3 versions of the home buying future
Comment: CMHC has been dead on for the last 6 years. They call for a soft landing. I believe it.
CCPA says bubble to burst, CD Howe dismisses, CMHC predicts soft landing
Three significant housing reports published yesterday paint very different pictures of the future of Canada’s housing market.
CD Howe Institute says that in spite of recent dips in Canadian house prices, we will not experience a US-style housing crash because of our stricter government policies and tighter underwriting standards.
However, the report published by the Canadian Centre for Policy Alternatives, has a different view on what will ultimately cause the bubble to burst. David Macdonald, the economist behind the report entitled “Canada’s Housing Bubble: An Accident Waiting To Happen”, says that affordability and low interest rates are the issue.
With average house prices at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income, home owners may not be able to cope once interest rates goes back to their historic norms.
And finally, CMHC published the Canada edition of their housing market outlook in which the association forecasts a softer fall market with prices raising slightly in 2011.
CMHC also predicts that mortgage rates will gradually increase in the second half of 2010 and 2011.
Calgary tops the list in places to buy in Canada!
Where to buy: Top 10 cities
Jesse Kinos-Goodin, Financial Post · Sunday, Aug. 8, 2010
When investing in real estate, sometimes it’s necessary to look beyond your own backyard. The Real Estate Investment Network (REIN), a national organization of investors, has compiled what it says are the top 10 Canadian cities in which to invest. Few are major cities and some are surprising. Don Campbell, president of REIN, as well as one of the researchers on the study, says the results are based on factors such as planned transportation improvements, or if the area’s average income, population growth and job growth are increasing faster than the provincial average.
Oddly enough, nothing east of Ontario shows up on the list, and while Mr. Campbell says cities like Halifax, Saint John and Moncton “still provide decent returns,” the top cities are ones that will outperform the national average between 2010 and 2015.
1. Calgary
Calgary is “poised to outperform the average by a wide margin,” says Mr. Campbell, making it the top-ranked city.
After two years of declining average resale housing prices, the Canada Mortgage and Housing Corp. has predicted they will increase year-over-year in 2010.
The REIN report credits the downturn to a much-needed correction, and that it was “economically impossible for the [Calgary] market to continue at the pace at which it was heading.” But now that it is coming out of the recession, along with economies elsewhere, Calgary’s strengths in producing food, fuel and fertilizer will boost its growth.
“Calgary is in a unique economic and geographic position to take advantage of the direct and indirect jobs this increase in demand will create,” says Mr. Campbell, who adds that with strong in-migration and renewed affordability, the city provides a good buying window for long-term investors.
2. Kitchener-Waterloo-Cambridge, Ont.
REIN refers to Canada’s Technology Triangle as the “economic Alberta of Ontario.” That means KWC is not only seen as the economic engine of the new Ontario economy, but also that it “will outperform all other major regions in eastern Canada,” Mr. Campbell says. For indicators, he points to job growth, student growth and a new light rapid-transit system.
3. Edmonton
Edmonton sits near the top of the report’s list because of its future potential. Calling it a “perennial overachieving market,” REIN says the city is a “growing market, [with] an increasing population, and a forward-looking leadership.”
It will also be the main benefactor of energy development in Western Canada, says Mr. Campbell, resulting in a “very affordable, strong rental market with strong in-migration from across Canada.” Major infrastructure improvements, such as the ring road and LRT expansion, will be key.
4. Surrey, B.C.
British Columbia’s second-largest city is growing so fast it could become even bigger than Vancouver.
“Just a decade ago, it was known as the punch line to many a joke,” Mr. Campbell says. But with two border crossings to the United States, links to five major highways, deep sea docks and four railways, Surrey is a prime location to do business, he says.
Although there may be a strong rental market, it’s a city that requires a closer examination, taking “neighbourhoods and even the street’s characteristics into consideration when deciding where to purchase,” REIN warns.
