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

Tuesday, December 13, 2011

Household debt hits new high

Canadian households are still borrowing more than they can afford, despite continued warnings from the Bank of Canada, the latest data from Statistics Canada showed Tuesday.

The ratio of credit market debt to personal disposable income rose to a new record high of 150.8% in the third quarter of 2011, the third straight quarter the figure has gone up.

Credit market debt factors in consumer credit, mortgages and loans but not debts on small businesses and accounts for 99% of liabilities.

The only blip was a slight 15 basis point decline between the third and fourth quarters of 2010.

“The greatest risk to the domestic economy is household debt,” Bank of Canada Governor Mark Carney said in an interview with the CBC on Tuesday morning, again sounding the alarm bell on excess borrowing.

Canadian household net worth also declined 2.1% to $6.2-trillion, the second straight quarterly decline due largely to losses in personal equity holdings and pension assets.

Per capita household net worth dropped to $180,100 from $184,700 the quarter before.

Combined, this marks the sharpest drop in household net worth since the fourth quarter of 2008, StatCan said.

The ratio of credit market debt to asset and debt to net worth both reached record highs of 20.1% and 25.2% respectively in the quarter.

Overall credit market debt is now approaching $1.6-trillion, led by a $25-billion increase in mortgage debt.

Mortgage debts have crossed the $1-trillion threshold while consumer credit has also risen to $448-billion, StatCan said.

“The rising indebtedness of Canadian households has weakened their overall financial position and increased vulnerability to adverse economic shocks such as decline in home prices or a deterioration of labour market conditions,” David Onyett-Jeffries, economist with RBC Capital Markets, said in a note.

However, the pace of credit growth is moderating, growing only 1.6% in the third quarter compared with 1.9% in the previous one.

“We expect credit growth to continue to moderate over the forecast horizon,”Mr. Onyett-Jeffries said. “Our expectation of continued improvement of Canadian labour market conditions, only a modest cooling of real estate markets and the eventual stabilization of the financial markets will go some way to improving household finances and help to ensure that these risks do not materialize.”

At the same time, Canada’s total holdings in net foreign debt are up 10.5% to $237-billion, a $22.6-billion increase blamed largely on declining foreign equity holdings.

In his speech Monday, Mr. Carney warned about the dangers of foreign debt as Canada’s current account has returned to a deficit, funded largely by foreign purchases of Canadian bonds.

“Much of the proceeds of these capital inflows seem to be largely going to fund Canadian household expenditures, rather than to build productive capacity in the real economy,” he said. “If we can take one lesson from the crisis, it is the reminder that channeling cheap and easy capital into unsustainable increases in consumption is at best unwise.”

.Posted in: Economy, Personal Finance Tags: Canada, debt, debt to disposable income, domestic debt, Economy, household debt, mark carney, Statistics Canada
Eric Lam Dec 13, 2011 – 9:25 AM ET | Last Updated: Dec 13, 2011 11:16 AM ET
Article Link: http://business.financialpost.com/2011/12/13/canadian-debt-climbs-to-new-highs-statcan/

Monday, December 5, 2011

Canadian Investors gouged by fees

Canadian investors pay higher fees than those in other countries, but the industry disputes the facts and says there is a cost to getting investment advice

Nobody likes paying fees. Yet those pesky charges seem to be attached to every service - particularly anything related to money management - that Canadians rely on to save and grow their nest eggs.

The Canadian Labour Congress [http://www.canadianlabour.ca/home] has developed an online calculator [http://www.canadianlabour.ca/action-center/retirement-security-everyone/straight-talk-rrsp-and-mutual-fundmanagement-fees] that shows Canadians just how much of their savings can be gobbled up by management fees ranging from a very low 0.5 per cent to a very high 2.5 per cent. The CLC accuses the financial management industry of "gouging" Canadian investors.

"Management fees can have a huge effect on the outcome of savings," said CLC president Ken Georgetti, adding that Canada has among the most costly expenses in the world.

According Chicago-based Morningstar Inc. [http://www2.morningstar.ca/homepage/h_ca.aspx?culture=en-ca], an independent investment research company, Canada had the highest mutual fund costs of 22 countries surveyed, though
the industry here disputes its findings.

Morningstar's report [http://corporate.morningstar.com/us/documents/researchpapers/globalfundinvestorexperience2011.pdf] released earlier this year gave Canada a failing grade on fees and expenses, which ring in at up to 2.31 per cent, compared with 0.94 in the United States.

"Among the 22 countries in this survey, Canada has the highest annual expense ratios for equity funds, the third highest for bond funds, and tied for the highest for money-market funds," the report noted.

The Canadian Foundation for Advancement of Investor Rights or FAIR Canada [http://faircanada.ca] complained that under the current regulatory environment, there's limited price competition and demanded that Ottawa look into the high
cost of investing. Federal Finance Minister Jim Flaherty said he would ask the Senate national finance committee to investigate, and FAIR hopes it will be invited to make its case early next year.

Marian Passmore, FAIR's associate director, noted that economies of scale is not an explanation for the disparity as countries smaller than Canada don't have such high fees.

"Given the low rates of return right now, it's obviously of concern to investors," she said. "People don't understand that over time, it eats into to your investment and savings."

The CLC spells out exactly what various management fees do to an investment. The organization shows what happens to an initial investment of $10,000 at a 5-per-cent annual compounded rate of return once various management fees are attached.

Take the low 0.5 per cent management fee on a $10,000 investment:

After 10 years:

The investor has $15,570.43; the money manager, $718.51

After 45 years:

The investor has $72,066.60; the money manager, $17,783.48

Compare that to a high, 2.5-per-cent management fee on a $10,00 investment at the same rate of return:

After 10 years:

The investor has $12,969.84; the money manager, $3,319.11.

And 45 years:

The investor has $29,493.18; the money manager, $60,356.90.

Mr. Georgetti calls it a "scandal," especially when one considers that only 39.2 per cent of workers were covered by registered pension plans in 2009, according to the latest figures available from Statistics Canada. That leaves many
Canadians on their own to save for when they're not working through Registered Retirement Savings Plans, mutual funds and the like.

The CLC, which represents 3.2 million workers, advocates improving the Canada Pension Plan [http://www.servicecanada.gc.ca/eng/isp/cpp/cpptoc.shtml] as a more efficient way to save for retirement. It argues that
the CPP Investment Board [http://www.cppib.ca] boasts a really low management fee in part because of the size of the fund. (CPPIB doesn't disclose its fee as a percentage, but as of March 31, 2011 its external management fee was $500-
million on the $148.2-billion it managed.) The federal New Democrats lobbied to increase CPP benefits, which could hike premiums, but an overhaul isn't imminent. Ottawa was going to look into it, but instead recently introduced voluntary
Pooled Registered Pension Plans [http://www.fin.gc.ca/n11/11-119-eng.asp] to cover millions of Canadians without workplace pensions. Changes to CPP require two-thirds of provinces representing two-thirds of the population to agree
and not all provinces are on board anyway.

It's too bad, Mr. Georgetti said: "The most efficient way to make sure Canadians have basic, adequate pension is to lift the CPP up."

The Investment Funds Institute of Canada [http://https://www.ific.ca/home/homepage.aspx], which represents the investment funds industry, including fund managers, disputes the Morningstar analysis of management fees as well as
the CLC's position.

Jon Cockerline, the institute's director of policy and research, said the Morningstar report doesn't compare "apples to apples" and pointed out that management fees are disclosed and comparable to products available in other countries.

"There's substantial value embedded in that advice component," Mr. Cockerline added.

The institute issued a report [http://https://www.ific.ca/content/document.aspx?id=6921&langtype=1033]in November which found that the net worth of individuals, taking into account age and income, is almost three times higher for those who receive investment advice ($555,447) than those who don't ($191,743).

Mr. Cockerline also said the average mutual fund rate of return is higher than 5 per cent that the CLC assumes in its online calculator and that's after the management fee has been deducted.

"It would be unfortunate if investors were guided to the view that a government program could be counted on to provide a better retirement outcome than plans that are built individually for an investor through an adviser," Mr. Cockerline said.

Barbara Amsden, a director with the Investment Industry Association of Canada [http://www.iiac.ca/welcome-toiiac/about-us], said while management fees aren't always transparent in Canada, things are moving that way with new
requirements [http://www.osc.gov.on.ca/documents/en/securities-category8/csa_20110224_81-321_early-fund-facts.pdf]from securities regulators.

Ms. Amsden also noted that investing should be balanced to include Retirement Savings Plans to give people flexibility. Canadians just need to be more informed about the fees attached to their investments.

"Absolutely, Canada Pension Plan is the most secure way," she said, "But what are the things that you potentially lose by going all in the Canada Pension Plan and not in the RSP?"

Editor's Note: The seventh paragraph of this blog post has been changed from an earlier version, which contained inaccurate information relating to the Senate national finance committee.

December 5, 2011
Canadian investors 'gouged' by fees
By Dawn Walton
Globe and Mail Blog
Link: http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/canadian-investors-gouged-by-fees/article2257327/

Friday, September 30, 2011

Fixer-upper or money pit?

