy.
The loonie has lost about eight per cent of its value over the last month in reaction to fears in global equity and financial markets about the lasting imprint of government debt, and now a new risk — the threat of war on the Korean peninsula.
Over the weekend, the Bank of Spain had to bail out Cajasur — the second savings bank in that country to receive public money since March 2009. On Monday, four other Spanish savings banks announced plans to merge amid concerns over solvency in the sector.
Tension in Asia has also risen since last week after North Korea was accused of the sinking in March of a South Korean warship. Seoul has called for sanctions against the North.
The Canadian dollar closed down 0.94 of a cent at 93.46 cents US on Tuesday after bouncing off a low of 92.18 cents US earlier in the day.
The loonie is not alone in seeing its value eroded. Other commodity currencies have also taken a hit in the flight to dependable and liquid U.S. Treasury bills.
The short-term impact on the Canadian economy of frightened financial markets and a loonie closer to 90 cents than parity, ironically, may be mostly positive.
A weaker dollar will give a much-needed boost to manufacturers and exporters who prosper whenever they can sell their products abroad with a currency discount.
And the unsettling of financial markets has caused real interest rates to soften for mortgages and other loans. Many Canadian banks have dropped posted rates on five-year mortgages to below six per cent.
As a result, prospects that Bank of Canada governor Mark Carney will start hiking rates next Tuesday have gone from a virtual sure thing a month ago to a coin-flip today.
Export Development Canada's chief economist, Peter Hall, welcomed the fact that the loonie's wings have been clipped, saying that a dollar at par had the potential to take two or three points off economic growth next year — the equivalent of about $30 billion to $45 billion in output.
But the longer term implications may be that Canada's recovery won't go as smoothly as many had hoped. The loonie is acting as a proxy for the global economy: when the Canadian dollar is down, it means so are prospects for global expansion, say economists.
"Everything and anything that happens in the world affects Canada," said TD Bank chief economist Don Drummond, noting Canada's dependence on trade and on the prices of commodities it sells to the rest of the world.
The longer term outlook is that many governments, not just the poor cousins of Europe, will soon need to deal with debt burdens that cannot be sustained, and the ensuing clampdown on spending will stall the recovery.
Several economists, including David Rosenberg of Gluskin and Sheff, said the risk of a second downturn in key economies, including the United States as Washington withdraws stimulus spending, has become very real. Much like in 2008-09, Canada would become collateral damage, they said.
"For a small, open (and) commodity-sensitive economy whose entire recession in 2009 was imported from abroad and south of the border, the answer is yes," Rosenberg said when asked whether a second dip is possible.
That still remains a minority view, although the TD's Drummond puts the risk at about 20 per cent.
The key question is whether the European crisis is an overblown temporary crisis, or the precursor of government debt woes in the United Kingdom, the United States and other larger economies.
Scotiabank portfolio manager Andrew Pyle said he believes the fears over Europe will blow over in a matter of weeks, which will cause both oil prices and the loonie to recover to previous levels.
"I think people will be surprised to see how quickly that will happen. I wouldn't be surprised to see us back to parity in July," he said.
But it's the longer-term prospects that most worries Drummond. He says the perception that the situation will stabilize if the bailout of Greece and other countries works, or that things will implode if the bailout doesn't work, is simplistic.
"Those countries (with large debts) aren't getting out of this any time soon . . . easy bailout or not," he said.
http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-loonie-s-plunge-signals-long-term-risk-canadian.html
Transmitted by CNW Group
Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.
- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.
- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.
- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.
- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.
- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.
The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.
Tuesday, May 25, 2010
Financial Update For May 25, 2010
• TSX +115.40 Friday, closed Monday
• DOW +125.38 Friday but down again Monday -126.82stock selling accelerated through the close, with the Dow ending at a three-month low as worries about the global economic outlook overshadowed a bigger-than-expected rise in existing home sales.
• Dollar +.75c to 94.40cUS
• Oil -$.76 Friday back up Monday +$0.17 to $70.21US per barrel.
• Gold -$12.50 Friday, back up Monday $18.10 to $1,193.80 USD per ounce
New rules cuff some mortgages to banks
Garry Marr, Financial Post
A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgage rules.
We are already seeing the impact of the changes that came into effect on April 19, but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it's easier to qualify for them.
On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat.
Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago.
But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current credit situation. Stay with the same bank and there's no check.
"It's definitely a headlock and not a loophole because a loophole you can get out of," says Vince Gaetano, a mortgage broker with Monster Mortgage.
There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions.
Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today.
Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks.
"It's not all of them, but a majority of first-time buyers with just 5% down or less won't be able to qualify if they go to another bank," Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate - about 200 basis points lower than the current qualification rate.
If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn't meet the test of having 20% equity in their home.
Marcel Beaudry, vice-president of ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn't been a huge impact.
"There will be a segment of the population tied down by the new rules to their bank," Mr. Beaudry says.
That's a position nobody should be in.
Read more: http://www.financialpost.com/story.html?id=3057768#ixzz0owPZtf4I
Rate hike not guaranteed….Global financial chaos could override domestic factors
Emily Mathieu Business Reporter Toronto Star
Higher than expected rates of inflation and reports of record breaking retail sales means interest rate hikes will likely go ahead, according to a top economist with BMO Capital Markets. But domestic strength might not be enough to justify increases if the upheaval in global markets continues, said Porter.
“If the (Bank of Canada’s) decision was based solely on domestic factors, then this would be no questions asked, no debate,” said Doug Porter, deputy chief economist.
The central bank has long predicted rates would rise on June 1, but Porter said doubt over the future of global economic stability could cause them to go off course.
“It would take a very brave central bank indeed, I think, to raise interest rates in the face of the turmoil we are seeing in global financial markets right now.”
According to Statistics Canada’s Consumer Price Index, the core index advanced 1.9 per cent during the 12 months leading up to April, following a 1.7 per cent increase in March.
The boost in April was due mainly to a rise in prices for the purchase of passenger vehicles, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants, the report showed.
The seasonally adjusted monthly core index rose 0.2 per cent in April, following a 0.3 per cent decline in March.
Consumer prices across the country rose 1.8 per cent in the 12 months leading up to April, following a 1.4 per cent increase in March. In Ontario, prices rose 2.2 per cent.
Porter said BMO has no plans to alter their position that rates will rise on June 1, but said that position could change if market upheaval continues into next week.
“If Canada were an island there would be no debate,” said Porter. “There is a very compelling domestic case for higher interest rates.”
Statistics Canada reported a 2.1 per cent increase in retail sales dollars in March, to $37 billion. Porter said earlier reports had predicted sales would be close to flat. “Instead we get one of the best gains on record.”
National energy prices rose 9.8 per cent between April and the same time the previous year, following a 5.8 per cent increase during the 12 months between March 2010 and the same time the previous year. Excluding the increase in energy the index rose 1.1 per cent, compared with a 1 per cent increase in March.
For the sixth month in a row, gas prices exerted the strongest upward pressure on the index. In April, Canadians paid 16.3 per cent more at the pump than they did the same time the previous year. That change follows a 17.2 per cent increase between March of this year and the same time in 2009.
Natural gas prices were up 3.3 per cent in April than the same time the previous year. Between March 2010 and the same time the previous year prices had dropped 22.4 per cent.
The cost of transportation was up 6.2 per cent in the 12 months to April and consumers paid a 5.6 per cent more for insurance premiums in April compared to the previous year.
Housing costs were up 0.8 per cent, after declining 0.7 per cent in March, with household utilities exerting the most upward pressure. The mortgage cost index fell 6.1 per cent, the report showed.
Food prices were up 1 per cent, following a 1.3 per cent increase in March. The 1 per cent rise, largely related to prices for food purchased in restaurants, was the smallest since March 2008.
Health care prices rose 3.3 per cent, the report showed. http://www.thestar.com/business/article/812567--rate-hike-not-guaranteed
Home ownership costs increase across Canada except Alberta says RBC report
By The Canadian Press TORONTO - Owning a home in Canada has become even more expensive _ unless you live in Alberta, according to the latest housing report by RBC Economics Research.
The report, released Tuesday, says homeownership costs in Canada rose for the third straight quarter across all housing segments in the first quarter of 2010. A strong real estate market and jacked up housing prices are getting the blame for putting a strain on Canadians' bank accounts.
"Although home ownership became more costly in the first quarter of 2010, affordability measures are still moderately above the long-term average and below peak levels," said RBC senior economist Robert Hogue.
"We expect affordability to deteriorate throughout 2010 and 2011, but this should be limited as more balanced supply and demand conditions will take much of the steam out of the housing market," he said.
The RBC Housing Affordability report projects that the cost of owning a home will continue to rise.
The main contributing factor is an expected rise in interest rates, as the Bank of Canada moves towards raising the current exceptionally low rates to more normal levels through the second half of this year and in 2011.
According to the report, housing affordability measures in Canada are unlikely to exceed the peak levels reached in early 2008.
With the exception of Alberta, home affordability measures deteriorated across all provinces with a significant decline in affordability in B.C., Saskatchewan and Manitoba.
Housing affordability declined more moderately in Quebec, Ontario and Atlantic Canada. Alberta is the only province to show a drop in the costs of owning a home. http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-home-ownership-costs-increase-across-canada-except-alberta.html
• DOW +125.38 Friday but down again Monday -126.82stock selling accelerated through the close, with the Dow ending at a three-month low as worries about the global economic outlook overshadowed a bigger-than-expected rise in existing home sales.
• Dollar +.75c to 94.40cUS
• Oil -$.76 Friday back up Monday +$0.17 to $70.21US per barrel.
• Gold -$12.50 Friday, back up Monday $18.10 to $1,193.80 USD per ounce
New rules cuff some mortgages to banks
Garry Marr, Financial Post
A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgage rules.
We are already seeing the impact of the changes that came into effect on April 19, but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it's easier to qualify for them.
On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat.
Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago.
But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current credit situation. Stay with the same bank and there's no check.
"It's definitely a headlock and not a loophole because a loophole you can get out of," says Vince Gaetano, a mortgage broker with Monster Mortgage.
There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions.
Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today.
Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks.
"It's not all of them, but a majority of first-time buyers with just 5% down or less won't be able to qualify if they go to another bank," Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate - about 200 basis points lower than the current qualification rate.
If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn't meet the test of having 20% equity in their home.
Marcel Beaudry, vice-president of ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn't been a huge impact.
"There will be a segment of the population tied down by the new rules to their bank," Mr. Beaudry says.
That's a position nobody should be in.
Read more: http://www.financialpost.com/story.html?id=3057768#ixzz0owPZtf4I
Rate hike not guaranteed….Global financial chaos could override domestic factors
Emily Mathieu Business Reporter Toronto Star
Higher than expected rates of inflation and reports of record breaking retail sales means interest rate hikes will likely go ahead, according to a top economist with BMO Capital Markets. But domestic strength might not be enough to justify increases if the upheaval in global markets continues, said Porter.
“If the (Bank of Canada’s) decision was based solely on domestic factors, then this would be no questions asked, no debate,” said Doug Porter, deputy chief economist.
The central bank has long predicted rates would rise on June 1, but Porter said doubt over the future of global economic stability could cause them to go off course.
“It would take a very brave central bank indeed, I think, to raise interest rates in the face of the turmoil we are seeing in global financial markets right now.”
According to Statistics Canada’s Consumer Price Index, the core index advanced 1.9 per cent during the 12 months leading up to April, following a 1.7 per cent increase in March.
