Thursday, March 25, 2010
ACT NOW TO SAVE!
House prices to hit record this year, but rate of increase to slow, Scotiabank says
Eric Lam, Financial Post
Published: Wednesday, March 24, 2010
Canadian home prices will reach a record high this year, but those expecting the sky-high house price increases of the past decade to continue will be disappointed, a Bank of Nova Scotia real-estate expert said yesterday. "It's time to reset price expectations for the Canadian housing market," Adrienne Warren, senior economist with Scotiabank, said at a real-estate conference in Toronto. "This was an exceptional decade for pricing." Looking at the past 50 years, prices on average rose between 2% and 2.5% each decade. But prices rose an average of 5.2% between 2000 and 2009, she said, which led to the current elevated pricing conditions. As for this year, Ms. Warren still anticipates a strong spring sales market as consumers try to take advantage of rock-bottom interest rates before an expected rate hike by the Bank of Canada in the summer.
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INTEREST & INFLATIONARY OUTLOOK
Rate speculaton rises after BoC governor highlights inflation threat
Paul Vieira, Financial Post
Published: Wednesday, March 24, 2010
OTTAWA -- Canadians could face higher interest rates within the next few months, Bay Street economists said Wednesday after Bank of Canada Governor Mark Carney said inflation is "slightly firmer" than expected and that the promise to hold rates at record lows until July was only conditional.
Mr. Carney's comments during an Ottawa luncheon speech - in particular how he emphasized, against a backdrop of improving economic conditions, that his rate commitment was "expressly conditional" - led analysts to revisit their rate outlook, and pencil in the possibility of a move as soon as June.
The central bank's next rate announcement is April 20, followed two days later by its updated economic forecast. After that, there are rate announcements June 1 and then July 20.
The consensus among private-sector economists was for the central bank to honour its pledge and begin rate hikes in July. Now, some aren't sure. Bond traders, meanwhile, Wednesday pushed up yields on two-year notes in anticipation of rate hikes in the coming months.
The governor's remarks "failed to quell the market's speculation that a June rate hike may be in the cards," said Eric Lascelles, chief economics and rates strategist at TD Securities. "In fact, [Carney] goes to quite some length to emphasize the conditionality of the commitment not to raise rates before mid-2010, damning it with faint praise."
In the speech, Mr. Carney said inflation has been higher thanks to "transitory factors," most notably the Olympic Games in Vancouver last month, and a higher-than-expected level of economic activity. Later, speaking to reporters, the governor added first-quarter annualized growth is "looking stronger" than the central bank's projection of 3.5%. That would follow robust expansion of 5% in the final three months of 2009.
The Bank of Canada's last economic outlook, tabled in January, envisaged core inflation to average 1.6% in the first quarter and 1.7% in the second quarter. But in January, core inflation came in at 2%, and last month advanced 2.1% year-over-year.
The central bank sets its policy rate with a goal of hitting, and maintaining, 2% inflation.
The inflation outlook would be updated in April. At that time, the central bank would "take judgments on the appropriateness" of its conditional pledge, the governor told reporters.
"I cannot imagine a lower inflation forecast being unveiled come April," said Derek Holt, vice-president of economics at Scotia Capital, "but I can easily see a forecast for core inflation to remain at the 2% target that would imply earlier than anticipated hikes."
Mr. Holt said the central bank could raise its benchmark rate either in April or June, with an increase of 50 basis points to "punctuate" its seriousness in containing inflation and move away from emergency-level rates.
In April of last year, Mr. Carney cut the bank's key lending rate to its lowest possible level, 0.25%, and pledged to keep it there until the end of the second quarter in 2010. This was in an effort to pull the economy out of a deep recession, and get inflation up toward to the bank's preferred 2% target by mid-2011.
In recent weeks, however, data suggest the economic recovery is moving at a roaring pace, far exceeding expectations.
Another factor that could prompt an earlier-than-expected rate hike is an increase in M3, a key measure of money supply, said Stewart Hall, economist at HSBC Securities Canada. So far, month-over-month growth rates are tracking higher than the pre-crisis 12-month average.
"All that liquidity that has been injected into the financial system, rather than gathering dust, is now beginning to make it into the economy," Mr. Hall said. "And perhaps more than some slight upside on core inflation, it may be M3 growth that may be causing the central bank some angst with regards to their inflationary outlook."
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Tuesday, March 23, 2010
JUST STAY STRONG
Housing market momentum to carry strong sales volume into 2010: Scotiabank
By Mario Toneguzzi
Calgary Herald
March 23, 2010 9:02 AM
CALGARY - The momentum in the Canadian housing market has carried through to early 2010, with the volume of sales transactions in January and February only slightly below the near-record levels of late 2009, says a report released today by Scotiabank.
And the average MLS sale price in Canada will reach a record level this year.