Joyce was sure her handyman’s special was a steal. But $30,000 in repairs later, it’s becoming a nightmare

By Romana King | From MoneySense Magazine, Summer 2011

The “fixer-upper.” The “handyman’s special.” The home that needs “tender, loving care.” Some buyers run in the other direction when they see a listing containing those phrases. The handyman buyer starts salivating at the thought of big savings.

After all, if you’re good with your hands you can buy a fixer-upper for a song and transform it into the home of your dreams. It’s a chance to create a custom home that you’d never be able to afford otherwise. At least, that’s how it works in theory.

Problem is, lurking among those handyman specials are the dreaded money pits. These homes have massive hidden problems that suck your bank accounts dry before you even get started on the work you were intending to do. To save your finances, and your sanity, here are four tips on how to spot—and avoid—the money pit.

Beware rock bottom prices
For Joyce Wayton and her husband Craig, that low, low price was the reason they bought their four-bedroom, two-bathroom home in Lower Sackville, N.S. Located in a neighbourhood where homes usually sell for $250,000, the Waytons snapped up their bungalow for only $120,000. (We changed their names to protect their privacy.)

They knew the home had issues: for almost 15 years it had been rented out and, as Joyce says, “it was not well-maintained.” There were broken windows. The garden was overgrown and the kitchen and bathrooms needed updating. But it had potential, says Joyce. “I could definitely see our kids growing up in that house.”

Initially, the Waytons planned to gut the basement and update the main floor, eventually adding a second-floor addition to accommodate their four young children. They had a modest budget of $40,000, but they were willing to do a lot of the work themselves.

Once they moved in and started opening up walls, however, their plans got shelved. Almost immediately they found knob and tube wiring throughout the house. Then they discovered there was no insulation in their ground-level basement. The fireplaces were inoperable. Worse, the basement demolition exposed a big crack in the foundation that ran the length of the house.

Charles Sezlik, an Ottawa-based realtor, says the too-good-to-be-true price that the Waytons paid should have raised big red flags. If a home is much cheaper than other similar homes in the area, “you need to dig to learn what’s wrong with the place,” he says. At the end of the day, dramatically underpriced homes usually mean big problems.

Get it inspected
Joyce confesses they didn’t bother having the home inspected by a professional before they bought. Instead, they relied on her husband’s construction experience. But even if you have some knowledge of home building and repair, it’s worth paying for an objective outsider’s second opinion, says Sezlik.

If you’re looking at a real fixer-upper, he suggests finding a home inspector with a background in structural engineering. “You’ll pay more up front but you’ll save thousands in the long run,” he says, because such an inspector is more likely to find hidden, expensive-to-fix structural issues.

The biggest money-sucking problems to look for during the inspection include foundations built on mixed granular, pervasive musty smells (which indicates a mold-infestation), and foundation cracks that appear to have widened over time.

Is your fix-it-up budget realistic?
You can’t tell if a fixer-upper is a good deal unless you know how much it will cost to turn your diamond in the rough into a gem, so it’s important that you get that estimate right. Your home inspector’s report, along with various online tools, can help you get a grip on what your renovation budget should be. But these tools can’t estimate the complexity of a project—and complexity adds to cost.

So once you’ve created a budget, experienced renovators say you should add another 50% to it, as a contingency fund. Then add that larger budget to the cost of your fixer-upper. If the total is more than the price of similar homes in the area that have already been renovated, it may not be a deal.

Know when to walk away
If, like the Waytons, you have already bought a place and it’s slowly dawning on you that you’ve bought a money pit, at some point you have to decide whether to keep moving forward.

The key here is to be honest with yourself. If you have a history of being overly optimistic about how much it would cost to complete various renovations, get a professional in to help cost it out. Then ask yourself: Do you really have enough time, patience and money to do the renos you need to do? If not, you might want to put that money pit right back on the market.

The Waytons had hoped to do all the work they needed on their house, plus add a second floor for their kids, for $40,000. But they ended up spending $30,000 just to fix unexpected plumbing, electrical and roofing issues. Eventually, they realized there was no way they were going to get the extra bedrooms they needed. So they’ll spend another $15,000 completing the last of the necessary repairs, then list their home for sale. If they’re lucky, sighs Joyce, they’ll at least break even.

By: Romana King | From MoneySense Magazine, Summer 2011
Article Link: http://www.moneysense.ca/2011/09/30/fixer-upper-or-money-pit/

Saturday, September 17, 2011

Should I go Variable for Fixed?

The Fixed / Variable Conundrum

"To get anywhere, or even to live a long time, a person has to guess, and guess right, over and over again, without enough data for a logical answer." — Robert Heinlein

Mortgage rates are doing things that few people expected one year ago. Variable discounts have been sliced in half and those cunning banks are persuading us to pay disproportionately high fixed rates despite near-record-low funding costs.

Looking forward...

Read More here:

Thursday, September 8, 2011

Most Canadians are Living Paycheque to Paycheque

Most workers living 'close to the line': survey

Majority would be in difficulty if paycheque were delayed even one week, payroll association says. A majority of Canadian employees are living paycheque to paycheque and report they would be in financial difficulty if their pay were delayed by even a week, according to a new survey on the financial health of the country's workers.

The survey by the Canadian Payroll Association also found 40 per cent of Canadians now report they expect to retire later than they had previously planned, acknowledging they are not saving enough for retirement.

The main reason for low savings is that most workers are living "close to the line," the CPA reported, with 57 per cent reporting they would be in difficulty if their pay were delayed by even a week. That number jumps to 63 per cent for
workers aged 18 to 34, and to 74 per cent for single parents.

The regions with the highest percentages of people living paycheque to paycheque were Atlantic Canada, at 64 percent, and Ontario, at 60 per cent, which the CPA said could be the result of their slower recovery since the last

Almost three-quarters of the 2,070 employees who responded to the CPA online survey this summer said they have saved less than a quarter of their retirement goals.
"This is particularly troubling when you realize that 71 per cent of the respondents are over the age of 35, with the bulk in their main saving years between 35 and 54," said CPA chairman Dianne Winsor.

The survey found 63 per cent of workers estimate they will need more than $750,000 in savings to retire, and 38 percent estimated they need over $1-million. However, 50 per cent of workers also reported they are saving less than 5
per cent of their net pay, and 40 per cent reported they were not even trying to save more than that amount.

The CPA report said the good news is that workers appear to understand what they could do to improve their financial situation, saying they should spend less, pay off credit card debt, reduce their mortgage and contribute more to
retirement savings. Almost 70 per cent said their first or second priority would be to pay off their debt if they won $1-million from a lottery.

Posted: September 8, 2011
Title: Most workers living 'close to the line': survey
Globe and Mail Update
Link: http://www.theglobeandmail.com/globe-investor/personal-finance/most-workers-living-close-to-the-line-survey/article2157089/

Wednesday, September 7, 2011

Sept 7 2011 - Variable Rate Remains Constant at 3%

No Change to Rates

The Bank of Canada kept Canada’s key lending rate at the same place it’s been for a year: 1.00%.

As a result, variable-rate mortgage holders can expect prime rate to also stay put at 3.00%.

The BoC said this about its decision:

•“In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.”
•“Core inflation is expected to remain well-contained…”
•“Largely due to temporary factors, Canadian economic growth stalled in the second quarter.”
•“The Bank continues to expect that (domestic) growth will resume in the second half of this year…”
•“…U.S. growth will be weaker than previously anticipated.”
•“Growth in emerging-market economies has been robust…”
The main takeaway here is that the BoC is no longer talking tough about rate increases, as it has recently. That supports the market’s thesis that rates will remain lower for longer.

As always, the Bank of Canada’s overriding goal is to keep inflation near 2% “over the medium term.”

Its next interest rate meeting is October 25. The financial markets expect no rate increase then either. In fact, traders are currently pricing in a 20% probability that the Bank of Canada will cut rates at this meeting (that number is highly volatile and may change by the time you read this).

The benchmark 5-year bond (which leads 5-year fixed mortgage rates) is trading at 1.435%, up 4 basis points on today’s news. It sits just over 13 bps above its all-time low of 1.302%.

Posted: Sept 7, 2011
Author: Rob McLister, CMT
Website: http://www.canadianmortgagetrends.com
Article Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/09/no-change-to-rates.html

Monday, August 29, 2011

Most Canadians carry debt longer than they expected

If experience is any indication, many Canadians could find themselves in debt years longer than they originally expected, according to a new poll issued Monday by CIBC CM-T.

The poll, conducted for CIBC by Harris-Decima, reveals that, on average, Canadians holding some form of debt today feel they will be debt-free by age 55.

But the poll also found that only about 35 per cent of Canadians currently in the 55-to-64 age group — or just over a third — are actually debt-free.

The findings appeared to hold true for all age groups polled.

For example, Canadians 25 to 34 on average told the pollsters they expected to be debt-free by age 44. However, the poll found that only 18 per cent of those now in the 45-to-54 age group were, in fact, debt-free.

“Being debt-free is a long-term financial goal for many Canadians, and this poll suggests Canadians are actively looking ahead to the stage of life they will be in when they successfully pay off all of their debt,” said Christina Kramer, executive vice-president, Retail Distribution and Channel Strategy, CIBC.

She notes, however, that this disparity between expectations and results suggests that Canadians need to remain focused on a debt repayment strategy.

