A run down of what's going on in the market and the company.

Wednesday, April 28, 2010

Roseman: When mortgage rates rise, is it time to lock in?

Five reasons to love rising interest rates

April 28, 2010

By John Heinzl
From Wednesday's Globe and Mail

The end of cheap money is good news for savers, seniors and fixed-income investors
With the Bank of Canada poised to raise interest rates as early as June, nervous borrowers are bracing for the end of cheap money.

Big disaster, right? Hardly.

Sure, consumers carrying onerous amounts of debt will feel the pain when rates climb from today's ultralow levels. But for others - savers, seniors and fixed-income investors, for example - higher rates can't come soon enough.

Rising rates might even restore some sanity to segments of our economy that have gotten drunk on all the easy credit. So, with banks already ratcheting up mortgage rates and bond yields creeping higher, let's take a deep breath and focus on the positives.

Here are five reasons to love rising interest rates.

No more bidding wars

The chit-chat on every street corner is the same: "You know that two-bedroom eyesore with the sagging front porch and the raccoons living in the attic? It went for 100 grand over asking."

This sort of lunacy will not last. Here's why.

When the bank decides how much it will lend you to buy a home, it uses an affordability formula based on your income, expenses and the interest rate on the loan. The lower the rate, the smaller the monthly payment, and the larger the mortgage it will give you. Many home buyers gladly take the maximum the bank offers, pushing home prices skyward. (The chart shows just how stretched home prices have become compared with incomes.)

But plug higher interest rates into that same affordability formula and guess what happens? Home buyers suddenly qualify for smaller mortgages. Even a couple of percentage points can mean a difference of $100,000 or more in the maximum loan size.

With less borrowed money sloshing around, home prices will inevitably fall. When that happens, housing market psychology could rapidly turn bearish. For first-time home buyers or real estate investors who are sitting on cash, this would be the time to get in.

Investor Education:
Should I buy a home now, or wait and save more money? [http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/chapter-5-should-i-buy-a-home-now-or-wait-and-save-more-money/article658096]
Understanding house prices [http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/understanding-house-prices/article658078]
Is it better to buy a home, or choose some other investment? Charlie's story [http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/is-it-better-to-buy-a-home-or-choose-some-other-investment-charlies-story/article658068]
What makes buying a home different from other investments? [http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/what-makes-buying-a-home-different-from-other-investments/article658074]
What are some renovations that add value to my home? [http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/what-are-some-renovations-that-add-value-to-my-home/article658065]

Higher GIC rates

A couple of months ago, the best rate I could find on a five-year guaranteed investment certificate was 3.25 per cent. But when I checked my discount broker yesterday, one financial institution was offering 3.9 per cent, and several others were at 3.8 per cent.

The way things are going, I wouldn't be surprised to see five-year GIC rates crack 4 per cent in the weeks ahead as financial institutions compete for deposits. The dividend yield on the S&P/TSX composite index, by comparison, is a lowly 2.6 per cent.

Suddenly, GICs are interesting again, particularly for seniors and other investors who can't stomach the risk of the stock market. Short-term bond prices have also fallen, pushing up yields and making these fixed-income securities more attractive for investors.

Stock market bargains

Rising interest rates hurt the stock market in several ways. They make bond yields more attractive, raise costs for sectors such as utilities that carry a lot of debt, and compress price-to-earnings multiples.

Many analysts say the stock market is overdue for a correction after its 61-per-cent gain from the lows of March, 2009, and rising interest rates may be just the thing to tip it over the edge. Another reason to expect a correction is that the market is heading into the seasonally weak May-to-October period (hence the phrase "sell in May and go away").

Nobody likes to see their stocks fall, of course, but a correction would be a welcome development for investors who have cash to spend or who reinvest their dividends in more shares, because their money will go further.

Cheaper road trips

If you've been itching to visit Graceland or the Grand Canyon, now's your chance.

Even as Canada's central bank prepares to raise rates, the U.S. Federal Reserve Board is widely expected to stay on hold at least until the end of the year because of the weaker U.S. economy. That divergence has lit a fire under the Canadian dollar, which is hovering near parity with the greenback.

True, a strong dollar is bad news for our exporters, but if you're planning to visit the United States, it's like the entire country has been put on sale.