"Strengthening labour markets are underpinning confidence, while generationally low mortgage rates
— and expectations that borrowing costs will soon be headed higher — are adding a sense of urgency," said the Global Real Estate Trends Report authored by economist Adrienne Warren.
"Milder-than-usual temperatures across much of the country may also have put a bit of spring into the
typically slow winter sales season. Average prices too are testing new highs, both for new and resale homes. A steady increase in the number of listings in recent months alongside a sharp increase in new construction is restoring a much better balance to the overall market compared with the latter half of 2009."
But the report said sellers’ conditions persist in most major centres.
The report said continued strong demand and pricing is expected through the spring, especially given an expected rush of buyers hoping to pre-empt tighter qualifying criteria for insured mortgages effective mid-April as well as the July 1 introduction of the HST (Harmonized Sales Tax) in Ontario and British Columbia.
"However, this should give way to more subdued activity in the second half of the year, as higher interest rates and higher home prices erode affordability. The incentive among builders to add substantial new housing stock should likewise fade as supply increases and prices cool."
The report expects the volume of MLS sales to hit about 510,000 this year, up 10 per cent from
2009 but still a touch shy of the 2007 record at the national level. Average prices are forecast
to increase about eight per cent to a record $345,000 in Canada.
Housing starts are estimated at 190,000, up from 149,000 last year.
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Wednesday, March 17, 2010
MORTGAGE CONFUSION
New mortgage rules leave homebuyers confused
Insured buyers must show 'ability to pay'
James Pasternak, Financial Post
Published: Wednesday, March 17, 2010
Frank and Susan Williams bought a house near Hamilton, Ont., this month, they followed a time-honoured tradition of using leveraged financing.
With mortgage insurance they only had to put down 5% of the $270,000 purchase price. They went with a closed variable rate at 2.25% and amortized the loan over 35 years. The deal was initiated with a mortgage broker, with Bank of Nova Scotia providing the financing.
"It's a three-bedroom bungalow. That was attractive to us. We have a dog and we like to do things in the backyard. We did not have the type of money we thought we'd have to put into a house. We said let's just bite the bullet and get this over with," Ms. Williams says.
And getting it over with was probably a good idea. First, they were in a rent-to-own arrangement and had to exercise their option to buy before August 2010. And second, based on pending federal rules for government-backed insured mortgages that come into effect on April 19, the Williams (not their real name) would probably not have qualified for the variable-rate mortgage. In fact, as recent arrivals from the United States and its housing crisis, their credit history might not have passed any stress test.
"We really came from the United States with nothing. Everything we had disappeared with the housing crisis. In areas that had bad loans all the houses just hit bottom. We were expecting US$250,000 out of our house but we got nothing," Ms. Williams says. They walked away from the whole mess.
But while the Williams might have had good reasons for leveraging to get their dream home -- they are firsttime buyers in Canada -- the new federal rules governing mortgages have been widely misunderstood. In fact, the biggest fear among the young and house-less is fear itself.
"There are a lot of rules that changed. But they weren't communicated very well," says Robert McLister, the editor of Vancouver-based Canadian Mortgage Trends (www.CanadianMortgageTrends.com).
Margo Wynhofen, of Grimsby, Ont.-based Verico One Mortgage Corp. ( www.mymortgageadvisor.ca) and vice-president of the Independent Mortgage Brokers Association of Ontario, says she has had to spend considerable time explaining federal Finance Minister Jim Flaherty's statement of Feb. 16.
"I had a lot of people misunderstand the announcement. So I had a lot of clients call me for clarification. There was an overwhelming sigh of relief," Ms. Wynhofen says.
Under current mortgage-lending rules, buyers with a down payment of less than 20% of the purchase price must purchase mortgage insurance, with the most common source being Canadian Housing and Mortgage Corp. The new rules affect only customers that are required to purchase the insurance.
Under the new rules, all buyers requiring mortgage insurance will have to meet the "ability to pay" for a higher, more expensive five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and a shorter term.
"It's not just first-time homebuyers who are affected. It's anyone who wants a variable mortgage rate now who doesn't have one already, they now have to qualify at a higher interest rate. Some of them won't qualify. And that's fine so they'll just take a fixed rate. It's not the end of the world," Ms. Wynhofen says.
Bernice Dunsby, director of home equity financing at the Royal Bank, says the new rules might even help save first-time buyers from themselves.
"We believe the new measures will have a small impact on mortgage growth, if any. First-time buyers should not be any more concerned about these changes. In fact, I believe the changes will actually help first-time homebuyers to ensure that not only can they afford their home today but in the future, especially if interest rates rise," says Ms. Dunsby.
