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

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economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn."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