“A key finding in this poll is that the passage of time alone is not enough to achieve the goal of paying down your debt,” Ms. Kramer said. “Canadians with a goal of being debt-free would benefit from having a realistic plan in place that includes extra payments towards their debt and a strategy to minimize their interest costs.”

“Paying down your debt is no different from having a plan to put money away for retirement,” she added. “You need a goal and a plan to get you there, and a conversation with an adviser can help you build a strategy and start making progress towards being debt-free.”

Meanwhile, the poll also disclosed that many Canadians see themselves as having debt for the long term, with eight per cent of poll respondents believing they will be into their 70s before their debts are paid off and 10 per cent of respondents saying they will never be debt-free.

Albertans saw themselves as being debt-free at age 52 on average, the youngest age in the poll. Atlantic Canadians and residents of British Columbia were less optimistic, targeting age 58 to be debt-free, on average.

“It can be tempting to believe that 10 years from now you will be better off financially and will have paid down your debt considerably, but the reality is that it takes a slow and steady approach to both debt management and savings to make progress towards your financial goals,” Ms. Kramer said.

The telephone survey of 2,008 Canadians between June 30 and July 10 is considered to have a margin of error of plus or minus 2.2 percentage points 19 times out of 20.

© 2011 The Globe and Mail Inc. All Rights Reserved.
Canadians carry debt longer than expected
Toronto— The Canadian Press
Published Monday, Aug. 29, 2011 8:26AM EDTLast updated Monday, Aug. 29, 2011 11:45AM EDT
Article link: http://www.theglobeandmail.com/globe-investor/personal-finance/canadians-carry-debt-longer-than-expected/article2145478/

Friday, August 12, 2011

You want to refinance to invest, but what will your mortgage penalty be?

Interest rates are low, and going lower. Most savvy investors are refinancing their homes, pulling out the equity and using it to invest in Real Estate to become very rich. But when you refinance, there is a penalty you have to pay to break the mortgage. Is it worth it, and how do you figure out what the penalty will be?

Read More Here: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/interest-rate-differential-ird.html

The Gov. now has a major problem with an aging population

Finance Minister Jim Flaherty and the highest levels of the public service are immersed in a flurry of closed-door talks aimed at tackling the rising costs of health care and retirement benefits in the face of a shrinking number of working-age taxpayers available to foot the bill.

Internal government documents obtained by The Globe and Mail show Canada’s aging population is no longer a problem on the horizon, but rather one that will impact the federal government this year. It's a challenge Ottawa is now discussing more openly and with added urgency.

Prepared by officials at Human Resources and Skills Development Canada and Finance Canada, the report is full of alarming statistics. It also lays out several measures the government could take to limit the impact, including incentives to boost fertility rates, bring in younger immigrants and encourage Canadians to work longer.

“A Canada where seniors outnumber children is uncharted territory,” the report states.

Read More Here: http://www.theglobeandmail.com/news/politics/ottawa-starting-to-tackle-rapidly-aging-workforce-with-renewed-urgency/article2127263/

Wednesday, August 10, 2011

Fixed and Variable Rates might go down!

There is now talk that the fixed and variable rates might go down instead of up. One lender has already dropped their 5 year fixed rate in to the low 3% area. Others may follow. The Bank of Canada may actually decrease the prime rate on September 7th instead of increasing it. Economists seem to be split on this, but it appears to be a growing theory.

Read more here: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/08/180-degree-change-in-rate-views.html

Alex Kruzic

Tuesday, July 19, 2011

BoC Leaves Key Rate Untouched at 1.00%

The Bank of Canada startled no one today by leaving its key lending rate unchanged at 1.00%.

The BoC has been in a holding pattern for almost 10 months now, keeping prime rate at 3.00%—to the benefit of variable-rate mortgage holders.

A Reuters survey of 37 economists conducted prior to this announcement was unanimous in predicting today's rate hold.

All eyes quickly focused on the BoC’s official statement. Analysts say it included more hints of a rate tightening mindset. Here are highlights from that report:

•The BoC said that some monetary stimulus "will be withdrawn." It's previous wording was "(will be) eventually withdrawn."
•"Total CPI inflation is expected to remain above 3 per cent in the near term"
•"Core inflation is slightly firmer than anticipated"
•"Core inflation is now expected to remain around 2 per cent over the projection horizon."
•"High" commodity prices and "persistent excess demand in major emerging-market economies are contributing to broader global inflationary pressures."
•"(Canadian) Household spending remains solid and business investment robust."
•"Financial conditions in Canada remain very stimulative"
•"...the Bank expects growth in Canada to re-accelerate in the second half of 2011."
•Canada's economy will return to "(full) capacity in the middle of 2012."
•"...there are clear risks" posed by the "European sovereign debt crisis"
•Pending continued economic expansion and absorption in "the current material excess supply in the economy...some of the considerable monetary policy stimulus currently in place will be withdrawn."
Despite awakening inflation and growing employment in Canada, economic risks are not dissipating. Those risks include a fragile North American economy, strong loonie and European debt concerns to name a few. These factors combined have pushed back rate hike expectations until late 2011, or even the first half of 2012.

But some, like Citigroup Capital Markets, are still forecasting higher rates by October.

In a report released Monday, Citi analyst Todd Elmer forecasts the BoC will double its key lending rate to 2.00% by the end of the first quarter in 2012. Elmer said current expectations put too much weight on downbeat external factors and underestimate Canada’s consistently buoyant economic performance.

The financial market has thus far disagreed with economists like Elmer.

One proxy for market sentiment is trading in overnight index swaps (OIS). OIS trade based on expectations of interest rate changes. As of yesterday, they weren't fully pricing in a 1/4 point rate hike until May 2012. Those expectations will shift closer to the beginning of 2012 after today's more hawkish tone in the BoC's statement.

BNN analyst, Linda Nazareth, suggests that economists may soon have to adjust their forecasts to keep up with market expectations. Within a month or so, she says economists may take rate hikes "off the table" for 2011.

Three BoC rate meetings remain in 2011. The next interest rate decision will be on Sept. 7.


Posted by: Steve Huebl and Robert McLister, CMT
Posted on: July 19, 2011
Article Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/07/boc-leaves-key-rate-untouched-at-100.html
Article Web Site: www.canadianmortgagetrends.com

Monday, July 18, 2011

Low rates push Canadian banks to fight for profit

Frugal Canadian customers, low interest rates and stiff competition are putting a squeeze on the profits from loans made by the country’s big banks, a trend that’s likely to persist into 2012.

Canada’s five major banks all reported a drop in net interest margins in their domestic operations last quarter and the slide isn’t expected to reverse any time soon. Banks begin reporting third-quarter results in August.

Net interest margins, or NIMs, are a major component of the billions in profits Canadian banks earn each quarter, so margin trends affect the portfolios of millions of investors.

“What we’re going to see is there will be continued pressure this year,” Bank of Nova Scotia’s head of Canadian banking, Anatol von Hahn, said in an interview. “My guess is the first or second quarter of our bank year — January to April, that period — I think we will see some movement on interest rates and that will help us in terms of getting the NIMs up.”

The net interest margin is the difference between what a bank charge borrowers for loans and pays out to customers on deposits. Typically, banks borrow cheaply at the short end of the yield curve — usually through deposits — and then lend longer-term loans at a higher rate.

Low interest rates traditionally boost bank profits by making loans affordable to to a wider number of customers. But the ultra-low interest rates brought in by the Bank of Canada after the global financial crisis have skewed the equation.

Bankers say low interest rates are encouraging customers to stick with less profitable variable-rate mortgages rather than higher-margin fixed ones. And rates aren’t seen rising soon.

A Reuters survey published on Wednesday found forecasters do not expect the Bank of Canada to raise interest rates until the fourth quarter. The central bank’s target overnight rate is 1 percent, where it has been since last September.

Many banks are now trying to make up in volume what they are losing on the spread.

“Your revenue is your spread times assets, so you try to get more assets,” said Peter Routledge, a bank analyst at National Bank Financial in Toronto.

But growing loans in Canada isn’t easy. There are only five major banks in the country, all with coast-to-coast branch networks and deep and stable customer bases. With few people willing to change banks for their existing needs, lenders are left jostling for a dwindling number of new loans and deposits.

“Consumer lending in Canada is a very competitive environment already, and when there are fewer loans out there to be had, the competition is only going to grow to get those loans,” said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.

Whether the banks will try to win customers by offering lower prices via cheaper loans is hotly debated. Canadian banks avoided much of the global financial crisis because they did not follow their U.S. counterparts down the sub-prime lending black hole, and still sound reluctant to go that way.

“Pricing has not been part of our strategy … that’s a dangerous game,” said von Hahn. “You have to be competitive, but we are not ones that compete on price. We also don’t think that that is sustainable.”

That leaves the banks fighting to differentiate themselves with better service, while accepting that stiff competition means margins will remain under pressure until rates rise.

“We continue to have a very competitive environment in Canada and that can certainly affect margins,” Bank of Montreal spokesman Ralph Marranca said in an email. “Going forward we think that margins will continue to have … stable to downward pressure.”