Happy savers

To the extent that rising interest rates cause prices of homes, stocks and other assets to fall, folks with the foresight to save will be the big winners. That's because they'll be in a position to scoop up assets at discounted prices. Which leads to another upside of rising rates: If you're planning to park your cash in a "high-interest" savings account, these vehicles might actually start living up to their name.

Monday, April 26, 2010

Four-in-ten Canadians retiring with debt, says RBC Poll


TORONTO - A survey by the Royal Bank suggests four-in-10 Canadians over the age of 50, who have assets of at least $100,000, have retired with some form of debt

And, one-quarter entered retirement with a mortgage on their primary residence.

The survey also notes that 70 per cent of retirees feel it is still important to be able to save part of their income, yet more than one-quarter have acquired new credit products since they retired.

Inflation and taxes are a major concern of retirees, with more than one-third of those surveyed saying they are worried that inflation will negatively impact their retirement income.

The figure rises to 43 per cent among pre-retirees surveyed.

Six-in-ten retirees say they worry about taxes on their income, with two-thirds believe the percentage of their income required for taxes will rise in the next 10 years.

"It's not uncommon to be concerned about maintaining a sustainable level of income in retirement, but costs you never counted on may also arise," said Lee Anne Davies, the RBC head of retirement strategies.

Luxury home sales soaring, ReMax survey shows

680News staff 2010/04/26

A new ReMax survey has found sales of luxury homes are soaring so far this year.

The study of real estate in 13 major Canadian centres points to improved economic performance, increased personal wealth, immigration and foreign investment all contributed to a big boost in sales between January and March.

Sales compared to last year, which was in the midst of the recession, are up 263 per cent in the Greater Toronto Area. In Kelowna, sales are up 700 per cent.

A high-end home in Toronto is now defined as being listed for $1.5-million.

More Canadians retiring with debt, bank survey shows

James Munroe 2010/04/26

A new survey on our golden years suggests not all of us are going to be riding off into the sunset.

Instead, more of us are retiring with debt.

Royal Bank has determined that four in ten Canadians are retiring these days with some form of debt and one in four entered retirment with a mortgage on their primary residence.

Inflation and taxes are among the top concerns for retirees with more than one third worried that the cost of living will negatively impact their retirement income.

A whopping six in ten sweat the taxman.

Lee Ann Davies is RBC's head of retirement strategies and said costs you never accounted for may arise. For instance, the poll found that almost one in five retirees spend more than $1,000 a year on prescripion medication.

Friday, April 23, 2010

Inflation rate falls to 1.4%

Consumer price increases ease in March from 1.6 per cent the previous month

Julian Beltrame

Ottawa — The Canadian Press
Published on Friday, Apr. 23, 2010 7:07AM EDT

Last updated on Friday, Apr. 23, 2010 10:11AM EDT

Inflationary pressures in Canada eased considerably last month, putting into question expectations that the Bank of Canada will be raising interest rates in a matter of weeks.

Statistics Canada reported Friday that Canada's annual inflation rate slipped by two-tenths of a point to 1.4 per cent, and the closely watched Bank of Canada core rate fell even further – by four-tenths of a point to 1.7 per cent in March.

“That whooshing noise you just heard was a giant sigh of relief from the Bank of Canada,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns wrote in a note to clients.

“At the very least, today's low-side outcome for both headline and core inflation in March will dampen some of the more aggressive expectations for Bank of Canada rate hikes. Talk of 50-basis-point moves any time soon should be quelled by these much milder inflation figures, which suddenly put core trends closer to earlier bank forecasts.”

CIBC economist Krishen Rangasamy said the March data shows inflation is well under control in Canada and that any future rate increases will be modest.

The Canadian dollar fell by about half-a-cent, suggesting that the market too saw the data as a negative factor to a policy rate hike. The dollar traded at 99.49 cents (U.S.) as the Toronto Stock Exchange began trading Friday, down from parity.

On a month-to-month basis, Canadians saw no increase in overall prices between February and March.

The agency said the big reason for the drops in both annual indexes was that the price-distorting Olympics ceased being a major contributor to inflation with the conclusion of the Winter Games at the end of February.

Prices for traveller accommodation soared 16 per cent in February – 64.1 per cent in British Columbia – but in March they dropped back to earth to a more tame 2.8-per-cent increase from March, 2009.