In some cases, the rules might be outdated before they are fully implemented. A growing number of homebuyers are forgoing the conventional mortgage and using alternative financial products. Take the case of London, Ont., accountant and recent homebuyer Phil Parkinson. Three years ago, he bought his first home with a fully secured line of credit offered through Manulife Financial Corp.
The Manulife One product provides up to 80% of the appraised value of your home. It can be used to pay off the balance of your existing mortgage, personal lines of credit and any other outstanding debts you might have.
"These operate on a variable rate. It's just like one big bank account. You can have your money deposited into the account, you can pay your bills. [As you deposit] you can knock your account down and lower your interest calculation. Theoretically, you don't have to pay anything expect the interest," Mr. Parkinson says.
Other highlights of the rules don't directly affect firsttime buyers. For example, the maximum amount Canadians can withdraw in refinancing their mortgages has dropped to 90% from 95% of the value of their homes. rule has created a mini-stampede.
"There is a bit of urgency now to get [a refinancing] done before April 19. People are chronically refinancing. I have clients that refinance every two to three years to take the equity out of their home to pay off credit-card debt. The home has become an ATM machine," Ms. Wynhofen says.
A January 2007 Statistics Canada study of personal debt concluded that "increasing mortgage debt for refinancing purposes or taking out home-equity loans implies that homeowners in both [Canada and the United States] are using their homes as a source of cash to finance their spending rather than as an investment."
And in an effort to contain the risks of real-estate speculation, as of April 19 the minimum down payment for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation rises from 5% to 20%.
As for ex-patriot Americans Frank and Susan Williams, they're pretty relieved about their fresh start with a new house.
"It's very different to get a mortgage here. It's a lot less hassle than in the United States," Ms. Williams says.
And because the Williams are not particularly worried about the new mortgage rules, they are already thinking about their next purchase.
"We might be able to buy a little place that's larger when we can leverage this up a bit -- maybe get something cheaper than this with more room,' Ms. Williams says.
Photo by: Dom Dada
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O CANADA, OUR HOME & ROBUST CREDIT MARKET
Another reason to buy Canada
David Pett, Financial Post
Published: Tuesday, March 16, 2010
A huge wave of Canadian corporate debt that starts coming due in 2012 could have negative implications for stocks and bonds but the refunding onslaught will pale in comparison to the United States, giving investors yet another reason to buy Canada.
"In the U.S., an avalanche of non-financial corporate debt -- almost US$1.4 trillion -- is set to mature over the next five years," said Kevin Cassidy, vice president and senior credit officer at Moody's Investors Service.
"By contrast, Canadian corporate issuers have relatively low refunding needs -- both on an absolute dollar basis, and as a percentage of outstanding debt."
In a report published Wednesday, Moody's estimated that nearly US$75-billion in Canadian non-financial corporate debt will mature in the next five years, including US$57-billion of bonds and US$18-billion in bank credit facilities.
US$19-billion of the total coming due matures in 2010 and 2011, followed by a heavy load of maturities from 2012 to 2014 worth US$56-billion.
Mr. Cassidy said the total represents 25% of the roughly US$300-billion of outstanding Canadian debt.
In terms of annual new issuance of both investment grade and speculative grade debt, which has averaged a total of US$23-billion over the past 14 years, he said the amount coming due does not appear excessive.
"As with U.S. companies, new debt issuance in Canada should be able to cover Canadian issuers' maturities over the next few years -- as long as the economy remains steady and credit markets continue to recover," he said.
While immediate refunding needs are relatively modest, with just US$4-billion maturing in 2010 and US$15 billion in 2011. Mr. Cassidy said the greater refunding requirements in 2012-2014 carry more risk given the expectation that the Bank of Canada will begin to tighten monetary policy ahead of the U.S. Federal Reserve.
If companies do have a hard time refinancing that will restrain their ability to expand and invest and could increase default risk, putting pressure on bond and share prices.
"Still, our caution is somewhat offset by our expectation that Canada's job market will recover faster than that of the U.S., with hiring in Canada encouraged by business optimism and a relatively robust credit market," he said.
South of the border, the landscape for maturing debt is much more ominous.
Thanks to a frenzy of refinancing and leveraged buy out activity prior to the credit collapse in 2007, speculative grade maturities will total US$800-billion in the next five years. US$338-billion of that is due in 2014 alone, which is up from just US$21-billion this year.
At the same time, investment grade issuers have to refinance US$1.2-trillion in loans between 2012 and 2014, not to mention the U.S. government, who will need to borrow close to US$2-trillion.
With so much debt coming due at one time, Mr. Cassidy said one of the big concerns is whether the U.S. high yield market can continue to pump out new issues as it did in 2009 in order to fill the financing void left by banks.
He noted that roughly 60% of the maturities due in the United States between 2010 and 2014 is speculative-grade debt.