The two largest banks, Royal Bank of Canada and Toronto-Dominion Bank, declined to comment on the outlook for their net interest margins. The two showed the least compression in the second quarter, leading analysts to speculate they either made good bets on yields ahead of time, or simply delayed their pain until the third quarter.

Given domestic margin pressure, some analysts now favor banks with strong international operations or business lines outside of retail banking to make up the softness at home.

“We’ve got a ’buy’ on TD and RBC — they are international banking players, as is Scotiabank, no question,” said Fehr, noting TD’s strong U.S. retail presence and a focus on global wealth management at RBC. Scotiabank is Canada’s most international bank, with operations across Latin America.

Longer term, many think rising interest rates are the best hope, as they could quickly drive Canadians into higher-margin loans.

“There will be a herd mentality,” said Scotiabank’s von Hahn. “If there is a feeling that this is the beginning of the rise, I think we will see it quite quickly. Many of those in variable rates will decide to go into fixed rates and the margins on the fixed rates are a lot more.”

© Thomson Reuters
Reuters Jul 18, 2011 – 8:00 AM ET | Last Updated: Jul 18, 2011 8:49 AM ET
Link: http://business.financialpost.com/2011/07/18/low-rates-push-canadian-banks-to-fight-for-profit/

Tuesday, July 12, 2011

Canada condo boom may avoid crash | Money | Toronto Sun

TORONTO - Canada’s booming condominium market, which has filled the skylines of its biggest cities with cranes and prompted a warning from its central bank, may well avoid the type of crash that has hobbled the industry in the past.

While inventories of unsold condominiums are trading well above historically averages, industry executives and analysts say demographics, immigration and limited land in the biggest markets all provide long-term support.

With C$500,000 ($515,464) fixer-upper homes out of reach for many Vancouver and Toronto home buyers, condos also remain their only route to property ownership.

“I get asked with all those cranes in the sky, is there going to be a glut of supply? But if you look at the city planners’ projections for demand versus projects on stream, we still don’t have enough condominium projects underway in our big cities,” said Phil Soper, chief executive of Royal LePage, one of the country’s biggest real estate brokerages.

The condominium boom is part of a broader Canadian housing sector surge that followed the global financial crisis, in sharp contrast to the still struggling U.S. market.

After taking a brief hit, home prices and sales jumped as the Bank of Canada cut borrowing costs to a record low. Canadian banks, which escaped the crisis largely unscathed, were easily able to keep loans flowing.

Data Monday showed Canadian housing starts for June surged well past market expectations. The multiple-unit dwellings category — mainly condominiums — accounted for the majority of starts in urban areas.

Supply is growing. BMO Capital Markets recently noted inventory of completed but unoccupied multi-dwelling units at 12,672 units in May, around historical highs, compared to 4,757 for single-family homes.

Elevated levels of unsold condos were one factor prompting Bank of Canada Governor Mark Carney to warn last month about “the possibility of an overshoot in the condo market in some major cities.”


But analysts said the building surge reflects changing demographics and evolving cities. In addition to first-time homebuyers, condos have also become popular for retiring baby boomers.

Immigration has also underpinned the rapid build-up. The booming market is concentrated in the heavily populated and pricey cities of Vancouver and Toronto, destinations for many of the more than 200,000 people who move to Canada each year.

Analysts attribute part of the condo boom in Vancouver and Toronto to physical and regulatory land restraints, which have changed the mix of housing to more stacked high-density communities from the traditional single-family home.

“It has shift over the last several years. Now it’s about 50/50, which some people are concerned about. I can’t say I am,” said Robert Hogue, senior economist at Royal Bank of Canada.

“I just see this as a reflection of where our major cities are at in their own life cycle.”

Recent Royal LePage data actually showed the pace of price gains in standard condominiums paled against detached bungalows and two-story homes.

Banks and condo developers, particularly in Toronto, also appear to have learned hard lessons from the 1980s, when many built with insufficient regard for demand and got slammed as interest rates climbed.

Analysts say very few shovels these days break ground until the developer has sold at least 70% of the project and has secured bank financing.

“It’s a very well-disciplined supply-side of the equation,” said George Carras, president of RealNet Canada, which tracks commercial and new home projects.

Carras noted building high density housing is a natural progression for a growing city with limited room to expand outward.


Still, many in the industry are wary about the outlook for interest rates. The Bank of Canada tightened three times last year. Forecasters are divided on whether the next rate hike will come this year or next. 3/8

Carney himself and many industry executives predict the broader housing sector will cool as demand is eventually dampened by higher borrowing costs and other factors.

But some warn the housing boom of the past few years will not end well — which could hit the high-growth condominium sector particularly hard.

David Madani, Canada economist at Capital Economics, expects a cumulative 25% decline in the national average price over the next three years as income and population growth fail to keep pace.

“There’s a really large disconnect between house prices and the fundamentals. We don’t think that this is sustainable,” he said.

First posted: Monday, July 11, 2011 3:41:07 EDT PM
Source Link:
Canada condo boom may avoid crash | Money | Toronto Sun

Thursday, July 7, 2011

House prices may have hit the top

After six strong months, 'a slower second half of the year is expected,' a market update says. House prices have likely peaked after a strong six months, Royal LePage Real Estate Services said Thursday in a market update.

While prices saw big year-over-year price increases in the second quarter, "high house prices are concealing early signs of a moderating market."

"The market has seen its near-term peak in house price appreciation, and a slower second half of the year is expected," the real estate brokerage said in a statement.

Still, the national average price is expected to end the year 7.7 per cent higher than they started. At the end of the second quarter the average price for a standard two-storey home rose 6.1 per cent to $390,163, a bungalow rose 7.5 per cent to $356,625 and a condo rose 3.5 per cent to $238,064.

"In many of Canada's regional markets, we saw house prices appreciate at a significantly faster rate than wages and salaries, and this trend cannot continue indefinitely," said Phil Soper, chief executive officer.

Regional Market Summaries

Halifax: "Healthy year-over-year price gains across all three housing types surveyed. Strong local economy coupled
with low interest rates has driven demand in the region. At the end of 2011, average house prices in Halifax are
forecast to be 3.3 per cent higher than 2010."

Montreal: Detached bungalows and two-storey houses posted strong year-over-year gains - higher than 7 per cent in
the second quarter, while standard condominiums rose modestly by 1.9 per cent. At the end of 2011, average house
prices in Montreal are forecast to be 7.0 per cent higher than 2010. "

Ottawa: "Year-over-year price appreciation across all housing types surveyed. An average standard two-storey home
rose 5.2 per cent year-over-year to $371,500. Despite modestly rising inventory, at the end of 2011, average house
prices in Ottawa are forecast to be 5.0 per cent higher than 2010."

Toronto: "Seller's market witnessed strong year-over-year price appreciation. Price gains ranged from 4.7 per cent to
6.1 for the housing types surveyed. Low inventory coupled with low interest rates continue to drive real estate prices.
Lack of inventory was cited as the main reason for reduced market activity."

Winnipeg: "Confidence in the local economy has brought optimism to the market and is reflected in the real estate
market's performance. Detached bungalows rose 7.5 per cent to $281,125, while condominiums rose 6.6 per cent. At
the end of 2011, average house prices in Winnipeg are forecast to be 6.0 per cent higher than 2010."

Regina: "The largest year-over-year gain was seen in Regina, where standard two-storey homes jumped 15.6 per
cent. Detached bungalows also posted a strong 11 per cent gain. Regina's limited inventory has not been able to keep
up with the demand created by the booming local job market. At the end of 2011, average house prices in Regina are
forecast to be 12.4 per cent higher than 2010."

Calgary: "Witnessed moderate year-over-year price declines as it continues to adjust from the boom experienced in
the middle of the previous decade."

Edmonton: "Modest gains for standard two-storey homes and standard condominiums, while detached bungalows
posted a moderate year-over-year decrease. At the end of 2011, average house prices in Calgary are forecast to
increase 3.8 per cent while Edmonton house prices are expected to decrease moderately by 1.2 per cent compared to

Vancouver: "Experienced some of Canada's largest year-over-year price increases with detached bungalows rising
14.1 per cent and standard two-storey homes rising 12.0 per cent. Average prices for standard condominiums
stabilized rising 2.5 per cent. At the end of 2011, average house prices in Vancouver are forecast to be 15.4 per cent
higher than 2010. Unit sales in Vancouver, during 2011, are expected to be 6.0 per cent higher than 2010 indicating
strong market activity."

Article Link: http://license.icopyright.net/3.8425?icx_id=/icopyright/?

July 7, 2011
House prices may have hit the top
Globe and Mail Update

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Sunday, June 19, 2011

BOC’s Carney Warns of Runaway Housing Market

Bank of Canada Governor Mark Carney sounded more alarm bells last week. It was a warning about the perfect storm of rapidly rising home prices and the future vulnerabilities of homeowners when interest rates start rising.

Fittingly, Carney was speaking in Vancouver, where home prices are up a whopping 25.7% year-over-year—if you include the sales of high-end homes.

Carney noted that the average house price nationally is at four-and-a-half times the average household disposable income. This compares to an average ratio of three-and-a-half times during the past quarter century, he said. Here's a Chart. (Mortgage affordability, however, is still just slightly above normal, based on long-term averages, but that is based on current interest rates.)