Earlier in the week, the Bank of Canada cited inflationary risks for dropping its year-old conditional pledge to leave interest rates at record lows until at least July after the core reached as high as 2.1 per cent in February.

While Friday's report might raise some doubt on whether the Bank will start raising rates by June, “that still seems to be the most likely course given the strength in the economy,” Mr. Porter wrote.

Economists had expected a slight slip in core inflation, once the Olympics ended, but the consensus was that core inflation would be right on the central bank's target of 2 per cent.

March's large fall now puts the core inflation rate, which excludes volatile items such as gasoline prices, well below the central bank's target.

The March data suggests prices continue to be soft across many sectors with the exception of gasoline and everything else to do with cars.

Prices at gas pumps across Canada were 17.2 per cent higher in March than they had been a year earlier, overall transportation costs were six per cent higher, prices for the passenger vehicles rose 3.9 per cent and the cost of insuring them cost 5.5 per cent more.

But food costs only advanced 1.3 per cent, mostly due to a 2.6-per-cent hike in restaurant bills.

As well, consumers paid slightly more for household operations and furnishings, for health and personal care, reading, tuition fees, and cable and satellite services.

But many items cost less this March than they did a year ago, including shelter costs and mortgage costs, clothing and footwear, as well as fresh vegetables, meat and fresh fruit.

With interest rates at record lows, mortgage costs were a full six per cent less in March than a year ago.

Regionally, the agency said all provinces recorded a price increases, with the Atlantic provinces registering the biggest gains.

In a heated market, some advise buyers to step back

April 22, 2010

By Carolyn Ireland
From Friday's Globe and Mail

A huge increase in available homes - with more on the way - should cool things down
For sellers of one High Park house, a few square metres of hardwood and a stockpile of patience proved to be highly profitable.

The homeowners recently sold the house for more than the asking price of $1.35-million.

The outcome marked a big improvement on their previous foray into the market in the fall of 2008, says real estate agent Chander Chaddah, who handled the listing on both occasions. Back then, the house was listed for about the same price but languished on the market for weeks. The owners rejected the one half-hearted bid they received and pulled the sign out of the lawn.

Eighteen months later, they got more money than they had hoped for.

"All they did was change a linoleum floor in the kitchen to hardwood," says Mr. Chaddah.

The 18-per-cent jump in High Park in the first quarter of 2010 compared with the same period in 2009 is one example of the eye-popping gains in prices as real estate sales across the Greater Toronto Area have been turbo-charged by a huge rebound in consumer confidence.

"In September, 2008, people got the bad news that Lehman Bros. had filed for bankruptcy. They got the good news in September 2009 that the market was back," says Mr. Chaddah of Sutton Group Associates.

That good news for sellers has at long last drawn more of them to the market.

In the downtown core, he says, buyers suddenly have lots to choose from amidst burgeoning condo listings.

"The number of new units coming out there clearly has just exploded."

In Roncesvalles Village and the west end, where Mr. Chaddah's office is located, the number of single-family homes for sale has also risen - especially since Easter.

Mr. Chaddah says he advises sellers to list their houses early in the spring market, which actually begins in February. Buyers are eager to get back into the hunt after the market goes on hold in December and January. He adds that too many people wait until after Easter and then find that two or three of their neighbours have put up 'for sale' signs at the same time. The abundance of choices cools the bidding wars.

"It's easy enough to equate the spring market with grass, leaves and flowers that are in full bloom." But that strategy can backfire, he adds.

"Scarcity is the reason people bid up."

Mr. Chaddah says he has not seen very many huge bids over the asking price on properties priced above $1-million. But in the $400,000 to $800,000 range, offers often swell to 20 per cent above the asking price. Last week he saw a house in Mimico with an asking price of $450,000 go to a buyer who offered $557,000.

Nationally, existing home sales were a hefty 40.8 per cent higher in March than they were in March of last year.

National Bank economist Marc Pinsonneault says a national house price index created by Teranet and National Bank shows that the rapid price gains that have drawn attention to the Toronto and Vancouver markets lately have started to slow.

"It looks to me as if Vancouver has recently turned into a much more balanced market than before. Toronto is on the verge of doing so," says Mr. Pinsonneault.