The boost in April was due mainly to a rise in prices for the purchase of passenger vehicles, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants, the report showed.
The seasonally adjusted monthly core index rose 0.2 per cent in April, following a 0.3 per cent decline in March.
Consumer prices across the country rose 1.8 per cent in the 12 months leading up to April, following a 1.4 per cent increase in March. In Ontario, prices rose 2.2 per cent.
Porter said BMO has no plans to alter their position that rates will rise on June 1, but said that position could change if market upheaval continues into next week.
“If Canada were an island there would be no debate,” said Porter. “There is a very compelling domestic case for higher interest rates.”
Statistics Canada reported a 2.1 per cent increase in retail sales dollars in March, to $37 billion. Porter said earlier reports had predicted sales would be close to flat. “Instead we get one of the best gains on record.”
National energy prices rose 9.8 per cent between April and the same time the previous year, following a 5.8 per cent increase during the 12 months between March 2010 and the same time the previous year. Excluding the increase in energy the index rose 1.1 per cent, compared with a 1 per cent increase in March.
For the sixth month in a row, gas prices exerted the strongest upward pressure on the index. In April, Canadians paid 16.3 per cent more at the pump than they did the same time the previous year. That change follows a 17.2 per cent increase between March of this year and the same time in 2009.
Natural gas prices were up 3.3 per cent in April than the same time the previous year. Between March 2010 and the same time the previous year prices had dropped 22.4 per cent.
The cost of transportation was up 6.2 per cent in the 12 months to April and consumers paid a 5.6 per cent more for insurance premiums in April compared to the previous year.
Housing costs were up 0.8 per cent, after declining 0.7 per cent in March, with household utilities exerting the most upward pressure. The mortgage cost index fell 6.1 per cent, the report showed.
Food prices were up 1 per cent, following a 1.3 per cent increase in March. The 1 per cent rise, largely related to prices for food purchased in restaurants, was the smallest since March 2008.
Health care prices rose 3.3 per cent, the report showed. http://www.thestar.com/business/article/812567--rate-hike-not-guaranteed
Home ownership costs increase across Canada except Alberta says RBC report
By The Canadian Press TORONTO - Owning a home in Canada has become even more expensive _ unless you live in Alberta, according to the latest housing report by RBC Economics Research.
The report, released Tuesday, says homeownership costs in Canada rose for the third straight quarter across all housing segments in the first quarter of 2010. A strong real estate market and jacked up housing prices are getting the blame for putting a strain on Canadians' bank accounts.
"Although home ownership became more costly in the first quarter of 2010, affordability measures are still moderately above the long-term average and below peak levels," said RBC senior economist Robert Hogue.
"We expect affordability to deteriorate throughout 2010 and 2011, but this should be limited as more balanced supply and demand conditions will take much of the steam out of the housing market," he said.
The RBC Housing Affordability report projects that the cost of owning a home will continue to rise.
The main contributing factor is an expected rise in interest rates, as the Bank of Canada moves towards raising the current exceptionally low rates to more normal levels through the second half of this year and in 2011.
According to the report, housing affordability measures in Canada are unlikely to exceed the peak levels reached in early 2008.
With the exception of Alberta, home affordability measures deteriorated across all provinces with a significant decline in affordability in B.C., Saskatchewan and Manitoba.
Housing affordability declined more moderately in Quebec, Ontario and Atlantic Canada. Alberta is the only province to show a drop in the costs of owning a home. http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-home-ownership-costs-increase-across-canada-except-alberta.html
Tuesday, May 18, 2010
Financial Update For May 18, 2010
• TSX -201.97 to 11,813 fell for a third straight session to below 12,000 points, as oil and metal prices tumbled on concerns about euro zone debt and weaker growth in China, knocking commodity issues lower. China's key stock index tumbled 5.07 percent on Monday to its lowest close in a year. That fall was led by property issues, as retail investors fled the market after a month-long rout sparked by a severe government clampdown on surging property prices.
• DOW +5.67
• Dollar -.19c to 96.74cUS
• Oil -$1.53 to $70.08US per barrel. has now fallen about 20 per cent in just two weeks as investors worry about the ripple effects of a debt crisis in Europe. The oil spill in the Gulf of Mexico has done nothing to slow the drop in crude prices and, so far, has not interfered with tankers carrying imported crude to Gulf ports. There is concern though that the spill could eventually slow shipments if vessels must be scrubbed of oil before they reach port
Mortgage Rates – Is It Time To Gird Our Loins?
by Andrew Pyle, for Yahoo! Canada Finance
Thursday, May 13, 2010
Now that Europe appears to have bought itself some time from those vicious currency and bond speculators (and what a price tag, at a cool trillion dollars), individuals are also feeling a little more relieved about their finances. And they are indeed quite eager to put May behind them. Where investors were lulled into a sense of false security during April, as equity volatility fell to the lowest level since July 2007 (as measured by the VIX index), the spike in volatility this month knocked people off their chairs. True, the high in the VIX last week of just above 40 was still only 50% of the peak seen in November 2008; however, it has served as a wake-up call that there are as many risks out there as rewards.
For now, though, let’s assume there are no further shocks to the system for the coming weeks and that volatility subsides. The focus for individuals and households should then return to their own fundamentals. What does the job and income situation look like? Are financial plans still intact? And what about that mortgage coming due next month?
Ah, the dreaded mortgage decision. Despite the signs of an impending rise in the general level of interest rates and warnings from government officials, I find that there is still a lack of conviction among Canadians as to whether they should lock in their mortgages at prevailing rates, versus holding on to a floating rate mortgage. It’s therefore a good time to review the facts and fiction out there so that you can make a better educated decision.
Regardless of the recent jump in rates, we still look to be in the middle of a downward trend in mortgage rates since 1981. You may remember that year, when five-year term rates were in excess of 22% in Canada. It came at the same time that North America fell victim to a painful double-dip recession. Of course, inflation was also sitting around 12% at the time. Many families lost their homes to be sure, but the threat posed by higher rates today is greater because of the fact that debt levels are much higher today than back then. The increased leverage in the housing sector, to say nothing of general credit among individuals, increases the sensitivity to rates – something we saw so very clearly in the US housing sector from 2003 to 2006.
Today, floating rate mortgages are still trading at various spreads to the prime rate, which itself hasn’t budged from 2.25% since April of last year. How much that spread is will depend on a host of factors, not the least of which is your credit score and perceived credit worthiness by your lender. That said, whether you chose a floating versus fixed rate mortgage doesn’t matter anymore since the new federal regulations went into effect last month. You must now meet the requirements or standards of a five-year term mortgage even if you want the adjustable rate variety. In other words, if you’re not going to budget for the possibility of short-term rates rising to where prevailing five-year rates are today, the government has done it for you.
That five-year rate has been a bit of a bouncing ball over the past year. In April 2009, the conventional five-year rate (or the posted rate) fell to a generational low of 5.25%, coinciding with the last quarter-point rate cut by the Bank of Canada. Through the summer and fall of last year, the rate got as high as 5.85%, but then eased back during the early months of this year as equity markets got a little shaky and bond yields stabilized. That all changed towards the end of the first quarter. Economies were looking a lot better, equities picked up the pace and inflation fears began to creep back in the market. There was also a definite shift in opinion as to when the Bank of Canada would start hiking rates, with the consensus focused on June 1st. Since bond yields needed to price in this new anticipation, other rates went up in sympathy, including mortgage rates as well as GICs. To give you an illustration, the five-year Government of Canada yield rose from about 2.4% in February to 3.2% in April. The five-year mortgage rate, which reached a low of 5.25% in March, shot up to 6.25% by late April. The only relief for borrowers has been a paltry 15-basis-point reduction by banks in the past week to 6.10%. Hardly a surprise when you consider the sharp drop in bond yields worldwide when it looked like contagion was going to put a recessionary grip on the world again.
But, have a look at where things are today. Despite the recent mortgage cuts, bond yields are rising again as investors move money from fixed income to stocks (not what I’m necessarily recommending). Assuming the European calm persists, economic fundamentals in North America continue to firm and China doesn’t upset the apple cart too much with its measures to rein in credit in that country, bonds will likely come under more pressure, sending yields higher. This should pave the way for five-year mortgage rates in Canada to climb to 6.5% and then potentially to 7%. Note, the high before the recession was only 7.5% - a level which could be reached this year under ideal economic conditions.
Now, some will say that it doesn’t matter where longer-term mortgage rates go, since short-term rates won’t likely climb to those levels. This has some merit to it, as the prime rate only got as high as 6.25% prior to the recession. Of course, with today’s spreads added on, the mortgage rate then for some would have been close to the 5-year rate. Whether or not short rates return to those levels depends on a number of things, including inflation, and with world governments still borrowing ridiculous amounts to fund fiscal spending, inflation cannot and should not be ruled out.
All this aside, the decision on which mortgage to chose ultimately comes down to a combination of expectations and emotion. It might seem okay to assume that the stock market won’t experience another meltdown like in 2008-09, but few of us would be willing to throw 100% of our assets into the market on that call. We need to sleep at night and therefore we apply balance to our portfolios. The same holds true for our borrowing decisions. I can come up with an economists’ tale of how interest rates will stay relatively low because of economic headwinds and the increased sensitivity to debt, but what if inflation fears overrule that view?
For those looking to put a household budget together that allows for an extended uninterrupted sleep, the five-year term option is still the best bet. There is also what I call a ‘sticker shock’ factor to keep in mind here. If rates at both ends of the spectrum climb over the next several years, those already acclimatized to a higher borrowing rate will find it less ‘shocking’ upon renewal than the individual with a floating rate mortgage that has to see a continual erosion of their monthly payment towards interest. In other words, the person with the longer and fixed-term mortgage will arrive at the principal amount that was anticipated. The adjustable rate mortgagor will not.
My final point on this has to do with opportunity cost. If the view of rising interest rates turns out to be false, and rates fall or stay flat, then this probably means the economy isn’t so hot. I would suggest in that event that there will be bigger concerns on the household budget than the extra couple of percentage points in interest. In short, this is not a time for aggressive offense, but a good shield.
• DOW +5.67
• Dollar -.19c to 96.74cUS
• Oil -$1.53 to $70.08US per barrel. has now fallen about 20 per cent in just two weeks as investors worry about the ripple effects of a debt crisis in Europe. The oil spill in the Gulf of Mexico has done nothing to slow the drop in crude prices and, so far, has not interfered with tankers carrying imported crude to Gulf ports. There is concern though that the spill could eventually slow shipments if vessels must be scrubbed of oil before they reach port
Mortgage Rates – Is It Time To Gird Our Loins?
by Andrew Pyle, for Yahoo! Canada Finance
Thursday, May 13, 2010
Now that Europe appears to have bought itself some time from those vicious currency and bond speculators (and what a price tag, at a cool trillion dollars), individuals are also feeling a little more relieved about their finances. And they are indeed quite eager to put May behind them. Where investors were lulled into a sense of false security during April, as equity volatility fell to the lowest level since July 2007 (as measured by the VIX index), the spike in volatility this month knocked people off their chairs. True, the high in the VIX last week of just above 40 was still only 50% of the peak seen in November 2008; however, it has served as a wake-up call that there are as many risks out there as rewards.
For now, though, let’s assume there are no further shocks to the system for the coming weeks and that volatility subsides. The focus for individuals and households should then return to their own fundamentals. What does the job and income situation look like? Are financial plans still intact? And what about that mortgage coming due next month?