While he didn’t come out and call Canada’s housing market a “bubble,” he certainly warned about the current level of “financial vulnerabilities.”

“...the ratio between the all-in monthly costs of owning a home and renting a home, as measured in the CPI, is close to its highest level since these series were first kept in 1949,” he said. As a result, “the proportion of Canadian households that would be highly vulnerable to an adverse economic shock has risen to its highest level in nine years, despite improving economic conditions and the ongoing low level of interest rates.”

Other points Carney raised during his speech:

An ample supply of housing development and high investor demand reinforces the possibility of an "overshoot" in the condo market in some major cities
“Cheap credit has been used to bid up the price of Canadian houses”
Residential investment as a whole (including new home construction, renovations and ownership transfer costs) has “consistently exceeded its long-term average share of the overall economic activity for more than seven years”
Residential investment “is now at levels that have previously proved to be peaks in Canada and, on a relative basis, in the United States,” he said. (Chart)


Posted on: June 19, 2011
By: Steve Huebl, CMT
Source: CanadianMortgagetrends.com
Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/06/bocs-carney-warns-of-runaway-housing-market.html

Wednesday, June 15, 2011

Zombie consumers leading U.S. into lost decade

The global economy is being hobbled by a new generation of zombies - the economic walking dead. The American consumer is in the early stages of an unprecedented retrenchment. In the 13 quarters since the beginning of 2008, inflation-adjusted annualized growth in consumption has averaged just 0.5 per cent. Never before in the post-Second World War era have U.S. consumers been this weak for this long.

The zombie syndrome has an important antecedent. It was, in fact, a key symptom of the Japan disease, which led to the first of two lost decades for that country. Encouraged by the government, Japanese banks kept extending credit lines for a broad cross-section of insolvent companies - postponing restructuring and inevitable failure.

Japanese productivity growth weakened dramatically as a result of the ensuing “zombie congestion”. The lifeline of policy-driven bank lending allowed bankrupt companies to hang on to excess workers and redundant capacity. But that sapped post-bubble Japan of sorely needed vitality.

It’s comparable in post-bubble America. After a record buying binge that lasted a dozen years, U.S. consumers were stretched as never before. Consumption excesses were built on the precarious foundation of two bubbles - property and credit - which have now burst.

It will take a long time for American consumers to recover from the ravages of this bubble-induced spending binge. Deleveraging, the paying down of excess debt, has barely begun. Yes, household sector debt came down to 115 per cent of disposable personal income in early 2011. While that is 15 percentage points below the peak ratio of 130 per cent hit in 2007, it remains well above the 75 per cent average of the 1970 to 2000 period.

A similar pattern is evident on the saving side. The personal saving rate stood at just 4.9 per cent of disposable income in March and April 2011. While that’s up from the rock-bottom 1.2 per cent in mid-2005, it is far short of the nearly 8 per cent norm that prevailed in the last 30 years of the 20th century.

Like Japan’s banks, Washington policymakers are doing everything they can to forestall rational economic adjustments. The Federal Reserve has conducted two rounds of quantitative easing in an effort to get consumers to start spending the wealth effects of a policy-induced rebound in equities. The Congress and the White House have embraced home-foreclosure containment programs and other forms of debt forgiveness.

The aim is to get zombie consumers to ignore their festering problems and start spending again - irrespective of the wrenching balance sheet damage they suffered in the Great Recession. The subtext is Washington condones a revival of reckless behaviour.

Unsurprisingly, U.S. consumers are smarter than U.S. policymakers. With fiscal and monetary policies on unsustainable paths, households know that these life support efforts are temporary, at best. That means they need to take matters in their own hands. Sub-par labour income generation and historically high unemployment and under-employment for 24 million Americans only underscore the need for belt-tightening.

Spending retrenchment, deleveraging, and saving are the only sustainable options for America’s zombie consumers. That’s especially the case for 77 million ageing baby boomers - the first of whom are now hitting retirement age.

Like Japan’s zombies, there is no quick end in sight to the chronic weakness of American consumers. I suspect it will take a minimum of another 3 to 5 years before debt loads and saving rates have been restored to more sustainable levels. With consumption still about 70 per cent of gross domestic product, that points to sharply reduced growth in the U.S. economy - unless America is quick to uncover a new and vibrant source of growth. Policy paralysis in Washington is hardly encouraging in that regard.

There are important implications for the global economy. A protracted shortfall of the world’s biggest consumer, as well as weakness in Japan and debt-ravaged Europe, spells lasting pressure on external demand for export-led economies. Barring a quick rebalancing towards internal demand, so-called growth miracles in the developing world could be in for a rude awakening.

Sadly, America’s zombie consumers could be more problematic for the U.S. than Japan’s zombie corporates were for the Japanese economy. At 70 per cent of GDP, US personal consumption is 3.5 times the peak share of Japan’s bubble-distorted business capital spending sector in the early 1990s. A failure to learn the lessons of Japan - especially that of post-bubble zombie congestion - leaves the US and the global economy in a very tough place for years to come. Growth hungry financial markets could be very disappointed.

Stephen Roach is a member of the faculty at Yale University, non-executive chairman of Morgan Stanley Asia, and author of The Next Asia

Stephen Roach
The Financial Times
Published Wednesday, Jun. 15, 2011 8:13AM EDT
Last updated Wednesday, Jun. 15, 2011 8:22AM EDT
© 2011 The Globe and Mail Inc. All Rights Reserved.

Tuesday, May 31, 2011

Bank of Canada Leaves Key Rate Unchanged

As was widely predicted, the Bank of Canada left its key lending rate unchanged at 1.00% for the sixth consecutive meeting.

A survey of 22 economists conducted by Bloomberg News prior to the rate decision found them unanimous in predicting this status quo.

The holding pattern on rates has been welcome news for variable-rate mortgage holders, with the prime rate remaining at 3.00% since September.

Here are highlights from the BOC’s official statement released today:

"In Canada, the economic expansion is proceeding largely as expected..."
"...Financial conditions remain very stimulative."
"To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn."
"...high (commodity) prices, combined with persistent excess demand conditions in major emerging-market economies, are contributing to broader global inflationary pressures."
"...total CPI inflation [will remain] above 3 per cent in the short term...[and] converge with core inflation at 2 per cent by the middle of 2012..."
The next interest rate decision is scheduled for July 19, though most economists believe the Bank won’t resume tightening monetary policy until September or later.

The financial markets are looking even further out. Overnight index swaps (OIS), which track Bank of Canada rate expectations, are not fully pricing-in the next rate increase until February 2012 (Source: Westpac). That's changed radically since March when the OIS market expected a July hike.

At the recent Dominion Lending Centres conference, CIBC economist Benjamin Tal said the OIS market is not a great predictor because it can change frequently, but it's better than economists' consensus forecasts.

Tal said the "normal" Bank of Canada policy rate is 3-3.5%. "The question," he said, "is whether or not this 3-3.5% is reached in 2012 or 2013.

"I think it's a 2013 story," he says.


Date: May 31st, 2011
Author: Steve Huebl and Rob McLister, CMT
Source: CanadianMortgageTrends.com
Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/05/bank-of-canada-leaves-key-rate-unchanged.html

Friday, May 27, 2011

The Sad Retirement Stats

Out of 100 people who start working at 25, by the age of 65:
1% are wealthy
4% have adequate capital saved for retirement
3% are still working
63% rely on pension, friends, relatives or charity
29% are dead

The average Canadian retires with $6500 in their bank account.

Top 10 - Why Most People Retire Poor

1. Setting money aside for college ahead of retirement

2. Believing it’s okay to wait: retirement usually seems so far away…

3. Not taking advantage of RRSP company matches

4. Accumulating credit card debt: accumulating credit card debt and paying the interest to the credit card company…

5. Counting on an inheritance: counting on other people’s money for your retirement…

6. Buying more house than you can afford

7. Neglecting insurance

8. Failing to take advantage of RRSPs

9. Investing too conservatively

10. Investing too aggressively

Tuesday, May 24, 2011

Housing affordability erodes

Housing affordability began slipping from the grip of many Canadians in the first quarter of 2011 following two back-to-back periods of improvement, RBC Economics Research said Friday.

Flat mortgage rates weren't enough to stave off the effects of rising home prices, the bank said, whereas drops in lending costs were the main source of improvement in affordability in the second half of 2010.

And brace for it: Things could get worse.

"We expect that the Bank of Canada will soon resume its campaign to normalize its interest rate policy, which will adversely impact housing affordability in Canada," said Robert Hogue, senior economist for RBC. "Continued growth in household incomes, however, will likely soften the blow."

Hogue said higher mortgage rates will lead to steady increases in home ownership costs, which will in turn flatten housing demand going forward.

The costs associated with owning a detached bungalow rose 0.7% to 40.5% of pre-tax household income while both the standard two-storey home and condominium measure rose by 0.2%, to 46.2% and to 27.7% respectively, in the first quarter.

That means the average Canadian family needs to bring in $74,100 a year to reasonably be able to pay for the average $338,700 bungalow. If you live in Vancouver, that jumps to $139,900 for a run-of-the-mill $736,000 home.

Affordability deteriorated most in Vancouver and in parts of Quebec.

Ontario, Alberta and Saskatchewan are experiencing ups and downs in ownership costs, depending on the housing type. Calgary is the cheapest major city in which to own a home in this country, relative to income.

"Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada - with Vancouver being a notable exception," Hogue said.

The forecast comes on the heels of a RE/MAX report that found a growing number of Canadian millionaires and an influx of foreign investment are driving a boom in the luxury property sector.

Leading the pack was the greater Vancouver area, where sales of luxury properties priced at $2 million and above more than doubled in the first four months, compared with the same period last year.

Gains in the high-end market aren't pulling up prices for average homebuyers however, experts said.
Figures for April, released by the Canadian Real Estate Association, showed overall sales softened in the month.

By Stefania Moretti ,QMI Agency
First posted: Friday, May 20, 2011 9:34:46 EDT AM

Wednesday, May 18, 2011

IMF sounds alarm for Greece

The IMF warned on Wednesday that Greece’s drive to shore up its troubled finances would fail unless it sharply accelerated reforms, and the ECB hit back at suggestions a debt restructuring might be the solution.

European finance ministers broke a taboo this week and acknowledged for the first time that some form of restructuring might be required to ease Greece’s debt burden, which at 150 per cent of annual output is among the highest in the world.

They have said they could ask private creditors to agree to a voluntary extension of the maturities on their Greek debt but have also made clear that the priority is to ensure an acceleration of Greek reforms.

“The program will not remain on track without a determined reinvigoration of structural reforms in the coming months,” Poul Thomsen, an IMF envoy who is monitoring Greek economic progress, told a conference in Athens on Wednesday.

“Unless we see this invigoration, I think the program will run off track,” he said, in one of the strongest warnings to Greece since it sealed the rescue one year ago.

Prime Minister George Papandreou’s government has struggled to rein in rampant tax dodging and is under acute pressure to begin selling off state assets to help Greece meet fiscal targets tied to last year’s €110-billion EU/IMF bailout.

Under its rescue terms, Athens is charged with reducing its budget deficit to 7.6 per cent of GDP this year. Thomsen said that without further measures Athens would not be able to get it much below 10 per cent.

The euro struggled to hold onto gains against the dollar and the cost of insuring Greek debt against default rose on Wednesday amid continuing talk of a restructuring.

Euro zone ministers have not spelled out how what they refer to as a “reprofiling” of Greek debt would work. Convincing private holders of Greek bonds to voluntarily accept later repayment could be difficult and require costly guarantees to avoid a hit to banks.

Such a move would buy Greece more time but not reduce its overall debt burden. Many economists believe it would be followed by a more aggressive restructuring involving “haircuts”, or forced losses, of 50 per cent or more from 2013, when policy makers have said they could opt for radical steps.

The European Central Bank, which holds up to €50-billion in Greek sovereign bonds on its own books, has warned that even a “soft restructuring” would put the stability of the euro zone at risk, reiterating that message on Wednesday.

“I’m opposed to soft restructuring because I don’t know what it means. Nobody knows what it means,” Lorenzo Bini-Smaghi, a member of the bank’s executive board, said in Milan.

Speaking in Athens at the same conference as Thomsen, ECB board member Juergen Stark warned policymakers against pursuing any form of restructuring, saying it was an “illusion” to think such a move would resolve Greece’s problems.

ECB vice-president Vitor Constancio warned of “enormous consequences” from a restructuring and said it should only be done as a last resort.

European politicians, however, are under pressure from angry taxpayers to broaden out the burden of their bailouts to include the banks that have bought up Greek debt in recent years.

But they have pledged not to force any losses on private holders of Greek debt before 2013, when a new anti-crisis facility – the European Stability Mechanism (ESM) – is due to take effect.

Before that, any burden-sharing must be done on a voluntary basis, they have said.

Euro zone countries, together with the IMF, bailed out Greece and Ireland last year, and approved a new €78-billion rescue for Portugal on Monday.

“During the crisis, it was almost exclusively European taxpayers that ultimately bore the risk of investors’ decisions. That is inadmissible,” German Finance Minister Wolfgang Schaeuble said in a speech in Brussels.

“It was right to stop financial markets from disintegrating in the past but it would be wrong to cushion their losses in the future,” he added.

Because Greece is not expected to be able to return to the capital markets next year, as envisioned under its 2010 aid package, it faces a €27-billion funding gap next year.

This could be filled by additional money from the EU and IMF, stronger Greek privatization revenues and/or through some form of debt relief – either looser terms on the EU’s loans or maturity extensions for private creditors.

Jean-Claude Juncker, who this week became the first euro zone official to openly acknowledge some form of restructuring might be needed, told Austrian radio on Wednesday that if Greece needed relief the bloc would need to act.

“If all this happens we will have to address the issue of whether a light restructuring of Greek debt could be pursued in which maturities are lengthened, with respect to debt servicing, and interest rate levels (on EU loans are reduced),” he said. “Greece must not be allowed to become a black hole.”

But European governments do not appear to be united behind the idea of a restructuring, no matter how soft it is.

Greece’s Papandreou said late on Tuesday that the costs of a restructuring would “far outweigh any potential benefits” and vowed to launch a “full fledged attack” against tax evasion to meet the terms of the country’s rescue package.

© 2011 The Globe and Mail Inc. All Rights Reserved.
George Georgiopoulos and HarrY Papachristou
ATHENS— Reuters
Published Wednesday, May. 18, 2011 8:22AM EDT
Last updated Wednesday, May. 18, 2011 9:47AM EDT

Monday, May 16, 2011

Home prices to ‘creep up’ this year

House prices in Vancouver rose about 10 per cent in the last year – approaching $1.1-million for a two-storey home – nearly three times the national average, says a new report by real estate brokerage Royal LePage.

Despite the soaring values in Canada's most expensive housing market, prices nationally are expected to stabilize or only creep higher this year amid “tepid” improvements in employment, LePage said in a report Tuesday.

Phil Soper, president and chief executive officer of Royal LePage Real Estate Services, said that in most markets lower, single-digit percentage increases are more likely for the balance of the year.

The more modest increases in most markets predicted for 2011 comes after bigger price jumps in recent years fuelled by low mortgage rates and solid consumer confidence.

“We expect house prices will continue to creep up, but most of the excess demand created by the initial drop in interest rates has been satisfied and affordability continues to erode slowly,” Mr. Soper said.

“While low interest rates continue to drive demand, the tepid pace at which employment levels are improving is tempering the rate of home price appreciation in many Canadian cities.”

Canada has created about 300,000 jobs in the last year as the economy recovers from the the 2008-2009 recession. However, the jobless rate is still high – at 7.7 per cent – and future growth could be squeezed by rising interest rates and continued weakness in the United States.

In the first quarter of 2011, the Canadian national average price of a detached bungalow rose 4.3 per cent year-over-year to $341,355, while standard two-storey homes rose 3.5 per cent to $379,388.

Standard condominiums rose 4 per cent to $237,919.

However the pace of growth in the quarter was uneven across the country.

In Vancouver, a limited supply of homes for sale, low interest rates and demand from buyers from China continued to drive up prices with the cost of a two-storey house up 9.7 per cent from a year ago at nearly $1.1-million.

Meanwhile, a two-storey house in Toronto increased by 2.5 per cent to $589,929 and a similar house in Halifax increased 7.1 per cent to $298,000.

That compared with a drop of 2.1 per cent in Calgary for a similar house to $423,122.

Canada's big banks raised their posted rates for fixed rate mortgages last week. The posted rate at most Canadian banks for five-year closed mortgages – one of the most popular types of loans for Canadian home owners – is 5.69 per cent.

The Bank of Canada left its overnight rate unchanged Tuesday at one per cent, but the central bank is expected to raise the rate – which influences variable rate mortgages – later this year.

Meanwhile, Statistics Canada said its new housing price index rose 0.4 per cent in February, following a 0.2-per-cent increase in January.

The highest month-to-month increase, 1.8 per cent, was recorded in Regina, while Toronto, Oshawa, Ont., and Edmonton were also top contributors to the jump.

On a year-over-year basis, the index was 2.1 per cent higher in February.

TORONTO— The Canadian Press
Published Tuesday, Apr. 12, 2011 10:22AM EDT
Last updated Monday, Apr. 18, 2011 6:15PM EDT

Sunday, April 24, 2011

10 Reasons Why Real Estate Investments Are Better Than Anything Else

Here are 10 reasons why we think it is much better to invest in real estate than in any other investment vehicles — they are the reasons WE invest in real estate.

1. In Real Estate, we can insure our property for its full replacement value, against loss. We cannot insure paper assets against any type of loss.

2. In Real Estate, we can put $10,000 as a down payment to buy a $100,000 property and get $90,000 from the bank. We now own $100,000 of assets. If we put $10,000 into paper assets, we get only $10,000’s worth of asset.

3. If the value of your $100,000 property increases by 5% in one year (which is below average in Ottawa where we live and invest), we are $5,000 richer. If our $10,000 paper asset increases by 5% in a year, we’re only $500 richer.

4. The bank will loan us a lot of money to buy property—millions if we want to buy an apartment building or a commercial building. That’s using OPM—Other People’s Money—at its best! We can also go to mortgage brokers, hard-money lenders, etc. The bank will NOT loan us a penny to invest in paper assets. And forget mortgage brokers and hard-money lenders. We have to use OUR own money to buy paper assets.