5. Maple Ridge & Pitt Meadows, B.C.
The Translink and Gateway Project infrastructure improvements have made these B.C. towns the “most accessible regions in [Vancouver’s] Lower Mainland,” the report says. They’ve come a long way, Mr. Campbell says. The unofficial motto of Maple Ridge used to be “You can’t get there from here.” As a result of poor infrastructure in the past, property values have been historically low in this area. But with the improvements, it’s predicted an additional 400 business will move into the area, REIN says, improving the demand for both residential and commercial property.
6. Hamilton, Ont.
“The perception no longer matches the reality of Hamilton,” Mr. Campbell says. “The city’s leadership, as well as local business owners, have transformed what was once a rough-and-tumble steel town to a city with economic vitality, diversification and population growth.” REIN applauds Hamilton’s leadership as being innovative in revitalizing the city, adding Hamilton
“has beaten its overall building permit value for the second year in a row.”
7. St. Albert, Alta.
“Long thought of as a satellite of Edmonton, St. Albert is poised to be the biggest benefactor of the new Edmonton Ring Road,” says Mr. Campbell, who adds that as the transportation access improvement is completed, the city will begin to experience “a flood of not only new residents, but also the relocation of companies and jobs into town.” Other attributes of the city include consistently low vacancy rates, high rents and strong property value increases. It also helps that the city has “turned itself into a major retail centre for the northern region while adding to its industrial and commercial job base,” REIN says.
8. Barrie & Orillia, Ont.
These two cities have been shedding the perception of being just cottage country and have become a “hot bed for growth,” Mr. Campbell says. University and college expansion campuses have brought new life to the area, and the addition of Go Train access has made them viable commuter towns for the Greater Toronto Area, REIN says. For investors, this all adds up to healthy property appreciation, a respectable vacancy rate of 4.7% and the youngest residents on average in a given Census Metropolitan Area (CMA).
9. Red Deer, Alta.
In the centre of the Edmonton-Calgary corridor, Red Deer is not close to either. But REIN suggests reviewing city plans, as there will be a lot of hidden opportunities. “The whole central Alberta region has witnessed very strong population and job growth, as well as a real estate market that has continually outperformed most other regions of the country,” Mr. Campbell says. He adds that with a continually expanding industrial and commercial job base, Red Deer is in a good position to “take advantage of the inevitable growth in demand for food, fuel and fertilizer.”
10. Winnipeg
Winnipeg is often left off the real estate investment radar, but Mr. Campbell says it’s a good city for “consistent economic performance — not too high during booms and not too low during downturns.” But people should stick to buying top-quality properties. REIN also notes that housing prices, after dipping last year, are back to double-digit increases, which could “lead to an influx of inventory on the market.” But with one of the lowest vacancy rates in the country, at 1.2%, there is room for movement. Another positive factor for the city is international immigration is expected to increase under the provincial nominee program being undertaken by the government.
Read more: http://www.financialpost.com/news/Where+cities/3369599/story.html#ixzz0w4mDdnyK
Prime rate increase in the cards
comment: Variable rates should stay a good mortgage option as Prime is expected to stay at 3% for the rest of the year. Prime – .6% will be a 2.4% mortgage rate and the fixed rates will stay around the 4% mark. The great thing is fixed rates are coming down now so a variable will save now and you can lock in later when the 5 year fixed is even lower.
Week Ahead: Rate hike in the cards
Kim Covert, Financial Post · Friday, Jul. 16, 2010
OTTAWA — Two major announcements bookending the coming week’s economic news will provide a clearer snapshot of the state of the Canadian recovery.
The Bank of Canada will be first up when it makes its monthly interest rate announcement on Tuesday. But that will come before Friday’s critical report from Statistics Canada on the country’s consumer price index for June.
The central bank raised its benchmark index rate in June by 25 basis points, and at the time expectations were that the rate would increase steadily. But in the weeks since that announcement concerns about a double-dip recession have been growing, increasing speculation that the bank would hold the course. Consensus expectation is for a 25 basis-point increase on Tuesday, bringing the rate to 0.75%, though analysts disagree on what will happen as the year unfolds.