Ah, the dreaded mortgage decision. Despite the signs of an impending rise in the general level of interest rates and warnings from government officials, I find that there is still a lack of conviction among Canadians as to whether they should lock in their mortgages at prevailing rates, versus holding on to a floating rate mortgage. It’s therefore a good time to review the facts and fiction out there so that you can make a better educated decision.
Regardless of the recent jump in rates, we still look to be in the middle of a downward trend in mortgage rates since 1981. You may remember that year, when five-year term rates were in excess of 22% in Canada. It came at the same time that North America fell victim to a painful double-dip recession. Of course, inflation was also sitting around 12% at the time. Many families lost their homes to be sure, but the threat posed by higher rates today is greater because of the fact that debt levels are much higher today than back then. The increased leverage in the housing sector, to say nothing of general credit among individuals, increases the sensitivity to rates – something we saw so very clearly in the US housing sector from 2003 to 2006.
Today, floating rate mortgages are still trading at various spreads to the prime rate, which itself hasn’t budged from 2.25% since April of last year. How much that spread is will depend on a host of factors, not the least of which is your credit score and perceived credit worthiness by your lender. That said, whether you chose a floating versus fixed rate mortgage doesn’t matter anymore since the new federal regulations went into effect last month. You must now meet the requirements or standards of a five-year term mortgage even if you want the adjustable rate variety. In other words, if you’re not going to budget for the possibility of short-term rates rising to where prevailing five-year rates are today, the government has done it for you.
That five-year rate has been a bit of a bouncing ball over the past year. In April 2009, the conventional five-year rate (or the posted rate) fell to a generational low of 5.25%, coinciding with the last quarter-point rate cut by the Bank of Canada. Through the summer and fall of last year, the rate got as high as 5.85%, but then eased back during the early months of this year as equity markets got a little shaky and bond yields stabilized. That all changed towards the end of the first quarter. Economies were looking a lot better, equities picked up the pace and inflation fears began to creep back in the market. There was also a definite shift in opinion as to when the Bank of Canada would start hiking rates, with the consensus focused on June 1st. Since bond yields needed to price in this new anticipation, other rates went up in sympathy, including mortgage rates as well as GICs. To give you an illustration, the five-year Government of Canada yield rose from about 2.4% in February to 3.2% in April. The five-year mortgage rate, which reached a low of 5.25% in March, shot up to 6.25% by late April. The only relief for borrowers has been a paltry 15-basis-point reduction by banks in the past week to 6.10%. Hardly a surprise when you consider the sharp drop in bond yields worldwide when it looked like contagion was going to put a recessionary grip on the world again.
But, have a look at where things are today. Despite the recent mortgage cuts, bond yields are rising again as investors move money from fixed income to stocks (not what I’m necessarily recommending). Assuming the European calm persists, economic fundamentals in North America continue to firm and China doesn’t upset the apple cart too much with its measures to rein in credit in that country, bonds will likely come under more pressure, sending yields higher. This should pave the way for five-year mortgage rates in Canada to climb to 6.5% and then potentially to 7%. Note, the high before the recession was only 7.5% - a level which could be reached this year under ideal economic conditions.
Now, some will say that it doesn’t matter where longer-term mortgage rates go, since short-term rates won’t likely climb to those levels. This has some merit to it, as the prime rate only got as high as 6.25% prior to the recession. Of course, with today’s spreads added on, the mortgage rate then for some would have been close to the 5-year rate. Whether or not short rates return to those levels depends on a number of things, including inflation, and with world governments still borrowing ridiculous amounts to fund fiscal spending, inflation cannot and should not be ruled out.
All this aside, the decision on which mortgage to chose ultimately comes down to a combination of expectations and emotion. It might seem okay to assume that the stock market won’t experience another meltdown like in 2008-09, but few of us would be willing to throw 100% of our assets into the market on that call. We need to sleep at night and therefore we apply balance to our portfolios. The same holds true for our borrowing decisions. I can come up with an economists’ tale of how interest rates will stay relatively low because of economic headwinds and the increased sensitivity to debt, but what if inflation fears overrule that view?
For those looking to put a household budget together that allows for an extended uninterrupted sleep, the five-year term option is still the best bet. There is also what I call a ‘sticker shock’ factor to keep in mind here. If rates at both ends of the spectrum climb over the next several years, those already acclimatized to a higher borrowing rate will find it less ‘shocking’ upon renewal than the individual with a floating rate mortgage that has to see a continual erosion of their monthly payment towards interest. In other words, the person with the longer and fixed-term mortgage will arrive at the principal amount that was anticipated. The adjustable rate mortgagor will not.
My final point on this has to do with opportunity cost. If the view of rising interest rates turns out to be false, and rates fall or stay flat, then this probably means the economy isn’t so hot. I would suggest in that event that there will be bigger concerns on the household budget than the extra couple of percentage points in interest. In short, this is not a time for aggressive offense, but a good shield.
Thursday, May 13, 2010
Financial Update For May 13, 2010
U.S. Trade deficit climbs to 15-month high in March A trade deficit is when the total value of imports is greater than the total value of exports, a surplus is when the total value of exports exceeds the total value of imports.
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years
So far so good on Greek bailout, but dark legacy of recession becoming clearer former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.
U.S. Bank Regulations Miss the Point
• TSX +195.47 Europe’s trillion-dollar debt solution held for a second day as global shares rose after Spain outlined measures to cut its deficit, allaying fears about Greek debt crisis contagion.
• DOW +148.65
• Dollar +.19c to 98.06cUS climbed for a fourth straight session, boosted by rallying equities and easing fears that sovereign debt problems could spread in the euro zone.
• Oil -.72 to $75.65US per barrel. dropped after government data showed rising U.S. inventories.
• Gold +$22.80 to $1,242.70 USD per ounce Safe-haven buying pushed gold prices to another new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
So far so good on Greek bailout, but dark legacy of recession becoming clearer
BY JULIAN BELTRAME
OTTAWA — Europe’s trillion-dollar debt solution held for a second day Tuesday as global stock markets and currencies headed back nearer to levels they enjoyed prior to last week’s steep selloff.
The Toronto market was up after big rebounds on Monday. Meanwhile, the Canadian dollar rose past 98 cents US, a signal that markets judged that global risk was diminishing.
But it appeared that investors as well as governments were keeping their fingers crossed, given the growing realization that the eurozone rescue package hammered out on the weekend may only delay the day of financial reckoning. Gold, a traditional safe haven destination for nervous money, rose to a record high close.
The New York Times quoted a prominent equity analyst as describing the mood on Wall Street as a “wall of worry” over sovereign debt, China and other uncertainties.
The market monitoring group of the Institute of International Finance, co-chaired by former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.
In the short term, the backstop agreement did appear to assure holders of Greek treasury bonds they will get their money on maturity next week, and gave the country a window to make some additional borrowings at non-crippling rates.
But what happens next? And what might happen to the $1-trillion in pledged support if the rest of the so-called PIIGS (Portugal, Italy, Ireland, Spain and Greece) need help to finance their debt.
“We fear that as the market gives this announcement . . . more than a few hours of scrutiny and assessment, the day after the day after may not play out as nicely as the day before it,” said Carl Weinberg of U.S.-based High Frequency Economics.
Although North America’s exposure is indirect, even Canada stands to lose from the fallout.
The TD Bank’s deputy chief economist, Craig Alexander, says Canada’s economy would take a significant hit — just like it did in 2008 — if government debt worries lead to a second financial market crisis. Even if the problem is somewhat contained, Canadian economic growth will be slowed by Europe’s debt problems, he said.
A slowdown in the European economy — the world’s biggest — would cut demand for Canadian exports to Europe of everything from machinery and manufactured goods to food products, grain, fertilizers and chemicals. But Europe represents only about 10 per cent of Canadian exports, so the impact would be relatively minor.
A debt default would also cause financial losses to any Canadian bank or companies holding European bonds, but again the exposure appears to be minor.
The real danger, says Alexander, is if a debt default or debt restructuring leads to the failure of one or more major European banks, it could cause a knock-on effect that causes international credit markets to seize up as occurred in the fall of 2008 following the collapse of Lehman Brothers.
“We saw the real impact of that. You saw export financing dry up and exports shipments plunge globally. That’s the worst case scenario for Canada,” he said.
Given that about one third of Canada’s economy is based on exports, the country fell into a recession lasting almost a year with the loss of over 400,000 jobs as a result of the recession after the Lehman collapse.
Even under the best case scenario — that European countries and the United States manage to put in place the austerity measures needed to assure markets their debts can be managed — the result would be slower global growth, which would still affect Canada’s export sector to some degree.
By one calculation, modest austerity measures in Europe would slice about one per cent of gross domestic product from the continent’s already weak growth prospects, with some Mediterranean countries plunged back into recession.
The irony is that Canada would also suffer even though it has done most things right, says David Rosenberg, chief economist with Toronto-based Gluskin Sheff. “Being a small, open economy sensitive to commodity prices, this is one of the many times when sudden shifts in global economic sentiment can hit us disproportionately,” he said.
Alexander still believes a double-dip recession remains an outside risk, but adds it can no longer be dismissed as easily as it was a few months ago.
Canada’s economy grew by a surprisingly strong five per cent in the last three months of 2009, and judging by the 109,000 new jobs added in April, it is still advancing strongly. But now it is expected to slow considerably in the second half of the year.
“The good news is we got out of the recession; the bad news is we have the legacy of late 2008-2009 to deal with and those legacies are enormous,” Alexander said.“I’m worried (that) if the U.S. economy slows down and the global economy moderates, once again the export sector is challenged, and we’re going go through this at the same time the dollar is strong. I think the expectations for strong economic growth going forward needs to be tempered.”
For Europe, the repercussions from letting government debt cross over to the unmanageable column could restrain growth for a decade, he said. http://news.therecord.com/Business/article/710277 SPECIAL FEATURES
U.S. Trade deficit climbs to 15-month high in March
BY MARTIN CRUTSINGER The Associated Press
WASHINGTON — The U.S. trade deficit rose to a 15-month high as rising oil prices pushed crude oil imports to the highest level since the fall of 2008, offsetting another strong gain in exports. The larger deficit is evidence of a rebounding U.S. economy.
The Commerce Department said Wednesday that the trade deficit rose 2.5 per cent to $40.4 billion in March. It was close to the $40.1 billion deficit economists had expected and the biggest monthly trade deficit since December 2008.
Exports of goods and services rose 3.2 per cent to $147.87 billion, the highest level since October 2008. Imports were up 3.1 per cent to $188.3 billion.
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years.
Economists believe U.S. manufacturers will continue to get a boost from rising demand for their products, reflecting the rebound in the global economy and a weaker dollar against many major currencies. However, that forecast could turn out to be too optimistic if a widening European debt crisis cuts into demand for American products in Europe, a major market for U.S. goods.
So far this year, the deficit is running at an annual rate of $467.2 billion, 23.4 per cent higher than last year’s imbalance of $378.6 billion.
For March, the rise in exports reflected increased sales of American farm products and a wide range of heavy machinery from electric generators to earthmoving equipment.
The increase in imports was led by a 25.5 per cent jump in crude oil shipments, which rose to $22.3 billion March, the highest level since October 2008. That increase reflected higher volume and higher prices. The average price for a barrel of crude oil rose to $74.32, up from $72.92 in February.
Prices have been falling since oil hit $87.15 a barrel in early May. The debt crisis in Europe has raised concerns about the durability of the global economic recovery. In trading Wednesday, oil dipped to near $76 per barrel.