5. Certain types of properties will generate cash flow—called passive income—which is taxed at a much lower percentage than earned income. We can’t get cash flow from paper assets (unless a mutual funds pays monthly dividends). And that is a capital gain which is taxed at a higher %.

6. Though we have no control over the real estate market as a whole, we have control over the “value” of our property—which we can increase by doing minor improvements, full rehab, keeping full occupancy, changing the vocation of the property. We have NO control over the stock market or over the management of our paper investment; there’s nothing we could do to increase the value of our paper assets.

7. There are all types of depreciation and expenses we can legally use to reduce the income from our real estate investments. For example, when we travel to other provinces or other countries to look for property to invest in, those travel expenses are a legitimate tax deduction. Try to do that with paper assets!

8. Real estate is REAL. We can drive by it and SEE our investment. We can live in it. We can pain it. We can add an extension to it or plant a tree in front of it or add a patio behind it. Paper assets are just that: a piece of paper.

9. We can form partnerships with many other investors—family, friends, or total strangers—and together we can buy big properties that will yield remarkable ROI. Just imagine going to family and friends and say “Hey, let’s pool our $50,000 together so we can buy a whole bunch of shares of Nortel or some petroleum company…”

10. But most of all, we invest in real estate because it provides a roof (or a hundred) over people’s head. And it allows us to give people with past credit problems another chance to own a home or live in a safe and sound apartment or condo. It’s a great feeling, a feeling we can’t imagine getting from calling a broker and buying a bunch of stocks.

There are more reasons why we prefer to invest in real estate ourselves, but those are the 10 main ones.

Inflation Soars in March!

OTTAWA—Canada's consumer-price index leaped by its biggest monthly increase in two decades, adding Canada to the list of major economies recently pressured by inflation as economic recoveries around the world become more entrenched.

The jump surprised economists and analysts here, many of whom had been comforted by so-far benign inflation pressure across Canada, much of that thanks to a strong Canadian dollar. It also raises the likelihood of an interest-rate increase by the Bank of Canada, the central bank, sooner this year rather than later. Some economists had pushed back their forecast timing of such a hike after the Bank of Canada, which kept rates steady last week, offered a less hawkish tone on future action than many had expected.

Overall CPI rose in March at a 1.1% monthly rate, the quickest clip since January 1991, accelerating from 0.3% the previous month, and lifting the year-on-year pace to 3.3% from 2.2%, Canada's statistics agency said Tuesday. The Bank of Canada targets inflation at the 2% midpoint of a 1% to 3% range.

The core rate—which excludes volatile energy and some food prices—accelerated to 0.7% from 0.2% on a monthly basis, the largest gain since February 2010. The core rate was up 1.7%, from 0.9%, on an annual basis, a level that the Bank of Canada had previously forecast would only be reached in the third quarter of this year.

Earlier this month, the European Central Bank raised its key rate in a move officials said was aimed at keeping inflation across the euro-zone in check. And in China, Beijing officials are struggling to battle inflation, which data showed last week is rising at its fastest clip in three years.

But until now, North America has been relatively unscathed by the threat of rapid price rises. Last week, surging gasoline and food prices drove up U.S. prices. But excluding fuel and food, they remained subdued.

Many economists had been expecting Canada's strong currency to help keep prices in check north of the border. Canada is a big importer of U.S. goods, and a strong Canadian dollar helps keep a lid on imported inflation.

Tuesday's broad-based price surge "raises some serious questions over just how much slack is left in the Canadian economy and just how much of a dampener the Canadian dollar really is on prices," said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto.

The Canadian dollar, which has recently broken through levels not seen since 2007, moved higher after the inflation data was released, on the expectation that the central bank might move earlier in raising rates.

Forecasts had called for monthly and annual total CPI gains of 0.6% and 2.8%, respectively. The core rate had been expected to increase 0.2% on a monthly basis and 1.2% year-on-year.

"In the past, one could take comfort from the view that although headline inflation would suffer from the impact of higher energy and food prices, the core would remain well behaved. Some of that comfort has been lost today," HSBC Securities (Canada) economist Stewart Hall wrote in a report.

The annual average for the first quarter was higher than the Bank of Canada's latest forecasts from its Monetary Policy Report, published last week. The central bank held its benchmark overnight rate steady at 1% for the fifth consecutive time last week and said any further rate hikes would need to be "carefully considered."

StatsCanada, the statistical agency, said gasoline prices jumped 18.9% year-on-year in March, and the cost of fuel oil and other fuels surged 31.3%. Overall energy prices rose 12.8%. Food prices rose 3.3% as the cost of fresh vegetables jumped 18.6% due to reduced supply caused by bad weather in Mexico and the southern U.S. The cost of food purchased from stores rose 3.7%, the most since August 2009.

Clothing and footwear prices were up 0.9%, the first annual gain since November 2009, as fewer clothing items were discounted compared with a year ago.

Tuesday, April 12, 2011

Rates Remain Dormant, But For How Long?

April 12, 2011

Bank of Canada Leaves Rates Untouched

The Bank of Canada suprised few today by keeping its key lending rate at 1.00% for the fifth consecutive meeting.

With the prime rate holding at 3.00%, today's news is yet another positive for variable-rate mortgage holders.

The BoC’s statement did have some mixed signals, but few analysts are decoding that to mean a May rate increase. Here is some of what the Bank had to say:

"[There is] an environment of material excess supply in Canada."
"...the global economic recovery is becoming more firmly entrenched"
"In the United States, growth is solidifying, although consolidation of household and ultimately government balance sheets will limit the pace of the expansion."
"...global financial conditions remain very stimulative and investors have become noticeably less risk averse."
"The persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation"
"...recent economic activity in Canada has been stronger than the Bank had anticipated"
"Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011."
"The Bank expects that the economy will return to capacity in the middle of 2012"
"...underlying inflation is subdued"
"Core inflation...is expected to rise gradually to 2 per cent by the middle of 2012"
Looking forward, a growing crowd forsees the bank resuming its rate increases this summer. Financial markets and major economists are largely forecasting 2011's first rate hike to fall on July 19.

That said, those forecasts can easily change and some economists have already pushed back their expectations to as far as September or October.

The next Bank of Canada rate meeting is in 49 days, on May 31.

Steve Huebl & Rob McLister, CMT
Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/04/bank-of-canada-leaves-rates-unchanged-yet-again.html

Wednesday, March 30, 2011

Canadians Confident About Home Ownership

Canadians confident about home ownership: RBC
Toronto— Reuters
Published Wednesday, Mar. 09, 2011 7:30AM EST
Last updated Wednesday, Mar. 16, 2011 3:54PM EDT

Canadians are not only confident that they are assiduously paying down their mortgages, but they also believe they have the means necessary to weather a drop in house prices, contrary to worries that household debt is out of control, a poll showed on Wednesday.

Almost three-quarters of Canadians, or 73 per cent, believe that they or their families are well-positioned in the event of tumbling home prices, according to the annual RBC Homeownership Study undertaken by Royal Bank of Canada .

The poll found that 85 per cent of respondents feel that they are doing a good or excellent job of paying down their mortgage, while 90 per cent of Canadians are confident that real estate in Canada is a good investment.

“There’s been a lot of noise around debt-to-income ratios,” said Marcia Moffat, RBC head of home equity financing, noting that she found it comforting that such a large segment of Canadians said they were able to handle what is typically the biggest purchase of an individual’s life.

She said confidence was drawn from stable employment and rising incomes.

The survey was released a week after the Bank of Canada left its benchmark interest rate unchanged at a low 1 per cent.

The central bank and other policymakers have flagged personal debt as a danger to the economy, although the Bank of Canada last week said household debt was less of a concern than it has been in past months. Consumer spending remains strong but is easing to levels more in line with incomes, the bank said.

Worries about personal debt have twice prompted the government to introduce stricter mortgage rules to prevent overheating in the housing market.

The survey showed that Canadians, supported by a strong banking system, still have a strong interest in purchasing a home over the next two years. Interest declined slightly in the quarter, but remains high overall with 29 per cent saying it’s likely they will buy.

That was down two points from 2010 but is higher than any other year since 2006, the report said. Compared with last year, however, fewer Canadians said it was better to buy now than wait.

Rising home prices were the No. 1 concern about purchasing a home followed by rising mortgage rates, the poll showed.

The poll found that 40 per cent of Canadians feel the current housing market is balanced equally between buyers and sellers, a rise of five points over 2010.

The survey of 2,103 people is considered accurate to within plus or minus 2.2 percentage points, 19 times out of 20.

© 2011 The Globe and Mail Inc. All Rights Reserved.

Wednesday, February 23, 2011

Canada's home price index snaps slide

TORONTO — Canadian home resale prices broke a three-month string of declines in December as five of six metropolitan markets rose, the Teranet-National Bank Composite House Price Index showed on Wednesday.

The index, which measures price changes for repeat sales of single-family homes in six metropolitan areas, showed overall prices were up 0.3% in December from November.

Overall prices were up 4.1% from a year earlier.

Heavily-weighted markets Vancouver and Toronto reported price advances of 0.5%, and 0.2%, respectively. Teranet said January data from the Canadian Real Estate Association showed "generally balanced" conditions in major urban markets. "Toronto and Vancouver could even be considered rather tight markets," Teranet said.