“While both domestic and global conditions have deteriorated modestly since June, the underlying momentum in the Canadian economy warrants the continued normalization of policy in the near term,” wrote strategist David Tulk of TD Securities in a note to investors. “When we look further into the future, the impact of financial market turmoil and decelerating economic growth is more difficult to quantify. In recognition of this uncertainty, we have scaled back our forecast for rate increases, and now look for a year-end overnight rate of 1.25% and a rate of 2.50% by the end of 2011.”
Economist Michael Gregory of BMO Economics, who also calls for a another 25 basis point increase, said he expects the bank to make one more increase of that size in September then hold the line for the remainder of the year. CIBC is calling for the rate to reach 1.25% in October, followed by a pause lasting at least two quarters.
The Bank of Canada’s rate announcement will come ahead of the key June inflation report on Friday. The consensus expectation is for 0.1% month-over-month drop in the consumer price index on lower gasoline prices, while the core year-over-year inflation rate will be unchanged at 1.8%, below the Bank of Canada’s target of two%.
CIBC economist Krishen Rangasamy said that while the rate announcement will precede the CPI, he doesn’t expect the “milder” June prices will have any effect on the rate. He said July’s prices should get a bounce from the harmonized sales tax introduced on July 1 in Ontario in British Columbia.
The bank will also release its Monetary Policy Report on Thursday. Mr. Rangasamy doesn’t expect the bank to make material changes to its April forecast of 3.5% growth for the second half.
“The only thing will be perhaps in the tone of the report. We think that they might adopt a more cautious tone on the external environment, particularly what’s happening in Europe and elsewhere, with slower Chinese growth, so they might adopt a little bit more cautious tone as opposed to their upbeat tone in April.”
Statistics Canada reports in the coming week include securities transactions on Monday, travel data on Tuesday, wholesale trade on Wednesday, as well as employment insurance and retail trade data on Thursday.
On the corporate front, some major Canadian companies will be reporting earnings on Thursday, including Canadian National Railway, Shoppers Drug Mart and Loblaw Cos.
Mortgage Market Primer
Mortgage Market Primer (TD)
If you have any interest in the nitty gritty of Canada’s mortgage industry, TD Securities’ Eric Lascelles has put out this fantastic market overview: Canadian Mortgage Market Primer
Here are some of the more notable points…
- 70% of Canadian lenders are deposit-taking institutions (Page 1)
- 5-year GICs and the Interest Rate Act are two reasons Canadian mortgage terms are usually five years or less (Page 5)
- There is a difference between Adjustable Rate Mortgages (ARMs) and Variable Rate Mortgages (VRMs). Both have variable rates but the former has variable payments while the latter has “fixed” payments. (Page 5)
- For any term over five years, the pre-payment penalty cannot be greater than three months interest once five years have elapsed. (Page 7)
- “Given a mortgage delinquency rate of 0.44% and the assumption of a (pessimistic) recovery rate of 80%, this means that expected mortgage portfolio losses for Canadian lenders are less than 10 basis points per year for uninsured mortgages.” (Page 8)
- About 50% of Canadian mortgages are insured. (Page 8)
- “Even with an insured mortgage, the lending institution manages the mortgage, directly handling payment collection, foreclosure, and sale of the home, where applicable.” (Page 10)
- 29% of Canadian mortgages are securitized versus 60% in the U.S. (Page 10)
- $175 billion of the $275 billion in Canadian securitized mortgages (64%) are sold into the Canada Mortgage Bond (CMB) program. (Page 10)
- Canadian borrowers can usually prepay 10-25% of their mortgage each year without penalty, but the average prepayment is less than 1%. (Page 11)
- It is estimated that the Insured Mortgage Purchase Program (IMPP), which allowed the government to buy back mortgages during the credit crisis in 2008-2010, netted the government extra profit of roughly $187.5 million. (Page 11)
- Lenders (or their agents) must continue servicing a mortgage after it’s sold into the CMB program—including assuming all pre-payment and uncovered default-related costs. Mortgage Insurance does not make lenders completely whole in the event of default. (Page 13)
The CMB program intentionally operates on a break-even basis (Page 14)
- Mortgage defaults “would have to increase by three- to four-fold to compromise the profitability” of CMHC’s default insurance program. CMHC should have ~$8.8 billion in insurance retained earnings as a buffer for its insurance business in 2010. (Page 15)
- Like any insurance business, CMHC’s is not completely without risk. (See Page 16)
- The CMB program adds very little additional risk for CMHC. The underlying mortgages are already insured. (Page 15)
- 71% of mortgagors with CMHC insurance have “equity in their homes of more than 20%.” (Page 16)
- “Over 40% of CMHC’s total business in 2008 was in areas, or for housing options, that are less well served or not served at all by the private sector mortgage insurers.” (Page 17)
Canadian Prime rate to go up only a bit.
