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.
Rate increases on hold for Bank of Canada
Preword: It looks like the Canadian interst rates can not rise above the US to much and the US will have to keep their rates the same for most all of 2010 and most of 2011. That means our rates will stay close to the same as now for another 18 months! Great news if you are on the variable rate mortgage.
We have variable rates are Prime – .65% right now, from good banks.
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
TORONTO, Aug. 18 /CNW/ – Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
… “Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”
While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.
“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf
Prime up 1/4% as expected
Comment: many think that Prime will hold here or go to 3% and hold there for a long while as the economy gets going again.
1/4% Prime Raise
The Bank of Canada raised its benchmark interest rate by 25 basis points for the second time in two months, even as households and governments in the developed world continue to cut back on spending.
The rate is now 0.75 per cent. The bank said any further increases “would have to be weighed carefully against domestic and global economic developments.”
The central bank became the only one in the Group of Seven to hike its key lending rate after keeping it at unprecedented lows during the recession.
While economic growth in Canada has largely relied on consumer spending, the bank now projects that business and trade will make up a larger part of the country’s gross domestic product, but overall growth won’t be as large as the bank previously thought.
The bank now estimates that Canadian GDP will expand 3.5 per cent in 2010 and 2.9 per cent in 2011, down from the previous projection of 3.7 per cent and 3.1 per cent respectively.
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.”
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.
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
© Copyright (c) The Calgary Herald
Rates may not go up
Rate hike not guaranteed….Global financial chaos could override domestic factors
Emily Mathieu Business Reporter Toronto Star
Higher than expected rates of inflation and reports of record breaking retail sales means interest rate hikes will likely go ahead, according to a top economist with BMO Capital Markets. But domestic strength might not be enough to justify increases if the upheaval in global markets continues, said Porter.
“If the (Bank of Canada’s) decision was based solely on domestic factors, then this would be no questions asked, no debate,” said Doug Porter, deputy chief economist.
The central bank has long predicted rates would rise on June 1, but Porter said doubt over the future of global economic stability could cause them to go off course.
“It would take a very brave central bank indeed, I think, to raise interest rates in the face of the turmoil we are seeing in global financial markets right now.”
According to Statistics Canada’s Consumer Price Index, the core index advanced 1.9 per cent during the 12 months leading up to April, following a 1.7 per cent increase in March.
The boost in April was due mainly to a rise in prices for the purchase of passenger vehicles, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants, the report showed.
The seasonally adjusted monthly core index rose 0.2 per cent in April, following a 0.3 per cent decline in March.
Consumer prices across the country rose 1.8 per cent in the 12 months leading up to April, following a 1.4 per cent increase in March. In Ontario, prices rose 2.2 per cent.
Porter said BMO has no plans to alter their position that rates will rise on June 1, but said that position could change if market upheaval continues into next week.
“If Canada were an island there would be no debate,” said Porter. “There is a very compelling domestic case for higher interest rates.”
Statistics Canada reported a 2.1 per cent increase in retail sales dollars in March, to $37 billion. Porter said earlier reports had predicted sales would be close to flat. “Instead we get one of the best gains on record.”
National energy prices rose 9.8 per cent between April and the same time the previous year, following a 5.8 per cent increase during the 12 months between March 2010 and the same time the previous year. Excluding the increase in energy the index rose 1.1 per cent, compared with a 1 per cent increase in March.
For the sixth month in a row, gas prices exerted the strongest upward pressure on the index. In April, Canadians paid 16.3 per cent more at the pump than they did the same time the previous year. That change follows a 17.2 per cent increase between March of this year and the same time in 2009.
Natural gas prices were up 3.3 per cent in April than the same time the previous year. Between March 2010 and the same time the previous year prices had dropped 22.4 per cent.
The cost of transportation was up 6.2 per cent in the 12 months to April and consumers paid a 5.6 per cent more for insurance premiums in April compared to the previous year.
Housing costs were up 0.8 per cent, after declining 0.7 per cent in March, with household utilities exerting the most upward pressure. The mortgage cost index fell 6.1 per cent, the report showed.
Food prices were up 1 per cent, following a 1.3 per cent increase in March. The 1 per cent rise, largely related to prices for food purchased in restaurants, was the smallest since March 2008.
Health care prices rose 3.3 per cent, the report showed. http://www.thestar.com/business/article/812567–rate-hike-not-guaranteed
Home ownership costs increase across Canada except Alberta says RBC report
By The Canadian Press TORONTO – Owning a home in Canada has become even more expensive _ unless you live in Alberta, according to the latest housing report by RBC Economics Research.
The report, released Tuesday, says homeownership costs in Canada rose for the third straight quarter across all housing segments in the first quarter of 2010. A strong real estate market and jacked up housing prices are getting the blame for putting a strain on Canadians’ bank accounts.
“Although home ownership became more costly in the first quarter of 2010, affordability measures are still moderately above the long-term average and below peak levels,” said RBC senior economist Robert Hogue.
“We expect affordability to deteriorate throughout 2010 and 2011, but this should be limited as more balanced supply and demand conditions will take much of the steam out of the housing market,” he said.
The RBC Housing Affordability report projects that the cost of owning a home will continue to rise.
The main contributing factor is an expected rise in interest rates, as the Bank of Canada moves towards raising the current exceptionally low rates to more normal levels through the second half of this year and in 2011.
According to the report, housing affordability measures in Canada are unlikely to exceed the peak levels reached in early 2008.
With the exception of Alberta, home affordability measures deteriorated across all provinces with a significant decline in affordability in B.C., Saskatchewan and Manitoba.
Housing affordability declined more moderately in Quebec, Ontario and Atlantic Canada. Alberta is the only province to show a drop in the costs of owning a home. http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-home-ownership-costs-increase-across-canada-except-alberta.html