The Calgary market posted its first gain in five months, up 0.1% in December, while Montreal gained 0.5%.

Halifax prices jumped most, up 3.6%, but Teranet noted its impact on the overall index was marginal.

The Ottawa market was the only decliner in the month, down 0.4%, and it marked the fourth straight monthly decline.

The index tracks home prices over time for repeat sales, so properties with at least two sales are required in the calculations. The report did not provide actual prices.

© Thomson Reuters 2011

Link to article: http://www.financialpost.com/personal-finance/Canadas+home+price+index+snaps+slide/4331750/story.html

Friday, February 11, 2011

Why RRSP's are not the best thing for Canadians

By Gordon Powers, January 15, 2011

When not to invest in RRSPs

Despite the attractive tax savings available, RRSPs are probably not the best choice for many Canadians.

If you believe the hype, every adult Canadian should be maximizing their RRSPs through some kind of monthly pre-authorized chequing plan.

But it's worth noting that some people will probably be better off not investing in an RRSP at all. And, for many others, they're still likely a low priority.

If you're in a higher tax bracket, then making the maximum RRSP contribution as early as possible should pay off. But for more modest earners straining under the weight of high-cost consumer debt, or lower-income seniors approaching retirement, the case is not as clear.

And the addition of the Tax Free Savings Account a couple of years ago has muddied the waters even further.

Ideally, you're looking to invest in an RRSP when you're facing a high marginal rate and then take it out when you're subject to a lower tariff. If it looks like it's going to be the other way around, you're not going to be better off in the long run.

That's why, in some instances, there may be an advantage to intentionally storing up RRSP room, and using a TFSA in the interim. Should your income jump, TFSA funds can be withdrawn to make an RRSP contribution, creating TFSA repayment room at the same time.

This might appeal to young doctors, for example, since their income generally jumps significantly after completing years of training. This might also be true for entrepreneurs who hope to hit the big time at some point.

Reducing taxes isn't the only reason to have an RRSP, of course. The savings habit quickly becomes ingrained, the deduction can be carried forward indefinitely to be used in higher-income years and the money you earn is tax-deferred.

Despite this, many investors in the lower tax brackets — roughly $37,000 or below in Ontario — may have much less to gain from making an RRSP contribution than they think, particularly as they get older.

Potential buyers who are less well off and expect to receive the federal Guaranteed Income Supplement — currently available to Canadians earning less than $15,816 a year and couples with joint incomes under $20,880 — should probably think twice about RRSPs, for instance.

And that's a fairly large group since roughly one third of seniors can expect to receive some sort of government income supplement, according to the most recent Stats Can data.

For these low-income retirees a bit of extra income from RRSPs can actually erode their standard of living. That's because it counts against their GIS, which is reduced by 50 cents for every dollar of retirement income.

And they'll likely also lose out on other benefits like rent subsidies, drug benefits, home care and social aid programs as well.

This group should not only forego putting any money in RRSPs, but should also consider cashing out so there's nothing left in their plan by age 65. The tax paid each year will otherwise offset the additional benefits.

There are other circumstances where an RRSP is probably not your number one priority.

Considering debt levels in this country, there are quite a few people who fall into the category of paying off their debt before building up a retirement plan.

If you've got a stack of high-interest credit card or auto debt, you're going to be much better off paying it down and deferring potential RRSP contributions until you work those loans off.

Even consumer loans at lower rates of interest, given that rates have been so low for quite awhile now, can be troublesome.

Although the decision isn't as clear cut, anyone with mortgages or student loans will need to consider whether or not paying off these debts, or at least making larger payments, is the more prudent option.

Although loans like these usually come with a relatively low interest cost compared to credit cards, there's still no guarantee that you'll make a high enough return to offset the interest costs.

Generally speaking, especially if you're a conservative investor, paying down your mortgage should probably take priority here, particularly if you expect to earn a guaranteed return by investing in GICs with the RRSP.

For some, doing a bit of both might make some sense. You can do this by making your RRSP contribution first and then using the tax savings to pay down the mortgage.

Of course, it's not only the heavily indebted that need to rethink their approach. For example, many small business owners actually register fairly modest incomes year over year, preferring instead to boost the value of their businesses.

The conventional wisdom has generally been that you should take a salary from the business to maximize RRSP contributions, and then consider a different combination of business income after that.

But, according to a new report by Jamie Golombek, CIBC's managing director of tax and estate planning, most business owners should think twice about this RRSP strategy and instead consider sticking with dividends, leaving any excess cash in the company.

The bottom line: RRSPs are not always the no-brainer they're advertised to be. Be sure to talk to someone in the know before you jump in.

Saturday, January 29, 2011

What the New Mortgage Rules Mean for Canadians

By Peter Diekmeyer, Bankrate.com, January 29, 2011
Flaherty's tough love
Recent tightening of mortgage rules may slow some new homebuyers.

In his famous book The Art of War, Sun Tzu wrote that skilled warriors remain strong by avoiding unnecessary battles. Judging from his latest moves, it would seem that Canada's finance minister Jim Flaherty is a fan of that ancient Chinese military strategist.

Flaherty recently tightened mortgage lending requirements for the second time in 12 months. Though he did not say so directly, the move was likely motivated by a desire to help Canada avoid the troubles that the United States is now going through, because regulatory authorities there declined to show similar restraint.

Flaherty, like most Canadians, got a chance to witness first-hand what happened during the years when our southern neighbour's financial institutions lent money to seemingly almost anyone who could pick up a pen to sign a mortgage. The result was a massive subprime, lending-led real estate bubble, which when it burst, chocked up much of the global financial system.

Mortgage tightening

Today, the U.S. continues to battle high unemployment, a shrinking and increasingly discouraged workforce, massive government deficits and an economic malaise that experts say will take years to overcome. With a ready-made lesson like that unfolding on our southern border, it is not surprising that Flaherty should decide to act.

Earlier this month, Flaherty announced three major changes that would tighten lending in Canada ever so slightly. Firstly, the maximum amortization period for mortgages eligible to be guaranteed by the Canada Mortgage and Housing Corporation was lowered from 35 to 30 years. Secondly, the upper limit that Canadians can borrow against their home equity was lowered from 90 to 85 per cent. And lastly, the government announced that it would stop insuring home equity lines of credit (HELOCs).

A lot can happen in thirty-five years

While on the surface, Flaherty's actions fly in the face of classic laissez-faire economics, underneath they make a lot of sense. There are several reasons for this. The most important boils down to the fact that if America is any example, many heavy borrowers simply have little idea how much trouble they can get into by piling on debt. A surprising number of Americans and Canadians suffer from "innumeracy," which is an inability to use or understand basic mathematical concepts.

Innumeracy is what caused many Americans, and some Canadians, to borrow unthinkably, by merely focusing on what they have to pay each month, rather than coolly assessing the effects of their total debt burdens. It is the reason that Canadian household debt recently spiked to a record 148 per cent of their total household income, above even U.S. levels.

For example, few people with a solid grip on risk probabilities would borrow money for 35 years. Even at a low five-year closed rate of 4.75 per cent, borrowers that bought a home today, and financed the entire borrowing cost over that time period, would pay more in interest payments than they would for the actual house. In the U.S., where mortgage interest is tax deductible, a case can be made for heavy mortgage borrowing under some conditions, but here in Canada, paying down mortgage debt is one of the first things that most financial advisers tell you to do.

As a result, many families that are forced to pay off a home over 35 years are likely doing so because they cannot afford a shorter amortization period. This raises another cause for concern: if those families are that tight for cash, what would they do if anything went wrong? In today's economy, few, if any, jobs other than in government can be relied on to provide a steady stream of income for 35 years. What would long-term borrowers do when they, almost inevitably, lose their jobs and have to find another? How would they finance unexpected expenses?

Yet ironically, despite the huge risks that Canadians who took out 35-year mortgages assumed, there is surprisingly little evidence that any large number of them have suffered for it.

Quite the contrary, Canada's housing market has been doing quite well. Although house prices have inched down slightly and are expected to continue doing so this year, they are far ahead of where they were ten years ago. As a result, many of those innumerate Canadians have stumbled into considerable wealth, particularly those who bought real estate in the once red-hot Vancouver and Alberta markets.

Lessons from south of the border

However, the chickens did come home to roost for those innumerate, or just plain greedy, Americans who bought highly leveraged homes during the past decade. Although house prices there rose year after year, when the crash came those who had borrowed too much were the first to get hit. As a result, millions of Americans faced, or will face, foreclosure during the coming years and housing starts there, a major driver of economic activity, are down to near half pre-recession levels.

While few experts believe that Canada's housing market is in bubble territory, there is a broad consensus that it is at least somewhat over-valued. Right now, it is far from clear whether Flaherty's moves to save Canadians from the economic battles that America is facing will work. Several earlier attempts at restricting borrowing did little good, and there is no guarantee the current round will do much better.

Flaherty had better hope they do. Otherwise, he'll have to pick up that old Sun Tzu text and read the chapters about actually fighting battles, not just avoiding them.

Peter Diekmeyer is a Montreal-based freelance business writer.