Financial Update For Feb. 18, 2010

Housing market will cool down, real estate industry says

U.S. mortgages little changed
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OTTAWA -- Canada's annual rate of inflation rose to 1.9% in January, mainly due to rising gasoline prices, Statistics Canada said Thursday. Economists had expected annual inflation of 1.8% during the month after December's pace of 1.3%.

Housing market will cool down, real estate industry says
THE CANADIAN PRESS


OTTAWA — House price increases will moderate as the resale market becomes more balanced, says the president of the Canadian Real Estate Association.
“The resale housing market is becoming more balanced in a number of provinces,” Dale Ripplinger said Wednesday after the association released January sales statistics that revealed another big year-over-year price increase.
“A more balanced market is likely to result in smaller price increases going forward, with buyers in less of a rush due to an increase in supply.”
While Canadian home resale volumes slipped in January compared with December, they came in far higher than in January 2009, when sales fell to the lowest levels in a decade as the country suffered through the global credit crunch and recession.
The association said 25,671 homes were sold across the country in January, up 58 per cent from the same month a year earlier when consumer confidence hit an ebb, drying up buying and lending activity.
The national average price for homes listed on the association’s Multiple Listing Service was $328,537, up 19.6 per cent from a year ago.
The Kitchener-Waterloo Real Estate Board recorded 416 sales in January, 64 per cent more than a year ago. The Real Estate Board of Cambridge registered 140 sales, an increase of 32 per cent.
The average price in Kitchener rose 12.3 per cent to $278,825 on a year-over-year basis. In Cambridge, the average price jumped 16.3 per cent to $278,527.
The association’s report was issued a day after Finance Minister Jim Flaherty announced that tighter rules for mortgage borrowers will be introduced in April. He described it as a measure to prevent a bubble in the housing market.
Under the new rules, effective April 19, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they will pay initially is lower.
Compared month-over-month, seasonally adjusted home sales were down 2.8 per cent from the strong levels reported in December, giving a sign that the housing market could be already starting to cool in some regions.
Nearly half of the drop was linked to a slowdown in housing sales in Ontario.
“One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade,” said association chief economist Gregory Klump.
Klump suggested that Flaherty’s new plan and the harmonized sales tax, which replaces provincial sales taxes in Ontario and British Columbia on July 1, could encourage more Canadians to enter the market in the first half of the year.
“It could take until the second half of the year before a cooling trend becomes evident,” he said.
Resale homes were still drawing a stronger demand for January, with 170,199 listed homes on the Multiple Listing Service in Canada, a decline of 18 per cent over the same time last year, the report said. http://news.therecord.com/Business/article/672304
U.S. mortgages little changed
Canada leads way with pre-emptive measures
Janet Whitman, Financial Post
NEW YORK - As Canada took pre-emptive steps this week to thwart a possible housing bubble, the United States has done little to reform the reckless lending practices that, two years ago, led to the near-collapse of the country's financial system.
For now, the industry is cleaning up its own bad behaviour. U.S. lenders have put a stop to zero-money-down mortgages and so-called liar loans, the "no-doc" or "low-doc" mortgages that don't require income documentation. But there has been little in the way of new regulation that would prevent the return of such practices.
Meanwhile, the ability of Americans to get a tax deduction for their annual mortgage interest payments -- which essentially encourages them not to pay down their mortgages -- remains sacrosanct. Sweeping reforms, including a simple provision that would require lenders to ensure a borrower's ability to repay, were proposed by U.S. lawmakers in 2007, but they remain hung up by debate.
"There's been a fair amount of tightening, but it's coming out of the private sector," said Greg Rand, managing partner at Better Homes and Gardens Rand Realty, a brokerage in the suburbs north of New York. "It sounds simplistic, but lenders want to make sure they get their money back."
Vince Malta, liaison to government affairs with the National Association of Realtors, said he's worried the pendulum might swing too far and U.S. lawmakers will crack down on the industry too hard.
"I would hate to see someone who qualifies to purchase a home, but is unable to because of some regulatory scheme that goes overboard," he said.
Meantime, not only are the exotic loans that got the United States into the housing crisis gone, but standard mortgage loans also are hard to come by for many prospective buyers around the country.
"Even regular, good people cannot get a loan," said Andrew Mungar, a real estate broker in Texas and author of the new book The Homeowner Survival Guide. "I have a lot of clients that make good income but are still having trouble getting a loan because conditions are so tight."
With 10,000 new U.S. foreclosures still hitting the market each day, the caution might be understandable, Mr. Mungar said. "We still have billions of dollars of adjust able-rate mortgages and interest-rate only mortgages to hit the market."
One of the main reasons why Canada's housing market held up while America's cratered is that U.S. lending standards all but disappeared.
Canada also wasn't as swept up by the securitization market, in which bankers bundled mortgages and sold them off to investors.
Barry Ritholtz, a well-known blogger and investor, pointed out other important factors at play in a recent post on his "Big Picture" blog.
While Americans are walking away from their underwater mortgages in droves, Canada has full recourse mortgages, which means a homeowner can walk away from the house, but not the duty to pay the mortgage debt, Mr. Ritholtz said.

Financial Update For Feb. 17, 2010

The question most heard yesterday was, “what 5 year rate will they have to qualify on?”.

It will be the 5 year rate at that institution granting the commitment. As the client was having to qualify on that institutions 3 year rate, it will now be their 5year rate.

The changes will take place on April 19, 2010.



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GOVERNMENT OF CANADA TAKES ACTION TO STRENGTHEN HOUSING FINANCING

Financial Update For Feb. 16, 2010

New mortgage rules introduced to lessen mortgage crunch risks
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New mortgage rules introduced to lessen mortgage crunch risks: sources say
By Julian Beltrame, The Canadian Press
OTTAWA - The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada's hot housing market.
Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.
Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.

Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.

But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.

Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.

Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.

It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.

Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.

The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.

By the central bank's own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.

In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.

"An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks," said notes the address.

"These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions http://ca.news.finance.yahoo.com/s/15022010/2/biz-finance-new-mortgage-rules-introduced-lessen-mortgage-crunch-risks.html