By comparison, the composition of Canadian maturities over the next five years is slightly biased towards investment-grade debt, with US$45-billion or 60% of the US$75-billion due, compared to US$30-billion or 40% of speculative-grade debt due by 2014.
"The Canadian mix of investment-grade and speculative-grade maturities is also more favorable than in the U.S., where speculative-grade maturities dominate," he said.
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Monday, March 15, 2010
2 MONTHS OF A CHILL
Home resales cool for second straight month
Reuters
Published: Monday, March 15, 2010
TORONTO -- Sales of existing homes in Canada dipped for a second straight month in February, but remained high on a year-over-year basis, as the market may be moving into more balanced conditions, data showed on Monday.
The Canadian Real Estate Association (CREA) said a total of 42,799 homes changed hands last month, down 1.5% from January, as a large gain in sales in Toronto were offset by declines in Vancouver and other British Columbia housing markets.
The real estate group said the Winter Olympics, which were held in the host city of Vancouver and nearby areas, may have played a factor in lower sales in the province last month.
Unit sales in British Columbia were down 13.3% in February from January, compared with a 3.3% advance in Ontario.
Across Canada, sales rose 44% from the same month last year, a smaller gain in national activity from the previous three months. This was in line with economists' views that year-over-year comparisons are likely to shrink in coming months because the recovery of the housing market started in February 2009.
"Housing markets are becoming more balanced," said Gregory Klump," CREA's chief economist.
After a relatively short spell of low consumer confidence during the global financial crisis, Canadian homebuyers were quickly back in the market and have made the housing sector one of the cornerstones of the domestic economic recovery. The pace of the rebound has encouraged debate about a housing bubble.
But with rising supply -- new listings rose for a fifth straight month, up 2.4% -- it could take the steam out of the housing markets as the year goes on, said Mr. Klump.
Ultralow interest rates could further prompt home resales this spring before the arrival of new mortgage rules in April and changes to provincial sales tax regimes in British Columbia and Ontario, before cooling in the second half of the year.
"We should see the Canadian housing market move slowly back into a balanced-market position as higher mortgage rates and prices begin to temper demand," said Millan Mulraine, economics strategist at TD Securities.
CREA said the national average home price in February rose 18.2% from a year earlier to $335,655 (US$329,074)
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Thursday, March 4, 2010
WHEN WILL YOU SAVE?
Low interest rates to power Calgary housing market
By Mario Toneguzzi
Calgary Herald
March 3, 2010
Low mortgage rates will continue to fuel activity this year in the local housing market.
A forecast by Canada Mortgage and Housing Corp. released on Tuesday said sales in both the new home and resale housing markets are expected to increase this year and next year in Calgary and for Alberta.
As well, average MLS sale prices will climb over the next two years.
"Calgary housing markets will benefit from a stronger economic outlook and historically low mortgage rates," said Richard Cho, senior market analyst in Calgary for the CMHC.
"We are expecting to see more activity this year compared to 2009. This momentum is expected to carry through into 2011 as the economy strengthens."
In releasing its 2010 housing market outlook report, CMHC said the Calgary census metropolitan area will see total housing starts rise by 20.3 per cent this year to 7,600 units, followed by a 21.1 per cent hike in 2011 to 9,200 units.
MLS sales in the Calgary area are expected to climb by 10.9 per cent to 27,600 this year and another 3.3 per cent in 2011 to 28,500.
The average MLS sales price in the Calgary region is forecast to jump by 5.5 per cent this year to $407,000 and by another 3.9 per cent next year to $423,000.
Low interest rates continue to drive Canadian housing markets, something that could continue for much of 2010, said Dan Sumner, economist with ATB Financial in Calgary.
"Although interest rates are certainly going to go up eventually, they are rising from a very low level and will probably not be back to neutral levels until 2011," he said.
"However, with home prices near the top edge of some affordability metrics, there could be little room for significant price increases in the near term."
The government of Canada announced recently a number of measures to support the stability in the housing market, said Cho.
"These changes for government-backed mortgage insurance will moderate housing activity," he added. "Changing the qualifying mortgage rate will help ensure homebuyers have a cushion to protect against the risk of increased payments when their mortgage is up for renewal. Some prospective buyers may postpone their purchase while they save for a larger down payment, while others may consider purchasing a less expensive home."
Housing Market Outlook
2010 Y/Y change 2011 Y/Y
Alberta housing starts 24,500 20.7% 29,900 22%
Calgary housing starts 7,600 20.3% 9,200 21.1%
Alberta MLS sales 64,000 10.8% 66,500 3.9%
Calgary MLS sales 27,600 10.9% 28,500 3.3%
Alberta MLS avg. price $358,500 5.1% $372,500 3.9%
Calgary MLS avg. price $407,000 5.5% $423,000 3.9%
Source: Canada Mortgage and Housing Corp.
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