The economist says Toronto is set to see a supply of new condo units as buildings started in 2008 and 2009 become ready for occupancy. That in turn will prompt some homeowners to list their houses as they prepare to move into a new condo. At the same time, housing starts have also increased.

"New construction should help to increase supply again," says Mr. Pinsonneault.

The economist adds that the return to more balance should ease fears that the Toronto market is inflating into a bubble.

Mr. Pinsonneault does not believe a bubble has formed in Toronto. For one thing, he doesn't see the classic psychology of market mania that occurs when people believe the real estate market is the only place to make money.

Instead, people have moved up their purchases to take advantage of pre-approved mortgages with low interest rates. Consumers in Ontario and British Columbia are also racing to beat the harmonized sales taxes, which will come into effect in both provinces this summer.

Shaun Hildebrand, senior market analyst for Canada Mortgage and Housing Corp., says about 35,000 condo units are under construction in the Greater Toronto Area and many of those will become available in 2010 and 2011.

Until recently, Mr. Hildebrand points out, first-time buyers have been driving the market in Toronto and they have been frustrated by the lack of listings. But now move-up buyers are starting to sell their starter homes, he says, which is helping to loosen the tight supply.

He expects the hectic pace of sales to slow in the second half of 2010 because the Bank of Canada is likely to raise interest rates and first-time buyers are more susceptible to the hikes. At the same time, only so many people can afford to buy a house in the GTA and many of those have already landed.

"We have some payback to do in the market."

Mr. Hildebrand expects price growth in the coming few years to be closer to the rate of inflation.

Robert Kavcic, economist with BMO Nesbitt Burns, points out that a jump in new listings is helping to move housing markets back toward balance between buyers and sellers. New listings were 25.3 per cent higher in March than in March of 2009. That shift toward a more even market should accelerate in the coming months if new supply remains strong and demand cools, Mr. Kavcic says.

Mr. Chaddah, the real estate agent, says he often has to reassure buyers these days that more houses will arrive on the market. But many house hunters want to secure a deal before interest rates rise, and many are worn out by the search.

"They say they want to quit this part-time job we have trying to find a house."

He worries that the market could become overheated if people feel they have to bid an eye-popping amount over the asking price just to secure a deal. Meanwhile he has the same advice for most buyers:

"Don't get flipped out - more stuff is coming."

Tuesday, April 13, 2010

New Housing Price Index rises in February, Statistics Canada reports

OTTAWA - The New Housing Price Index rose 0.1 per cent in February following a 0.4 per cent increase in January.

Statistics Canada reports prices rose in 14 of 21 metropolitan areas between January and February. Prices increased the most in Regina (up two per cent), followed by Winnipeg and London (both up 1.9).

Toronto and Oshawa (down 0.7 per cent) as well as Charlottetown (down 0.5) were the only metropolitan areas to register monthly decreases in February.

Year over year, the index was up 0.9 per cent in February following a 0.1 per cent increase in January.

The largest year-over-year increase was recorded in St. John's, N.L. (up 5.5 per cent), followed by Winnipeg (4.1) and Quebec City (3.5).

Higher residential land values were the primary reason for the increases in all three metropolitan areas.

Friday, April 9, 2010

Overheated resale market driving more buyers to new homes

Terrence Belford

Published on Thursday, Apr. 01, 2010 11:32AM EDT

Last updated on Thursday, Apr. 01, 2010 12:07PM EDT

February results are in and I am going to cut right to the chase: The average price of a new low-rise home in the Greater Toronto Area climbed 11 per cent from last year. The average high-rise condo tab also rose, by five per cent, and the average resale-home price was up by a staggering 19.4 per cent.

Worse news is that the worrisome, rising-prices trend appears to have continued through March. The Toronto Real Estate Board, which compiled and posted the statistics, says the average cost in February was $488,297 for a new home, $410,433 for a new condo and $431,509 for a resale home in the GTA. Then, in the first two weeks of March, TREB adds, the average resale home price jumped another $8,644, to $440,153.

It wasn’t just the prices; the number of units sold skyrocketed too. Enormous demand drove high-rise condos sales up 489 per cent over the same month a year earlier, to 1,538 units. The number of low-rise condo sales shot up 140 per cent to 1,610 for the month, and 7,291 resale houses were sold, up 77 per cent.