As expected the economy is not as hot as every one thought. That means that Prime – as below – is now predicted to go up to .5% and then hold there or up to 1% for the rest of the year.
This means that the Variable rates are now very attractive because we know where Prime is headed – as in holding constant. A variable at Prime -.6 today is 2.5-.6= 1.9%. The 5 year fixed are more like 4.30%
Weak Canadian GDP puts BoC on the spot
Eric Lam, Financial Post · Friday, Jul. 2, 2010
With Canada’s economy stumbling in April, adding fuel to speculation the country’s roaring recovery that began in September 2009 was coming to an abrupt end, economists warned Canada’s central bank will have to tread carefully on its plan to raise interest rates for the rest of the year.
Derek Holt and Gorica Djeric, economists with Scotia Capital, said the Bank of Canada “was not likely to be swayed” by Wednesday’s economic data. The pair maintain a forecasted 1.25% benchmark rate by the end of the year.
“There should be enough strength in the underlying economic momentum to dismiss the drag on GDP in April as something that does not portend the start of a new trend,” the pair say in a note.
In April, Canada’s gross domestic product neither expanded nor contracted, compared with 0.6% growth in March. Economists surveyed by Bloomberg had been forecasting 0.2% growth in GDP for April.
This is the first time in eight months Canada’s economy did not expand.
In its report, Statistics Canada blames the stagnant April on a “large decline” in retail trade of 1.7%, after a 1.9% gain in March. Declines in manufacturing and utilities also contributed to the underperformance while advances in mining, wholesale trade, the public sector and construction helped to offset the decreases.
Krishen Rangasamy, economist with CIBC World Markets, said it was too soon to jump to conclusions.
“It’s too early to conclude from this GDP report that the recovery is already waning,” he said in a note on Wednesday. “The excellent handoff from March means that we’re starting the second quarter from a higher base, which sets Canada up for a decent quarter despite a slow start.”
Michael Gregory, senior economist with BMO Capital Markets, said that while the 3% growth now expected is respectable, it is a bit of a letdown compared with the 5% to 6% growth figures seen earlier.
“It’s kind of like driving on the highway at 100 kilometres an hour, then getting off and going 50,” he said in an interview. “But 3% growth is still all right and where we see it for this year.”
The second half of the year will likely move quite sluggishly, however, as a lot of spending in housing, renovation and other big-ticket items was “pulled forward” due to the HST, introduced in July in Ontario and British Columbia. Mr. Gregory expects growth of about 2% on average in the fall and winter months.
Canada’s economy also faces headwinds from the sovereign debt crisis in Europe, an even worse slowdown in the United States, and possible fallout in China, he warned.
Warren Jestin, chief economist with Scotia Economics, said in a note on Wednesday that Canada’s position as a resource leader should help keep it afloat in the face of other developed countries, although “this won’t be a hard race to win.”
The situation in Europe is troubling for Mr. Gregory, but he suspects the combination of weakening housing, high unemployment and zero credit growth will hurt the United States.
“That buzz you hear about a possible double-dip recession is legitimate and will remain a worry for markets the rest of the summer and into the fall,” he said. “It’s why we think the Bank of Canada will be on hold for a while after July.”
Mr. Gregory figures the central bank will raise rates 25 basis points at its next meeting in July, then go on hold to see how things play out in Canada the rest of the year. It is likely the BoC will push rates to 1% by the end of 2010 and add another 1 percentage point to 1.5 percentage points in 2011.