The deficit with China rose 2.4 per cent to $16.9 billion in March, the highest level since January and the largest trade gap with any country. The Obama administration is facing growing political pressure to impose trade sanctions on China if Beijing doesn’t allow its currency to rise in value against the dollar.
Treasury Secretary Timothy Geithner raised hopes for a change in monetary policy when he stopped in Beijing last month to talk with Chinese economic officials on his way back from India. But Chinese President Hu Jintao, who discussed the issue with President Barack Obama during a trip to Washington last month, said China’s decision on the currency “won’t be advanced by any foreign pressure.”
American manufacturers are pressing for a tougher trade policy. They say America’s trade deficit with China has cost 2.4 million manufacturing jobs at a time when the jobless rate in this country is 9.9 per cent.
Geithner is expected to raise the currency issue when he and Secretary of State Hillary Clinton go to China for two days of high-level talks later this month.
The deficit with the 27-nation European Union rose to $7.1 billion in March, a jump of 32.7 per cent. Imports from Europe rose faster than U.S. exports to the EU.
The deficit with Canada, America’s largest trading partner, fell by 15.8 per cent to $2.3 billion. The imbalance with Mexico rose 26.7 per cent to $6 billion as imports from Mexico hit an all-time high. http://news.therecord.com/Business/article/710990
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years
So far so good on Greek bailout, but dark legacy of recession becoming clearer former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.
U.S. Bank Regulations Miss the Point
• TSX +195.47 Europe’s trillion-dollar debt solution held for a second day as global shares rose after Spain outlined measures to cut its deficit, allaying fears about Greek debt crisis contagion.
• DOW +148.65
• Dollar +.19c to 98.06cUS climbed for a fourth straight session, boosted by rallying equities and easing fears that sovereign debt problems could spread in the euro zone.
• Oil -.72 to $75.65US per barrel. dropped after government data showed rising U.S. inventories.
• Gold +$22.80 to $1,242.70 USD per ounce Safe-haven buying pushed gold prices to another new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
So far so good on Greek bailout, but dark legacy of recession becoming clearer
BY JULIAN BELTRAME
OTTAWA — Europe’s trillion-dollar debt solution held for a second day Tuesday as global stock markets and currencies headed back nearer to levels they enjoyed prior to last week’s steep selloff.
The Toronto market was up after big rebounds on Monday. Meanwhile, the Canadian dollar rose past 98 cents US, a signal that markets judged that global risk was diminishing.
But it appeared that investors as well as governments were keeping their fingers crossed, given the growing realization that the eurozone rescue package hammered out on the weekend may only delay the day of financial reckoning. Gold, a traditional safe haven destination for nervous money, rose to a record high close.
The New York Times quoted a prominent equity analyst as describing the mood on Wall Street as a “wall of worry” over sovereign debt, China and other uncertainties.
The market monitoring group of the Institute of International Finance, co-chaired by former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.
In the short term, the backstop agreement did appear to assure holders of Greek treasury bonds they will get their money on maturity next week, and gave the country a window to make some additional borrowings at non-crippling rates.
But what happens next? And what might happen to the $1-trillion in pledged support if the rest of the so-called PIIGS (Portugal, Italy, Ireland, Spain and Greece) need help to finance their debt.
“We fear that as the market gives this announcement . . . more than a few hours of scrutiny and assessment, the day after the day after may not play out as nicely as the day before it,” said Carl Weinberg of U.S.-based High Frequency Economics.
Although North America’s exposure is indirect, even Canada stands to lose from the fallout.
The TD Bank’s deputy chief economist, Craig Alexander, says Canada’s economy would take a significant hit — just like it did in 2008 — if government debt worries lead to a second financial market crisis. Even if the problem is somewhat contained, Canadian economic growth will be slowed by Europe’s debt problems, he said.
A slowdown in the European economy — the world’s biggest — would cut demand for Canadian exports to Europe of everything from machinery and manufactured goods to food products, grain, fertilizers and chemicals. But Europe represents only about 10 per cent of Canadian exports, so the impact would be relatively minor.
A debt default would also cause financial losses to any Canadian bank or companies holding European bonds, but again the exposure appears to be minor.
The real danger, says Alexander, is if a debt default or debt restructuring leads to the failure of one or more major European banks, it could cause a knock-on effect that causes international credit markets to seize up as occurred in the fall of 2008 following the collapse of Lehman Brothers.
“We saw the real impact of that. You saw export financing dry up and exports shipments plunge globally. That’s the worst case scenario for Canada,” he said.
Given that about one third of Canada’s economy is based on exports, the country fell into a recession lasting almost a year with the loss of over 400,000 jobs as a result of the recession after the Lehman collapse.
Even under the best case scenario — that European countries and the United States manage to put in place the austerity measures needed to assure markets their debts can be managed — the result would be slower global growth, which would still affect Canada’s export sector to some degree.
By one calculation, modest austerity measures in Europe would slice about one per cent of gross domestic product from the continent’s already weak growth prospects, with some Mediterranean countries plunged back into recession.
The irony is that Canada would also suffer even though it has done most things right, says David Rosenberg, chief economist with Toronto-based Gluskin Sheff. “Being a small, open economy sensitive to commodity prices, this is one of the many times when sudden shifts in global economic sentiment can hit us disproportionately,” he said.
Alexander still believes a double-dip recession remains an outside risk, but adds it can no longer be dismissed as easily as it was a few months ago.
Canada’s economy grew by a surprisingly strong five per cent in the last three months of 2009, and judging by the 109,000 new jobs added in April, it is still advancing strongly. But now it is expected to slow considerably in the second half of the year.
“The good news is we got out of the recession; the bad news is we have the legacy of late 2008-2009 to deal with and those legacies are enormous,” Alexander said.“I’m worried (that) if the U.S. economy slows down and the global economy moderates, once again the export sector is challenged, and we’re going go through this at the same time the dollar is strong. I think the expectations for strong economic growth going forward needs to be tempered.”
For Europe, the repercussions from letting government debt cross over to the unmanageable column could restrain growth for a decade, he said. http://news.therecord.com/Business/article/710277 SPECIAL FEATURES
U.S. Trade deficit climbs to 15-month high in March
BY MARTIN CRUTSINGER The Associated Press
WASHINGTON — The U.S. trade deficit rose to a 15-month high as rising oil prices pushed crude oil imports to the highest level since the fall of 2008, offsetting another strong gain in exports. The larger deficit is evidence of a rebounding U.S. economy.
The Commerce Department said Wednesday that the trade deficit rose 2.5 per cent to $40.4 billion in March. It was close to the $40.1 billion deficit economists had expected and the biggest monthly trade deficit since December 2008.
Exports of goods and services rose 3.2 per cent to $147.87 billion, the highest level since October 2008. Imports were up 3.1 per cent to $188.3 billion.
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years.
Economists believe U.S. manufacturers will continue to get a boost from rising demand for their products, reflecting the rebound in the global economy and a weaker dollar against many major currencies. However, that forecast could turn out to be too optimistic if a widening European debt crisis cuts into demand for American products in Europe, a major market for U.S. goods.
So far this year, the deficit is running at an annual rate of $467.2 billion, 23.4 per cent higher than last year’s imbalance of $378.6 billion.
For March, the rise in exports reflected increased sales of American farm products and a wide range of heavy machinery from electric generators to earthmoving equipment.
The increase in imports was led by a 25.5 per cent jump in crude oil shipments, which rose to $22.3 billion March, the highest level since October 2008. That increase reflected higher volume and higher prices. The average price for a barrel of crude oil rose to $74.32, up from $72.92 in February.
Prices have been falling since oil hit $87.15 a barrel in early May. The debt crisis in Europe has raised concerns about the durability of the global economic recovery. In trading Wednesday, oil dipped to near $76 per barrel.
The deficit with China rose 2.4 per cent to $16.9 billion in March, the highest level since January and the largest trade gap with any country. The Obama administration is facing growing political pressure to impose trade sanctions on China if Beijing doesn’t allow its currency to rise in value against the dollar.
Treasury Secretary Timothy Geithner raised hopes for a change in monetary policy when he stopped in Beijing last month to talk with Chinese economic officials on his way back from India. But Chinese President Hu Jintao, who discussed the issue with President Barack Obama during a trip to Washington last month, said China’s decision on the currency “won’t be advanced by any foreign pressure.”
American manufacturers are pressing for a tougher trade policy. They say America’s trade deficit with China has cost 2.4 million manufacturing jobs at a time when the jobless rate in this country is 9.9 per cent.
Geithner is expected to raise the currency issue when he and Secretary of State Hillary Clinton go to China for two days of high-level talks later this month.
The deficit with the 27-nation European Union rose to $7.1 billion in March, a jump of 32.7 per cent. Imports from Europe rose faster than U.S. exports to the EU.
The deficit with Canada, America’s largest trading partner, fell by 15.8 per cent to $2.3 billion. The imbalance with Mexico rose 26.7 per cent to $6 billion as imports from Mexico hit an all-time high. http://news.therecord.com/Business/article/710990
Wednesday, May 12, 2010
Financial Update For May 12, 2010
• TSX +52.71 to 12,000
• DOW -36.88
• Dollar +.24c to 97.87cUS
• Oil -.43 to $76.37US per barrel.
• Gold +$19.50 to $1,219.90 USD per ounce Safe-haven buying pushed gold prices to a new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.
Even recession didn't slow down Canadian's spending, report finds
By Julian Beltrame, The Canadian Press
OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.
A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.
That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.
"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.
"The concern is do they understand the full cost of paying later?"
The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.
Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.
But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.
The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.
The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.
The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.
The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.
Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.
BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.
"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."
But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.
Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike. http://ca.news.finance.yahoo.com/s/11052010/2/biz-finance-recession-didn-t-slow-canadian-s-spending-report.html
Feds want tighter rules to ground fly-by-night movers
• By Dean Beeby, The Canadian Press
OTTAWA - The federal government is putting the moves on movers.
Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they've been ripped off by crooked operators.
Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.
"Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging," says an internal document.
"In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings."
The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.
"This work is in the very early stages of development and findings are not yet available," department spokesman Michael Hammond said.
Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.
Many provinces also have consumer protection laws, as does the federal government.
But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.
The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.
And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.
An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.
The head of Canada's largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.
"You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged," president John Levi said in an interview from the group's Mississauga, Ont., headquarters.
But even with tougher regulations "there's no government agency out there that can help you in a timely fashion."
Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.
"There's sufficient legislation and regulation in place — if it were enforced."
The best defence is to do some research, he said.
The mover's association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.
The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers' association and the business bureau.
Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.
http://ca.news.finance.yahoo.com/s/09052010/2/biz-finance-feds-want-tighter-rules-ground-fly-night-movers.html
• DOW -36.88
• Dollar +.24c to 97.87cUS
• Oil -.43 to $76.37US per barrel.
• Gold +$19.50 to $1,219.90 USD per ounce Safe-haven buying pushed gold prices to a new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.
Even recession didn't slow down Canadian's spending, report finds
By Julian Beltrame, The Canadian Press
OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.
A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.
That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.
"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.
"The concern is do they understand the full cost of paying later?"
The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.
Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.
But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.
The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.
The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.
The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.
The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.
Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.
BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.
"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."
But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.
Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike. http://ca.news.finance.yahoo.com/s/11052010/2/biz-finance-recession-didn-t-slow-canadian-s-spending-report.html
Feds want tighter rules to ground fly-by-night movers
• By Dean Beeby, The Canadian Press
OTTAWA - The federal government is putting the moves on movers.
Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they've been ripped off by crooked operators.
Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.
"Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging," says an internal document.
"In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings."
The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.
"This work is in the very early stages of development and findings are not yet available," department spokesman Michael Hammond said.
Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.
Many provinces also have consumer protection laws, as does the federal government.
But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.
The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.
And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.
An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.
The head of Canada's largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.
"You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged," president John Levi said in an interview from the group's Mississauga, Ont., headquarters.
But even with tougher regulations "there's no government agency out there that can help you in a timely fashion."
Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.
"There's sufficient legislation and regulation in place — if it were enforced."
The best defence is to do some research, he said.
The mover's association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.
The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers' association and the business bureau.
Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.
http://ca.news.finance.yahoo.com/s/09052010/2/biz-finance-feds-want-tighter-rules-ground-fly-night-movers.html
Tuesday, May 11, 2010
Financial Update For May 11, 2010
Time to lock in that mortgage rate?
• TSX +255.47 to 11,947 in a broad-based rally as investors were emboldened by a $1 trillion emergency rescue package out of Europe aimed at containing Greece's debt crisis
• DOW +404.71 to 10,785
• Dollar +1.83c to 97.63cUS
• Oil +1.69 to $76.80US per barrel. Energy producers were among the top gainers as the price of U.S. crude oil rallied more than 2 percent on the back of the aid plan.
• Gold -$9.60 to $1,200.40 USD per ounce as the better prospects for the European economy undercut safe haven buying of gold
Time to lock in that mortgage rate?
Andrew Allentuck, Financial Post Published: Thursday, May 06, 2010
Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.
If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower's dilemma.
Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. "The test is liquidity and risk tolerance," says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. "People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases."
The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. "There is more room for rates to go up than down," Moran points out.
The cost of making a decision to float or go fixed varies with the rate differences.
In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. "Over the long run, homeowners really do pay extra for fixed rate mortgages," they concluded.
The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.
Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.
Milevsky and Walker confirmed this explanation. "The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage."
The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.
Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.
It is also a matter of experience. "First time buyers tend to pay close attention to the cost of the mortgage," says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.
"First time home buyers are net debtors and they don't want to endanger their finances," suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.
There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.
"The buyer can take a variable rate mortgage but set payments higher than the minimum required" says Parsons. "That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise."
Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the "5% CashBack Mortgage," implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.
For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.
Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO's analysis shows, "fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now."
So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.
There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. "The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates," she explains..
BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO's economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2994048#ixzz0nWSeUpXO
• TSX +255.47 to 11,947 in a broad-based rally as investors were emboldened by a $1 trillion emergency rescue package out of Europe aimed at containing Greece's debt crisis
• DOW +404.71 to 10,785
• Dollar +1.83c to 97.63cUS
• Oil +1.69 to $76.80US per barrel. Energy producers were among the top gainers as the price of U.S. crude oil rallied more than 2 percent on the back of the aid plan.
• Gold -$9.60 to $1,200.40 USD per ounce as the better prospects for the European economy undercut safe haven buying of gold
Time to lock in that mortgage rate?
Andrew Allentuck, Financial Post Published: Thursday, May 06, 2010
Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.
If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower's dilemma.
Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. "The test is liquidity and risk tolerance," says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. "People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases."
The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. "There is more room for rates to go up than down," Moran points out.
The cost of making a decision to float or go fixed varies with the rate differences.
In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. "Over the long run, homeowners really do pay extra for fixed rate mortgages," they concluded.
The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.
Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.
Milevsky and Walker confirmed this explanation. "The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage."
The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.
Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.
It is also a matter of experience. "First time buyers tend to pay close attention to the cost of the mortgage," says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.
"First time home buyers are net debtors and they don't want to endanger their finances," suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.
There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.
"The buyer can take a variable rate mortgage but set payments higher than the minimum required" says Parsons. "That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise."
Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the "5% CashBack Mortgage," implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.
For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.
Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO's analysis shows, "fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now."
So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.
There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. "The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates," she explains..
BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO's economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2994048#ixzz0nWSeUpXO
Monday, May 10, 2010
Financial Update For May 10, 2010
Trading on emotion "The market realizes there is actually a country risk, Since Lehman's collapse the banks were in focus, now it is the credibility of countries.”
Housing starts expected to build on recovery data Today, Canada Mortgage and Housing Corp. reports its April housing-start figures
• TSX -150.00 to 11,692 Markets continued to sell off Friday as fears of a widening government debt crisis in Europe overshadowed strong job numbers. However markets surged around the world this morning after the European Union launched a loan plan at 3am in Brussels worth almost $1-trillion (U.S.) to reverse the losing war against the sovereign bonds of debt-choked countries that had threatened to sink the euro zone.
• DOW -139.80 to 10,380
• Dollar +.77c to 95.80cUS
• Oil -$2.00 to $75.11US per barrel."If the world is a risky place and growth is in question, that hits commodities and that hits Canada hard," said Patricia Croft, chief economist, RBC Global Management.
• Gold +$13.10 to $1,210.00 USD per ounce
•
Trading on emotion
Janet Whitman, Financial Post, with files from Bloomberg Published: Saturday, May 08, 2010
Gobsmacked traders and investors stared at their computer screens in disbelief on Thursday as stocks nosedived, wiping out a trillion dollars in market value in 10 stomach-churning minutes.
As panic spread that stocks were veering off a cliff, the market snapped back just as quickly, recouping most of its losses. Jittery investors haven't been so quick to recover.
On Friday -- a day after what is believed to be a technical glitch helped take the Dow Jones Industrial Average down a record 998.50 points -- stocks zigzagged in volatile trading as market participants tried to make sense of the turmoil.
The panicky reaction could be a sign of the summer to come as stressed investors trade on gut reactions instead of using their heads.
"We are chained to this problem of going up with greed and down with fear and the market either thrills or haunts us," said Somnath Basu, professor of finance at California Lutheran University in Thousand Oaks.
"None of it's driven by reasonable thinking. People forget and go chase returns and then when the markets start crashing they get scared and start getting out. They're not thinking that stocks should be held for 20 or 30 years."
Prof. Basu, an expert in "behavioural economics," said he anticipates a series of mini stock-market bubbles and crashes leading to bigger bubbles and crashes as people let their emotions rule their investment decisions.
Before their tumble this week, stocks were up around 70% from the lows they reached at the height of the financial crisis in 2008.
"Is that driven by fundamentals or irrational exuberance?" asked Prof. Basu. "Many economic indicators are not showing the same thing. We don't know what's going to happen when the US$2-trillion in stimulus and bailout money stops working. Maybe the stock-market gain was premature, because people were tired of being in the dumps."
At this stage, it's still unclear how a technical glitch might have sparked a sell-off that led to one of the craziest 10 minutes in stock-trading history.
Barack Obama, the U.S. president, said U.S. regulatory authorities are probing the wild swing in stocks that appears to have been exacerbated as investors shrugged off surprisingly strong gains in employment in Canada. The TSX index dropped 4.24% for the week, its worst performance since July last year.
"It might be an opportunity to look at some companies that got knocked lower, but people are more afraid to invest when they see this kind of thing going on," said Peter Cohan, an economic analyst and professor of management at Babson College in Wellesley, Mass.
"The smart thing to do is buy here by a torrent of computerized selling in a market that was already on edge over concerns that Greece's debt woes could drag down the rest of Europe and slow global economic growth.
"In my view, there was no emotion in it at all," said Mr. Cohan of Babson. "High-frequency trading and flash trading accounted for 60% of the volume. We don't know yet what triggered all of that buying and selling. The majority of the volatility had nothing to do with human emotion at all. It had to do with what was programmed in the computers."
Regardless of the cause, investors do seem to be gripped once again by fear and emotion at a level not seen since the height of the financial crisis.
The dramatic sell-off sent the market's so-called fear gauge -- formerly known as the Chicago Board Options Exchange volatility index, or VIX -- to its biggest surge in three years.
The index surged again yesterday, reaching a high for the year and a record 86% increase for the week amid concerns European leaders won't be able to control Greece's debt crisis.
"The market realizes there is actually a country risk," said Achim Matzke, head of global index and technical research at Commerzbank AG in Frankfurt. "Since Lehman's collapse the banks were in focus, now it is the credibility of countries." Read more: http://www.nationalpost.com/story.html?id=3003011#ixzz0nWWeHztC
Housing starts expected to build on recovery data
; 'Housing starts have risen 80% from their cyclical lows'
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Read more: http://www.financialpost.com/story.html?id=3007517#ixzz0nWZkq2Sr
Housing starts expected to build on recovery data Today, Canada Mortgage and Housing Corp. reports its April housing-start figures
• TSX -150.00 to 11,692 Markets continued to sell off Friday as fears of a widening government debt crisis in Europe overshadowed strong job numbers. However markets surged around the world this morning after the European Union launched a loan plan at 3am in Brussels worth almost $1-trillion (U.S.) to reverse the losing war against the sovereign bonds of debt-choked countries that had threatened to sink the euro zone.
• DOW -139.80 to 10,380
• Dollar +.77c to 95.80cUS
• Oil -$2.00 to $75.11US per barrel."If the world is a risky place and growth is in question, that hits commodities and that hits Canada hard," said Patricia Croft, chief economist, RBC Global Management.
• Gold +$13.10 to $1,210.00 USD per ounce
•
Trading on emotion
Janet Whitman, Financial Post, with files from Bloomberg Published: Saturday, May 08, 2010
Gobsmacked traders and investors stared at their computer screens in disbelief on Thursday as stocks nosedived, wiping out a trillion dollars in market value in 10 stomach-churning minutes.
As panic spread that stocks were veering off a cliff, the market snapped back just as quickly, recouping most of its losses. Jittery investors haven't been so quick to recover.
On Friday -- a day after what is believed to be a technical glitch helped take the Dow Jones Industrial Average down a record 998.50 points -- stocks zigzagged in volatile trading as market participants tried to make sense of the turmoil.
The panicky reaction could be a sign of the summer to come as stressed investors trade on gut reactions instead of using their heads.
"We are chained to this problem of going up with greed and down with fear and the market either thrills or haunts us," said Somnath Basu, professor of finance at California Lutheran University in Thousand Oaks.
"None of it's driven by reasonable thinking. People forget and go chase returns and then when the markets start crashing they get scared and start getting out. They're not thinking that stocks should be held for 20 or 30 years."
Prof. Basu, an expert in "behavioural economics," said he anticipates a series of mini stock-market bubbles and crashes leading to bigger bubbles and crashes as people let their emotions rule their investment decisions.
Before their tumble this week, stocks were up around 70% from the lows they reached at the height of the financial crisis in 2008.
"Is that driven by fundamentals or irrational exuberance?" asked Prof. Basu. "Many economic indicators are not showing the same thing. We don't know what's going to happen when the US$2-trillion in stimulus and bailout money stops working. Maybe the stock-market gain was premature, because people were tired of being in the dumps."
At this stage, it's still unclear how a technical glitch might have sparked a sell-off that led to one of the craziest 10 minutes in stock-trading history.
Barack Obama, the U.S. president, said U.S. regulatory authorities are probing the wild swing in stocks that appears to have been exacerbated as investors shrugged off surprisingly strong gains in employment in Canada. The TSX index dropped 4.24% for the week, its worst performance since July last year.
"It might be an opportunity to look at some companies that got knocked lower, but people are more afraid to invest when they see this kind of thing going on," said Peter Cohan, an economic analyst and professor of management at Babson College in Wellesley, Mass.