“We had an amazing month in February,” says Rob Montemarano, vice-president of Lakeview Homes. “At our Cathedral Park project in Markham, we have 130 homes in phase two and sold 100 of them – 85 in just one weekend. What we are seeing are people who might normally have gone to the resale market come to us for a new home because that market is so competitive now that they can’t find what they need.”

Finding a new single-family home is proving an equal challenge, says Joseph Bozzo, new homes sales manager at Spectrum Realty Service. Spectrum represents 34 new-home projects across the GTA.

“What’s really of great concern is that the entire GTA only had 7,493 unsold low-rise homes in inventory at the end of February, or only about a third of what we normally have,” he says. “I think maybe there is a fair amount of panic buying going on right now.”

Anyone looking for a single family home in which to raise the kids – a place with a backyard big enough for a jungle gym – may well be justified in panicking. Every indication is that affordable single family homes are about to go the way of 50-cent coffees and filling up your gas tank for $20.

Whether through well-thought-out policy or the exigencies of municipal finances, the GTA just does not have enough municipally approved building lots to come anywhere close to meeting buyer demand.

“In Oakville, where there have not been any new lots come on stream in a very long time, I know that there are about 2,000 of them north of Dundas Street ready to go,” says Mr. Bozzo. “The hold-up is the city will have to provide schools, recreation, community centres and all those essentials for another 2,000 families. It already imposed development levies that are so high many major builders are reluctant to start projects there, but the city has to pay for those necessary services and the money has to come from somewhere.”

The upshot is that Oakville will probably release lots in dribs and drabs. Mr. Bozzo says he expects perhaps 200 to 300 to come on stream this fall.

Mr. Montemarano says Lakeview has a similar problem. It has been waiting two years for Cambridge, Ont., to give the okay for 1,500 building lots.

“Six or seven years ago, Lakeview would do five projects a year. The industry would build maybe 28,000 to 32,000 new homes a year,” he says. “Now we are down to just three projects and the industry turns out maybe 16,000 to 17,000 new homes a year.”

“I can easily see the day coming when we are forced to do just one or two new projects a year,” he adds. “We have a land bank of 3,800 building lots right now, but we just can’t get them on stream.”

The shortage of land in the face of fierce demand, coupled by dramatically rising municipal development levies is not only driving prices up, it is also driving builders out of business, Mr. Montemarano says. “Six or seven years ago there were 260 builders active in the GTA; today there are just 160,” he says.

If the Toronto area hopes to be able to meet the demand for affordable family housing, then municipalities, builders and home-buyers are going to have to focus on innovative new forms of family housing such as stacked townhouses, says Mr. Bozzo.

That also means an end to the dream of private backyards and an acceptance of shared public spaces for recreation and relaxation, he says.

“That long-held dream of a home on a 50- by 120-foot lot is getting well beyond the reach of the average family,” he says.

Last Day Under Old Self-Employed Rules

April 08, 2010

Last Day Under Old Self-Employed Rules
New guidelines for insured stated income mortgages take effect tomorrow.

CMHC, Genworth Canada, and AIG United Guaranty will have a few key guideline differences:

CMHC: Will only make their stated income program available to those who have been self-employed no more than three years. CMHC will have no minimum self-employed tenure requirement, but they do want to see at least two years employment in same field

Genworth: Will not impose any limit on the number of years someone may be self-employed. However, they do require that applicants be self-employed for a minimum of two years. They will consider exceptions for those self-employed for 1+ years, on a case-by-case basis.

AIG: Will also not impose a limit on the number of years someone may be self-employed. AIG requires a minimum of two-years self-employment. AIG seems to be more rigid on that 2-year minimum.


The above guidelines do not apply to self-employed applicants who prove their income using traditional methods (i.e. tax returns, NOA's, financial statements, etc.).

Sidebar: With respect to rental income, Genworth will deviate slightly from CMHC on 2-unit owner-occupied properties in Victoria and Greater Vancouver. Genworth will allow 100% of the gross rental income to be included in the borrower's gross annual income (as opposed to CMHC’s 50% guideline).

Posted at 10:26 AM in Mortgage Broker News | Permalink

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