“An environment of 3% growth is still something that requires higher interest rates,” he said. “Rapid buildup in household debt is a long-term risk.”
Canadian Mortgage Rates May Slide Down
Canadian 5 yr bond yield is at 2.34%. The spread, (based on the 5 yr rate published rate of 4.49%) has jumped far above the comfort zone at 2.15.
The banks dropped their posted rates by .10bps lasts week
Explanation:
The rate of return on the bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Currently lenders are looking for a spread, between 1.50 and 1.75.
Residential Mortgage Rates Lowered
- 4.49% to 4.19% to 4.09% – depending on how long your rate hold is for a 5 year fixed
- 1.90% = Prime – .6% = 2.5%-,65=1.90% for a variable.
Residential Mortgage Rates Lowered
TORONTO, June 24 /JAC/ – Residential mortgage rate changes as and when announced by major lenders.
TORONTO, June 24 /CNW/ – RBC Royal Bank announced today that it is decreasing its residential mortgage rates effective June 25, 2010.
The changes are as follows:
Fixed Rate Mortgages
- Six-month convertible 4.85 per cent (decreased by 0.10 per cent)
- One-year closed 3.60 per cent (decreased by 0.10 per cent)
- Two-year closed 3.95 per cent (decreased by 0.10 per cent)
- Three-year closed 4.50 per cent (decreased by 0.10 per cent)
- Four-year closed 5.54 per cent (decreased by 0.10 per cent)
- Five-year closed 5.89 per cent (decreased by 0.10 per cent)
- Seven-year closed 6.85 per cent (decreased by 0.10 per cent)
- Ten-year closed 7.00 per cent (decreased by 0.10 per cent)
Special Fixed Rate Offers*
- Four-year closed 4.39 per cent (decreased by 0.10 per cent)
- Five-year closed 4.49 per cent (decreased by 0.10 per cent)
* The rates indicated are special discounted rates and are not the posted rates of Royal Bank of Canada. To calculate a rate discount compare the Special Offer rate against the posted rate for the applicable term.
Special Offers may be changed, withdrawn or extended at any time, without notice. Not available in combination with any other rate discounts, offers or promotions.
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For further information: Media contact: Gillian McArdle, (416) 974-5506
TORONTO, June 24 /CNW/ – TD Canada Trust has changed its mortgage rates, effective June 25, 2010.
The changes are as follows:
Fixed Rates To/Change:
- 6-month convertible 4.75% – 0.10%
- 1-year open 6.70% N/C
- 1-year closed 3.80% – 0.10%
- 2-year closed 4.30% – 0.10%
- 3-year closed 4.85% – 0.10%
- 4-year closed 5.54% – 0.10%
- 5-year closed 5.89% – 0.10%
- 6-year closed 6.20% – 0.10%
- 7-year closed 6.59% N/C
- 10-year closed 6.90% N/C
Special Fixed Rate Offers To/Change:
- 1-year closed 2.80% – 0.10%
- 4-year closed 4.39% – 0.10%
- 5-year closed 4.49% – 0.10%
- 7-year closed 5.25% N/C
- 10-year closed 5.59% N/C
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For further information: Tashlin Hirani, Media Relations, Corporate and Public Affairs, TD Bank Financial Group, (416) 982-3375
TORONTO, June 25 /CNW/ – CIBC (CM: TSX; NYSE) today announced the following changes in mortgage rates:
- Six-month convertible 4.85 per cent, down 0.10 per cent
- Six-month open 6.70 per cent, no change
- One-year open 6.45 per cent, no change
- One-year closed 3.60 per cent, down 0.10 per cent
- Two-year closed 3.95 per cent, down 0.10 per cent
- Three-year closed 4.60 per cent, down 0.10 per cent
- Four-year closed 5.54 per cent, down 0.10 per cent
- Five-year closed 5.89 per cent, down 0.10 per cent
- Seven-year closed 6.95 per cent, down 0.10 per cent
- Ten-year closed 7.00 per cent, down 0.10 per cent
These rates are effective Saturday, June 26, 2010.