"The smart thing to do is buy here by a torrent of computerized selling in a market that was already on edge over concerns that Greece's debt woes could drag down the rest of Europe and slow global economic growth.
"In my view, there was no emotion in it at all," said Mr. Cohan of Babson. "High-frequency trading and flash trading accounted for 60% of the volume. We don't know yet what triggered all of that buying and selling. The majority of the volatility had nothing to do with human emotion at all. It had to do with what was programmed in the computers."
Regardless of the cause, investors do seem to be gripped once again by fear and emotion at a level not seen since the height of the financial crisis.
The dramatic sell-off sent the market's so-called fear gauge -- formerly known as the Chicago Board Options Exchange volatility index, or VIX -- to its biggest surge in three years.
The index surged again yesterday, reaching a high for the year and a record 86% increase for the week amid concerns European leaders won't be able to control Greece's debt crisis.
"The market realizes there is actually a country risk," said Achim Matzke, head of global index and technical research at Commerzbank AG in Frankfurt. "Since Lehman's collapse the banks were in focus, now it is the credibility of countries." Read more: http://www.nationalpost.com/story.html?id=3003011#ixzz0nWWeHztC
Housing starts expected to build on recovery data
; 'Housing starts have risen 80% from their cyclical lows'
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Read more: http://www.financialpost.com/story.html?id=3007517#ixzz0nWZkq2Sr
Friday, May 7, 2010
Financial Update For May 7, 2010
Was typo behind Wall Street plunge? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover
Greek legislators pass crucial austerity bill despite protests “Either we vote and implement the deal, or we condemn Greece to bankruptcy”
Islamic mortgages now in Canada
• TSX -32.73 to 11,842 closed lower for a fourth straight session. Amid the selloff, the TSX fell 452 points, or 3.8 percent, to 11,422,73, its lowest level since February 25. It was the steepest one-day percentage fall since June 2009. Article below…
• DOW -347.80 to 10,520
• Dollar -2.09c to 95.03cUS hitting a near 3 mth low. What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
• Oil -$2.86 to $77.11US per barrel. on fears the debt crisis could threaten economic recovery and undercut demand for oil.
• Gold +$22.30 to $1,196.90 USD per ounce . jumped 3 percent to a near record on a broad flight to safety.
•
The Canadian Press OTTAWA - Canada added 108,700 jobs in April, far more than economists had expected.
As a result of the huge number of jobs added last month, Canada's unemployment rate slipped to 8.1 per cent — down from 8.2 per cent in March.
Was typo behind Wall Street plunge?
The Canadian Press, Reuters and thestar.com
What was that? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover.
But by the end of the day U.S. stocks had recovered much of their losses, the Toronto Stock Exchange was basically flat losing 32.7 points to close at 11,842.43, and the Canadian dollar, though pummeled, was still intact.
Experts were flustered, but puzzled by the wild action, though they generally pointed to the ongoing Greek debt crisis.
Rumors also circulated that the panicky sell-off had been triggered by a U.S. stock trader mistakenly put in a sell order for 15 billion shares of Procter & Gamble on the New York Stock Exchange, instead of 15 million.
Whether that’s true or not, the stock dived to $40 from $60 within moments just before 2.30 p.m..
The Dow Jones Industrial Index also began a free-fall of about 1,000 points, or 10 per cent, in less than half an hour.
It didn’t stop with stock markets. The U.S. dollar soared, which meant the Euro plunged along with the Canadian dollar.After rising as high as 97 cents U.S, at one point the Canadian dollar was down almost 4 cents. It finished the day at 95.03 cents U.S.
Pascal Gauthier of TD Economics pointed to the Greek debt crisis as a possible trigger for the turmoil.
Jean-Paul Trichet, who heads the European Central bank, said in Lisbon Thursday that the bank’s governing council had not discussed the possibility of buying government bonds. Many analysts have speculated it might do so, as a means of providing debt-crushed governments with financial support.
“There might have been expectations that the bank might take some measures, though we were of the view that they would not,” Gauthier speculated.
He warned that other days like this could loom ahead.
“On the fiscal side, those economies that were fragile to begin with before the recession like Greece, Italy, Spain are going to be vulnerable, and markets are going to be nervous,” he said.
“This is going to stay with us. This isn’t just a one-day thing.
Camilla Sutton, currency strategist at Scotiabank, said no one was attacking the Canadian dollar. Instead, investors ran for the safety of U.S. investments.
“This story is about the U.S. dollar,” she said. “What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
The Canadian dollar was simply trampled by the rush into the U.S., she said.
* NEW YORK—The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumor but that the bank currently had no evidence that an erroneous trade had been made.
CNBC reported this afternoon that a trader entered a "b" for billion instead of an "m" for million in a trading order, setting off a series of events that led to the Dow’s biggest one-day drop since 1987.
Greek legislators pass crucial austerity bill despite protests
BY ELENA BECATOROS
ATHENS — Greek police fired tear gas to repel stone-throwing protesters after lawmakers approved drastic austerity cuts Thursday needed to secure international rescue loans worth $147 billion Cdn.
The rescue loans are aimed at containing the debt crisis and keeping Greece’s troubles from spreading to other countries with vulnerable state finances such as Portugal and Spain. The money will come from the International Monetary Fund and the 15 other governments whose countries use the euro.
Clashes in Athens broke out at the end of the main protest that drew tens of thousands of people as police pushed back a few thousand demonstrators outside parliament.
The violence was quickly contained with riot police firing tear gas at the protesters, who had earlier pelted them with oranges and bottles. Several small fires burned in surrounding streets. No injuries or arrests were reported.
The clashes followed violent street protests Wednesday that left three people dead after a bank was firebombed.
Demonstrators banging drums and shouting anti-government slogans through bullhorns, unfurled a giant black banner outside parliament earlier Thursday. More than 30,000 demonstrators filled downtown streets, chanting “They declared war. Now fight back.”
In parliament, lawmakers voted 172-121 to approve the cuts — worth some $40 billion Cdn. through 2012 — that will slash pensions and civil servants’ pay and further hike consumer taxes.
Prime Minister George Papandreou expelled three Socialist deputies who dissented in the vote, reducing the party’s number of seats to 157 in the 300-member parliament.
“We have done what was necessary, not what was easy,” Finance Minister George Papaconstantinou said after the vote. “Without these measures, we’d be thrown into the deepest recession this country has ever known.”
The bulk of Thursday’s protest — organized by the Greek Communist Party — quickly dispersed, leaving about 5,000 demonstrators outside parliament before police dispersed them.
Protester Thodoris Mougiakos said he was angry the IMF would control Greek finances.
“It’s blackmail,” the 32-year-old engineer said. “There is money, but they spend it on things like armaments and businesses. The church has money, too. If we had been drawing money from all these sources, we wouldn’t be in this situation now,”
But the protest remained peaceful, in contrast with Wednesday’s rioting that left three people dead, 59 injured and 25 people arrested. Police said 50 stores, banks and offices were damaged and seven vehicles damaged or burned.
Papaconstantinou said Greece would default on debt payments this month unless it received the bailout loans from the International Monetary Fund and 15 euro-zone countries that had remained divided for months on how to aid Athens.
“Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy,” Papandreou told parliament before the vote.
“Some people want that, and are speculating (on it), and hope that it will happen,” he said, referring to speculative attacks that have been blamed for raising Greece’s borrowing costs to unsustainable levels. “We, I, will not allow that. We will not allow speculation against our country, and bankruptcy to happen.”
European governments are now scrambling to get parliamentary approval for the Greek loans. European leaders will meet on the issue in Brussels today.
Fears of Greek default have undermined the euro, and while the current package should keep Greece from immediate bankruptcy, its long-term prospects are unclear. The country’s growth prospects are weak, and the population’s willingness to accept cutbacks may wane, leading some economists to predict an eventual debt restructuring somewhere down the road.
Opposition parties lambasted the government for imposing measures that are too harsh for the population to bear.
“The dose of the medicine you are administering is in danger of killing the patient,” conservative opposition leader Antonis Samaras said.
“You know that these measures have sparked a social explosion ... The citizens of this country have to believe there is a way out. Because whoever cuts pensions of €700 cannot convince anyone.”
Samaras also expelled a dissenting lawmaker, former Foreign Minister Dora Bakoyannis, reducing his share of parliamentary seats to 90.
The Associated Press http://news.therecord.com/Business/article/707717
Man. credit union 1st to offer Islamic mortgages
A Manitoba credit union has become the first major financial institution in Canada to offer mortgages geared towards the needs of devout Muslims.
On Wednesday, Winnipeg-based Assiniboine Credit Union (ACU) announced it was launching an Islamic Mortgage Program.
Currently, the majority of the Winnipeg's roughly 13,000 Muslims rent or don't own the homes they live in, the credit union said.
For-profit loans are problematic for people of the faith because the Qur'an forbids the payment of interest.
Under the program, the credit union and the homebuyer enter into what ACU calls a "declining partnership agreement." Both parties co-own the home and its title.
"During this time, the family has exclusive rights to live in the home and in exchange they agree to pay ACU a profit. At the end of the contract the Muslim family is the sole owner of the home," the credit union said in a press release.
The would-be homeowner must contribute a minimum of 20 per cent of the home's price at the start of the agreement, ACU said.
The plan was developed with the help of Islamic religious scholars in Canada and the U.S., the credit union added.
Greek legislators pass crucial austerity bill despite protests “Either we vote and implement the deal, or we condemn Greece to bankruptcy”
Islamic mortgages now in Canada
• TSX -32.73 to 11,842 closed lower for a fourth straight session. Amid the selloff, the TSX fell 452 points, or 3.8 percent, to 11,422,73, its lowest level since February 25. It was the steepest one-day percentage fall since June 2009. Article below…
• DOW -347.80 to 10,520
• Dollar -2.09c to 95.03cUS hitting a near 3 mth low. What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
• Oil -$2.86 to $77.11US per barrel. on fears the debt crisis could threaten economic recovery and undercut demand for oil.
• Gold +$22.30 to $1,196.90 USD per ounce . jumped 3 percent to a near record on a broad flight to safety.
•
The Canadian Press OTTAWA - Canada added 108,700 jobs in April, far more than economists had expected.
As a result of the huge number of jobs added last month, Canada's unemployment rate slipped to 8.1 per cent — down from 8.2 per cent in March.
Was typo behind Wall Street plunge?
The Canadian Press, Reuters and thestar.com
What was that? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover.
But by the end of the day U.S. stocks had recovered much of their losses, the Toronto Stock Exchange was basically flat losing 32.7 points to close at 11,842.43, and the Canadian dollar, though pummeled, was still intact.
Experts were flustered, but puzzled by the wild action, though they generally pointed to the ongoing Greek debt crisis.
Rumors also circulated that the panicky sell-off had been triggered by a U.S. stock trader mistakenly put in a sell order for 15 billion shares of Procter & Gamble on the New York Stock Exchange, instead of 15 million.
Whether that’s true or not, the stock dived to $40 from $60 within moments just before 2.30 p.m..
The Dow Jones Industrial Index also began a free-fall of about 1,000 points, or 10 per cent, in less than half an hour.
It didn’t stop with stock markets. The U.S. dollar soared, which meant the Euro plunged along with the Canadian dollar.After rising as high as 97 cents U.S, at one point the Canadian dollar was down almost 4 cents. It finished the day at 95.03 cents U.S.
Pascal Gauthier of TD Economics pointed to the Greek debt crisis as a possible trigger for the turmoil.
Jean-Paul Trichet, who heads the European Central bank, said in Lisbon Thursday that the bank’s governing council had not discussed the possibility of buying government bonds. Many analysts have speculated it might do so, as a means of providing debt-crushed governments with financial support.
“There might have been expectations that the bank might take some measures, though we were of the view that they would not,” Gauthier speculated.
He warned that other days like this could loom ahead.
“On the fiscal side, those economies that were fragile to begin with before the recession like Greece, Italy, Spain are going to be vulnerable, and markets are going to be nervous,” he said.
“This is going to stay with us. This isn’t just a one-day thing.
Camilla Sutton, currency strategist at Scotiabank, said no one was attacking the Canadian dollar. Instead, investors ran for the safety of U.S. investments.
“This story is about the U.S. dollar,” she said. “What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
The Canadian dollar was simply trampled by the rush into the U.S., she said.
* NEW YORK—The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumor but that the bank currently had no evidence that an erroneous trade had been made.
CNBC reported this afternoon that a trader entered a "b" for billion instead of an "m" for million in a trading order, setting off a series of events that led to the Dow’s biggest one-day drop since 1987.
Greek legislators pass crucial austerity bill despite protests
BY ELENA BECATOROS
ATHENS — Greek police fired tear gas to repel stone-throwing protesters after lawmakers approved drastic austerity cuts Thursday needed to secure international rescue loans worth $147 billion Cdn.
The rescue loans are aimed at containing the debt crisis and keeping Greece’s troubles from spreading to other countries with vulnerable state finances such as Portugal and Spain. The money will come from the International Monetary Fund and the 15 other governments whose countries use the euro.
Clashes in Athens broke out at the end of the main protest that drew tens of thousands of people as police pushed back a few thousand demonstrators outside parliament.
The violence was quickly contained with riot police firing tear gas at the protesters, who had earlier pelted them with oranges and bottles. Several small fires burned in surrounding streets. No injuries or arrests were reported.
The clashes followed violent street protests Wednesday that left three people dead after a bank was firebombed.
Demonstrators banging drums and shouting anti-government slogans through bullhorns, unfurled a giant black banner outside parliament earlier Thursday. More than 30,000 demonstrators filled downtown streets, chanting “They declared war. Now fight back.”
In parliament, lawmakers voted 172-121 to approve the cuts — worth some $40 billion Cdn. through 2012 — that will slash pensions and civil servants’ pay and further hike consumer taxes.
Prime Minister George Papandreou expelled three Socialist deputies who dissented in the vote, reducing the party’s number of seats to 157 in the 300-member parliament.
“We have done what was necessary, not what was easy,” Finance Minister George Papaconstantinou said after the vote. “Without these measures, we’d be thrown into the deepest recession this country has ever known.”
The bulk of Thursday’s protest — organized by the Greek Communist Party — quickly dispersed, leaving about 5,000 demonstrators outside parliament before police dispersed them.
Protester Thodoris Mougiakos said he was angry the IMF would control Greek finances.
“It’s blackmail,” the 32-year-old engineer said. “There is money, but they spend it on things like armaments and businesses. The church has money, too. If we had been drawing money from all these sources, we wouldn’t be in this situation now,”
But the protest remained peaceful, in contrast with Wednesday’s rioting that left three people dead, 59 injured and 25 people arrested. Police said 50 stores, banks and offices were damaged and seven vehicles damaged or burned.
Papaconstantinou said Greece would default on debt payments this month unless it received the bailout loans from the International Monetary Fund and 15 euro-zone countries that had remained divided for months on how to aid Athens.
“Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy,” Papandreou told parliament before the vote.
“Some people want that, and are speculating (on it), and hope that it will happen,” he said, referring to speculative attacks that have been blamed for raising Greece’s borrowing costs to unsustainable levels. “We, I, will not allow that. We will not allow speculation against our country, and bankruptcy to happen.”
European governments are now scrambling to get parliamentary approval for the Greek loans. European leaders will meet on the issue in Brussels today.
Fears of Greek default have undermined the euro, and while the current package should keep Greece from immediate bankruptcy, its long-term prospects are unclear. The country’s growth prospects are weak, and the population’s willingness to accept cutbacks may wane, leading some economists to predict an eventual debt restructuring somewhere down the road.
Opposition parties lambasted the government for imposing measures that are too harsh for the population to bear.
“The dose of the medicine you are administering is in danger of killing the patient,” conservative opposition leader Antonis Samaras said.
“You know that these measures have sparked a social explosion ... The citizens of this country have to believe there is a way out. Because whoever cuts pensions of €700 cannot convince anyone.”
Samaras also expelled a dissenting lawmaker, former Foreign Minister Dora Bakoyannis, reducing his share of parliamentary seats to 90.
The Associated Press http://news.therecord.com/Business/article/707717
Man. credit union 1st to offer Islamic mortgages
A Manitoba credit union has become the first major financial institution in Canada to offer mortgages geared towards the needs of devout Muslims.
On Wednesday, Winnipeg-based Assiniboine Credit Union (ACU) announced it was launching an Islamic Mortgage Program.
Currently, the majority of the Winnipeg's roughly 13,000 Muslims rent or don't own the homes they live in, the credit union said.
For-profit loans are problematic for people of the faith because the Qur'an forbids the payment of interest.
Under the program, the credit union and the homebuyer enter into what ACU calls a "declining partnership agreement." Both parties co-own the home and its title.
"During this time, the family has exclusive rights to live in the home and in exchange they agree to pay ACU a profit. At the end of the contract the Muslim family is the sole owner of the home," the credit union said in a press release.
The would-be homeowner must contribute a minimum of 20 per cent of the home's price at the start of the agreement, ACU said.
The plan was developed with the help of Islamic religious scholars in Canada and the U.S., the credit union added.
Thursday, May 6, 2010
Financial Update For May 6, 2010
$70m mortgage fraud
House prices to cool in 2011
• TSX -155.73 to 11,875 as worries about a spreading European debt crisis darkened investor sentiment after Moody's Investor Services warned it may also downgrade its view on Portugal's debt in the next three months. There are also concerns about the Greek government's ability to push through massive austerity measures in return for the cash. Wednesday's general strike in Greece -- which left three dead -- is unlikely to assuage concerns that the government will get the popular backing it needs
• DOW -59.94 to 10,866 amid rumours that Spain was also negotiating a bailout from the International Monetary Fund
Why are you seeing CMHC respond with “unsupported values” recently?
When CMHC says they can only support $x on a file, they aren’t necessarily saying the house is only worth that amount.
The interpretation is ,…
“based on the home value and possible renovations done, how recent an mpac assessment is, the type of home-o/o or rental, the clients job consistency and security, their credit and amount utilized and whether it’s a purchase or refi and for what reasons …..
they are saying, “based on above, we have $xxx comfort level with doing that deal”.
Based on new rules and qualifications they are taking less risk this year. It is important to remember that a property valuation is not a fixed or permanent number
Sometimes an appraisal will assist, but if their concern is based more on covenant criteria as opposed to an old mpac value, we are also seeing files where the appraisal doesn’t increase their comfort.
So when discussing with your clients a value to use when submitting your applications, take all the criteria above into consideration before using the highest resale on the street to base your qualifications on. This will assist you to under-promise and over-deliver, provide you with more expert guidance than a bank employee provides, have less puzzled and disappointed clients, and improve your efficiency ratios too!
House prices to cool in 2011, says TD
Financial Post
OTTAWA -- The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.
The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.
"While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report.
The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.
As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.
The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.
TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.
The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2990374#ixzz0n98RQoRI
Bank of Montreal alleges huge mortgage fraud
By Charles Rusnell, CBC News
This house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. (CBC)
The Bank of Montreal is suing hundreds of people in Alberta, including lawyers, mortgage brokers and four of its own employees, in what is one of the largest alleged cases of mortgage fraud in Canadian history.
Legal documents obtained exclusively by CBC News allege the bank was the target of a sophisticated fraud operated by 14 inter-connected groups. The documents allege the scheme generated at least $140 million, about $70 million of which was for phoney mortgages.
The bank has estimated it may lose as much as $30 million.
Toronto forensic accountant Al Rosen said he has never seen anything like it.
"This is massive in the sense that it is so broad and so deep," Rosen said Tuesday. "This is [allegedly] a huge fraud. I can't think of any situation that has so many people involved and over a period of time like this one."
Problems detected in 2006
The bank said it first detected the alleged scam in 2006 when its security department noticed "irregularities" in a number of mortgages in Western Canada. Officials immediately hired a forensic accounting firm, which spent nearly a year unravelling what the bank calls a sophisticated scheme.
Legal documents allege millions of dollars have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan. (CBC)
The bank's investigators say the scam's ringleaders would identify the worst house in a good neighbourhood. They would buy at an affordable, fair-market value price, but convince the bank it was worth much more because of the neighbourhood it was in.
The bank, which relies on a software program to determine house prices by neighbourhood, claims it would end up providing a grossly inflated mortgage, and the ringleaders would pocket the difference.
To carry out the alleged scheme, the bank claims masterminds would recruit what's known in fraud parlance as a "straw buyer." For a payment of $2,000 to $8,000, these straw buyers, mostly new immigrants, would allow their name to be used to obtain the mortgage on the house.
According to the court documents, the ringleaders allegedly created fake, inflated wage and net income documents for the straw buyers to make them appear richer than they were.
Lawyers, who are alleged to have been in on the scheme, would then produce the necessary legal documents for the house sale. Seventeen lawyers have been named in the bank's lawsuit.
House nets $180,000
In one case, a house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. An Edmonton house is alleged to have netted the scheme nearly $180,000.
During its investigation, bank investigators seized records that showed millions of dollars from the alleged scheme have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan.
The Bank of Montreal said it conducted the investigation and filed the lawsuit for two reasons.
"One was to recover as much as possible of what was taken from the bank from the fraud," Ralph Marranca, the bank's spokesman told the CBC on Tuesday.
"And secondly was to send a very strong message to fraudsters and anyone who might contemplate something like this that the bank will pursue this very aggressively and will not tolerate fraud."
Other banks don't appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.
Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.
"To me the most exasperating part of our business is we are not doing what we are supposed to be doing," he said. "We are kidding ourselves that we have good systems, because we don't."
Read more: http://www.cbc.ca/canada/calgary/story/2010/05/04/mortgage-fraud-bank.html#ixzz0n43X4GCP
House prices to cool in 2011
• TSX -155.73 to 11,875 as worries about a spreading European debt crisis darkened investor sentiment after Moody's Investor Services warned it may also downgrade its view on Portugal's debt in the next three months. There are also concerns about the Greek government's ability to push through massive austerity measures in return for the cash. Wednesday's general strike in Greece -- which left three dead -- is unlikely to assuage concerns that the government will get the popular backing it needs
• DOW -59.94 to 10,866 amid rumours that Spain was also negotiating a bailout from the International Monetary Fund
Why are you seeing CMHC respond with “unsupported values” recently?
When CMHC says they can only support $x on a file, they aren’t necessarily saying the house is only worth that amount.
The interpretation is ,…
“based on the home value and possible renovations done, how recent an mpac assessment is, the type of home-o/o or rental, the clients job consistency and security, their credit and amount utilized and whether it’s a purchase or refi and for what reasons …..
they are saying, “based on above, we have $xxx comfort level with doing that deal”.
Based on new rules and qualifications they are taking less risk this year. It is important to remember that a property valuation is not a fixed or permanent number
Sometimes an appraisal will assist, but if their concern is based more on covenant criteria as opposed to an old mpac value, we are also seeing files where the appraisal doesn’t increase their comfort.