Canadian Economy Gathering Steam
TORONTO, June 22 /JAC/ – The Canadian economy is gathering steam, with Western Canada leading the way and all provinces participating, according to the Provincial Outlook report issued today by BMO Capital Markets Economics. Canadian growth is expected to reach 3.4 per cent in 2010 and 3.1 per cent in 2011, providing a strong rebound from the 2.5 per cent decline in 2009.
“Real GDP will likely expand across the country in 2010, with the strongest growth rates seen in Western Canada as commodity-sector activity recovers from a depressed year in 2009,” said Michael Gregory, Senior Economist, BMO Capital Markets, pictured top-left. “The theme of the ‘West Outperforming the Rest’ should persist into 2011 as global commodity demand remains firm, while a strong Canadian dollar tempers growth in Central Canada and capital investment activity begins to wane in Atlantic Canada.”
Highlights include:
Western Canada
• Western Canada is poised to benefit from a rebound in commodity prices, firming global demand for raw materials and a lower overall cost environment in the energy sector.
• Oil prices have more than doubled from their recession lows, and investment activity in Western Canada has started to pick up as a result.
• At the same time, reduced royalty rates in Alberta and various incentives in B.C. and Saskatchewan have helped improve the energy economics in the region, and have removed some of the political uncertainty surrounding the Alberta royalty regime.
• Meantime, Western Canada’s post-recession fiscal hole is much shallower than in Central Canada, and as a result, the impact on growth of budget-balancing measures will be milder in the coming years, allowing real GDP growth of about 4 per cent per year through 2011.
Central Canada
• The recovery is also well underway in Central Canada, as auto production has rebounded from the depths of recession, and Ontario’s housing market has roared back to see record sales and price levels.
• While housing is expected to cool through the rest of 2010, and the manufacturing sectors in Ontario and Quebec will continue to bear the weight of a strong Canadian dollar, domestic demand will pick up the slack.
• Indeed, retail sales have rebounded to record levels in both provinces, as have the number of service-sector jobs.
• However, longer-term growth in the region will be challenged by fiscal restraint—Ontario faces the largest budget deficit in the country and Quebec has already begun to implement tax increases and spending restraint.
• Taken together, these factors all point to below-average economic growth of slightly less than 3 per cent per year through 2011.
Atlantic Canada
• Atlantic Canada’s outlook remains stable.
• Aside from Newfoundland & Labrador (which was hit by some one-time factors), the region saw very modest real GDP declines in 2009.
• One factor supporting growth during the recession was capital investment in both the public and private sectors.
• While government stimulus remains strong in the region, some major private-sector projects will wind down in the next few years.
• This, combined with an ongoing challenge in the manufacturing sector, will lead to below-average growth of about 2.5 per cent per year through 2011 in Atlantic Canada.
Alberta’s economy to rebound this year, lead nation in GDP growth
More good news on the economy that does not make the papers.
Alberta’s economy to rebound this year, lead nation in GDP growth
Oil sands investment boosts forecast of 4.1% spurt
CALGARY – Alberta will experience a significant economic rebound this year and lead the nation in GDP growth, says a report released today by Scotiabank.
The report forecast GDP growth of 4.1 per cent for the province while overall Canadian growth would be 3.6 per cent, the strongest advance in a decade for the country. In 2011, Scotiabank is forecasting Alberta economic growth at 3.4 per cent – tied with Saskatchewan for the best in Canada. Nationally, it is predicting Canadian GDP at 2.7 per cent next year.
Scotiabank said a strong pickup in investment will fuel growth in the energy and manufacturing sectors this year in Alberta.
“Investment has perked up in the oil sands, as easing costs and higher oil prices revived investment intentions in late 2009, with $2.2 billion in outlays scheduled for 2010 alone,” said the report. “Renewed activity in the industry will lead to significant benefits flowing through the economy, with manufacturing and services all heavily tied to conditions in the energy sector. While the bulk of investment will stem from oil sand development and tight oil plays, recent revisions to the province’s royalty framework are a major positive for the natural gas industry.”
mtoneguzzi@theherald.canwest.com
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