So when discussing with your clients a value to use when submitting your applications, take all the criteria above into consideration before using the highest resale on the street to base your qualifications on. This will assist you to under-promise and over-deliver, provide you with more expert guidance than a bank employee provides, have less puzzled and disappointed clients, and improve your efficiency ratios too!
House prices to cool in 2011, says TD
Financial Post
OTTAWA -- The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.
The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.
"While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report.
The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.
As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.
The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.
TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.
The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2990374#ixzz0n98RQoRI
Bank of Montreal alleges huge mortgage fraud
By Charles Rusnell, CBC News
The Bank of Montreal is suing hundreds of people in Alberta, including lawyers, mortgage brokers and four of its own employees, in what is one of the largest alleged cases of mortgage fraud in Canadian history.
Legal documents obtained exclusively by CBC News allege the bank was the target of a sophisticated fraud operated by 14 inter-connected groups. The documents allege the scheme generated at least $140 million, about $70 million of which was for phoney mortgages.
The bank has estimated it may lose as much as $30 million.
Toronto forensic accountant Al Rosen said he has never seen anything like it.
"This is massive in the sense that it is so broad and so deep," Rosen said Tuesday. "This is [allegedly] a huge fraud. I can't think of any situation that has so many people involved and over a period of time like this one."
Problems detected in 2006
The bank said it first detected the alleged scam in 2006 when its security department noticed "irregularities" in a number of mortgages in Western Canada. Officials immediately hired a forensic accounting firm, which spent nearly a year unravelling what the bank calls a sophisticated scheme.
The bank's investigators say the scam's ringleaders would identify the worst house in a good neighbourhood. They would buy at an affordable, fair-market value price, but convince the bank it was worth much more because of the neighbourhood it was in.
The bank, which relies on a software program to determine house prices by neighbourhood, claims it would end up providing a grossly inflated mortgage, and the ringleaders would pocket the difference.
To carry out the alleged scheme, the bank claims masterminds would recruit what's known in fraud parlance as a "straw buyer." For a payment of $2,000 to $8,000, these straw buyers, mostly new immigrants, would allow their name to be used to obtain the mortgage on the house.
According to the court documents, the ringleaders allegedly created fake, inflated wage and net income documents for the straw buyers to make them appear richer than they were.
Lawyers, who are alleged to have been in on the scheme, would then produce the necessary legal documents for the house sale. Seventeen lawyers have been named in the bank's lawsuit.
House nets $180,000
In one case, a house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. An Edmonton house is alleged to have netted the scheme nearly $180,000.
During its investigation, bank investigators seized records that showed millions of dollars from the alleged scheme have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan.
The Bank of Montreal said it conducted the investigation and filed the lawsuit for two reasons.
"One was to recover as much as possible of what was taken from the bank from the fraud," Ralph Marranca, the bank's spokesman told the CBC on Tuesday.
"And secondly was to send a very strong message to fraudsters and anyone who might contemplate something like this that the bank will pursue this very aggressively and will not tolerate fraud."
Other banks don't appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.
Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.
"To me the most exasperating part of our business is we are not doing what we are supposed to be doing," he said. "We are kidding ourselves that we have good systems, because we don't."
Read more: http://www.cbc.ca/canada/calgary/story/2010/05/04/mortgage-fraud-bank.html#ixzz0n43X4GCP
Wednesday, May 5, 2010
Financial Update For May 5th
Housing affordability: the great quandary Why there’s time to wait for the right home at the right price
• TSX -165.65 sharply lower, weighed down by persisting worries about Greece's aid package that sent investors to the safety of the U.S. dollar and hit oil prices.
• DOW -225.06 to 10,926echoed the wave of worry that gripped financial markets as investors fretted that the crisis in Europe could derail global economic recovery
• Dollar 1.39c to 97.56cUS
• Oil -$3.45 to $82.74US per barrel.
• Gold -$14.10 to $1,168.60 USD per ounce .
Housing affordability: the great quandary Why there’s time to wait for the right home at the right price
With only Montreal and Vancouver left to cheer for in the Stanley Cup playoffs, many luncheon conversations have returned to the topic of housing prices.
Recently, we’ve seen lots of headlines suggesting that house prices have run up to an unsustainable level and are due for a correction.
In mid March, The New York Times made a rare foray north of the border with a headline that read “Some See a Real Estate Bubble Forming in Canada.” A couple of weeks back, Gluskin Sheff star economist David Rosenberg released a report suggesting that Toronto and Vancouver housing prices could drop by 20 per cent.
And one of the most e-mailed Globe articles last week was based on a ReMax report trumpeting the buoyant sales of luxury homes.
Focusing on affordability
Perhaps the most important determinant of short-term-price movements is affordability, the percentage of a typical household’s income required to carry a house. The two big variables that drive this number: house prices and mortgage rates.
RBC has been tracking this data for 100 neighbourhoods across Canada since 1985, focusing on typical two bedroom homes, bungalows, townhouses and condos.
The traditional rule of thumb for banks is that mortgage payments, property taxes and utilities shouldn’t exceed 32 per cent of a household’s income, assuming a 25 per cent down payment. The more of a household’s income required to carry a house, the lower the affordability.
As housing prices spiralled up in the 1980s, this guideline was relaxed – since 1985, the typical household would have devoted 39 per cent of its income to carrying a detached, 1,200 square foot bungalow.
RBC economist Robert Hogue points out that there have been large swings in affordability over time and that different cities show different patterns.
In most cities, rising house prices meant that affordability was at its lowest in early 1990, when the typical household would have spent 53 per cent of income to carry a bungalow. On the other end of the scale, Vancouver, always an outlier when it comes to real estate, hit its own high of 81 per cent of household income to carry a bungalow in early 2008.
Once out of balance, there are only three ways for affordability to get back in line:
- Prices can stay flat as incomes increase over a period of years
- Mortgage rates can come down – unlikely in the next while
- Or housing prices can drop – something that happened after the all-time lows on affordability were hit in 1990
The impact of low mortgage rates
In the past eighteen months, governments around the world chopped interest rates to boost economies – and Canada was no exception.
As a result of low interest rates, carrying costs dropped and affordability improved. Even with strong housing prices, at the end of December the affordability level in most cities was close to its long-term average. The exception, again, was Vancouver – with the average bungalow taking up 69 per cent of the typical family’s income, up from the historical average of 57 per cent.
In a recent report, RBC estimated that in late December posted rates for a five year mortgage were 5.6 per cent, 1.6 percentage points lower than normally expected given inflation expectations. Note that we’ve already seen mortgages rates begin moving up toward those higher levels, with more increases likely to come.
RBC estimates that if mortgages had been at their normal levels in December, the percentage of the typical Canadian household’s income to carry an average bungalow would have increased by four percentage points – although some cities would have been hit worse than others.
The affordability verdict
If mortgage rates in December had been at normal levels, the percentage of income to carry a house in most cities would have been well above its long-term average. The good news: In most cities those percentages would still have been well below their highs – prices may be a bit elevated but this doesn’t suggest a bubble or a big drop ahead.
The one city to worry about if you’re a homeowner is Vancouver, where normal mortgage rates would have resulted in the typical household spending 78 per cent of its income to carry a bungalow, just shy of the peak level.
History shows that it’s impossible to accurately predict short-term movements of house prices – markets regularly overshoot rational levels both on the way up and the way down. What we can say is that based on current affordability, if house prices do continue to escalate, at some point they’re almost certain to correct back down.
That means there’s no rush to buy and time to wait for the right home at the right price – and that for the next while at least home buyers should evaluate houses as places to live rather than on their potential for appreciation. http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/housing-affordability-the-great-quandary/article1554481/
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Housing affordability: the great quandary Why there’s time to wait for the right home at the right price
With only Montreal and Vancouver left to cheer for in the Stanley Cup playoffs, many luncheon conversations have returned to the topic of housing prices.
Recently, we’ve seen lots of headlines suggesting that house prices have run up to an unsustainable level and are due for a correction.
In mid March, The New York Times made a rare foray north of the border with a headline that read “Some See a Real Estate Bubble Forming in Canada.” A couple of weeks back, Gluskin Sheff star economist David Rosenberg released a report suggesting that Toronto and Vancouver housing prices could drop by 20 per cent.
And one of the most e-mailed Globe articles last week was based on a ReMax report trumpeting the buoyant sales of luxury homes.
Focusing on affordability
Perhaps the most important determinant of short-term-price movements is affordability, the percentage of a typical household’s income required to carry a house. The two big variables that drive this number: house prices and mortgage rates.
RBC has been tracking this data for 100 neighbourhoods across Canada since 1985, focusing on typical two bedroom homes, bungalows, townhouses and condos.
The traditional rule of thumb for banks is that mortgage payments, property taxes and utilities shouldn’t exceed 32 per cent of a household’s income, assuming a 25 per cent down payment. The more of a household’s income required to carry a house, the lower the affordability.
As housing prices spiralled up in the 1980s, this guideline was relaxed – since 1985, the typical household would have devoted 39 per cent of its income to carrying a detached, 1,200 square foot bungalow.
RBC economist Robert Hogue points out that there have been large swings in affordability over time and that different cities show different patterns.
In most cities, rising house prices meant that affordability was at its lowest in early 1990, when the typical household would have spent 53 per cent of income to carry a bungalow. On the other end of the scale, Vancouver, always an outlier when it comes to real estate, hit its own high of 81 per cent of household income to carry a bungalow in early 2008.
Once out of balance, there are only three ways for affordability to get back in line:
- Prices can stay flat as incomes increase over a period of years
- Mortgage rates can come down – unlikely in the next while
- Or housing prices can drop – something that happened after the all-time lows on affordability were hit in 1990
The impact of low mortgage rates
In the past eighteen months, governments around the world chopped interest rates to boost economies – and Canada was no exception.
As a result of low interest rates, carrying costs dropped and affordability improved. Even with strong housing prices, at the end of December the affordability level in most cities was close to its long-term average. The exception, again, was Vancouver – with the average bungalow taking up 69 per cent of the typical family’s income, up from the historical average of 57 per cent.
In a recent report, RBC estimated that in late December posted rates for a five year mortgage were 5.6 per cent, 1.6 percentage points lower than normally expected given inflation expectations. Note that we’ve already seen mortgages rates begin moving up toward those higher levels, with more increases likely to come.
RBC estimates that if mortgages had been at their normal levels in December, the percentage of the typical Canadian household’s income to carry an average bungalow would have increased by four percentage points – although some cities would have been hit worse than others.
The affordability verdict
If mortgage rates in December had been at normal levels, the percentage of income to carry a house in most cities would have been well above its long-term average. The good news: In most cities those percentages would still have been well below their highs – prices may be a bit elevated but this doesn’t suggest a bubble or a big drop ahead.
The one city to worry about if you’re a homeowner is Vancouver, where normal mortgage rates would have resulted in the typical household spending 78 per cent of its income to carry a bungalow, just shy of the peak level.
History shows that it’s impossible to accurately predict short-term movements of house prices – markets regularly overshoot rational levels both on the way up and the way down. What we can say is that based on current affordability, if house prices do continue to escalate, at some point they’re almost certain to correct back down.
That means there’s no rush to buy and time to wait for the right home at the right price – and that for the next while at least home buyers should evaluate houses as places to live rather than on their potential for appreciation. http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/housing-affordability-the-great-quandary/article1554481/
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