Canadians realistic about household debt

In the past decade consumer confidence in Canada was much higher than what would be expected based on certain household fundamentals including Real Disposable Income Growth, Debt-to-Income Ratios and Consumer Capability Indices. It appears that pre-2008, consumers were confident they could increase and manage their household debt when indicators pointed against this.

Then, since the global financial crisis of 2008, Canadian consumers have become more realistic about their debt. Yes, they continue to borrow; however, the pace of that borrowing has slowed down. This change in mindset is happening during a time when their capacity to manage their debt has increased.

A recent report by economist Benjamin Tal of CIBC, analyzed this new trend on seven household fundamentals. He found that as of the second quarter of 2011, the Consumer Capability Index was back to the level seen before 2008, with the gap between confidence and capability narrowing notably, relative to the wide gap seen during most of the decade. This improvement in the capability index was not due to a strong growth in income but reflects the fact that while the level of the debt-to-income ratio is still rising, the speed at which it is, in fact, slowing.

"The key here", Tal wrote, "is the notable softening in the pace of growth in personal non-mortgage credit which is currently expanding at the slowest pace since the early 1990s. In fact, the ratio of consumer credit to disposable income has been stable over the past year."

According to the report, other factors contributing to the recent improvements include:

1. A higher savings rate which, while easing lately, is still double the rate seen before 2008
2. Personal bankruptcies are down
3. Relatively low and stable debt service costs
4.  A stabilizing long-term unemployment rate at a relatively low level

"While consumers will continue to take advantage of historically low borrowing costs," Tal said. "The practical implication of their more realistic approach is that spending in the near future will be slower but more balanced growth as it will be based on fundamentals as opposed to wishful thinking."


-Debbie Thomas TMG The Mortgage Group Canada Inc.


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Fifteen years of economic growth means little in everyday lives

OTTAWA - A generation of solid economic growth has meant little in the everyday lives of most Canadians, according to a new index of wellbeing.The finding is a yellow light for decision-makers that social unrest is just around the corner unless deep changes are made, warns Roy Romanow, the advisory board chairman of the University of Waterloo group that created the index.

The index suggests the middle class, in particular, is eroding."There are some very, very troubling signs," Romanow said in an interview.

"I think if we continue on this trajectory we're going to have bigger and bigger disparities. You can never build a solid political, social and economic community with wide disparities."

The Canadian Index of Wellbeing is meant to be GDP's alter ego, measuring the quality of life in society in ways gross domestic product does not.

The index has been years in the making, pulling together 64 indicators to track progress in areas such as community spirit, education, health, environment, leisure and democratic engagement. While GDP measures what companies and government produce, the wellbeing index measures how Canada and its people are faring.

It shows that between 1994 and 2008, wellbeing improved by just 11 per cent. The economy over that period grew by 31 per cent. So while investment and corporate activity were ticking along at a decent pace, Canadian households saw only minor improvements in their lifestyle. "The divergence in the (index of wellbeing) and GDP tells us emphatically that we have not been making the right investments in our people and in our communities. And we have not been doing it for a long time," the report on the index says. The index's subcomponents show that quality of life actually deteriorated over that time frame in areas such as the environment, leisure and culture, and time use.  Researchers noted that metal reserves are at rock-bottom, species abundance has declined, greenhouse-gas emissions have soared, and ground ozone has risen.

When it comes to leisure, Canadians are working out more and taking longer vacations, but they spend less time engaged in arts and culture. Health care saw a slight gain — we're smoking less and getting our flu shots, but diabetes and depression were on the rise. Wealthier people had better health status.  Living standards rose 26.4 per cent, but at the expense of income inequality. The rich took the lion's share.  While parents are reading more to their young children and signing them up for all sorts of classes, kids are also spending more time in front of screens. And seniors are seeing less of their families.  In other words, a typical household is now working harder and longer to keep on track financially, at the expense of having free time with family and friends, enjoying arts and culture, and volunteering.  "Many Canadians are simply too caught up in a time crunch to enjoy leisure and culture activities in the company of friends and family. The question raised by the results of this domain: Is that progress?" the study asks.

On the positive side, the index also revealed that Canadians feel safer than in the 1990s, and feel a stronger sense of belonging to their community. The "community vitality" index rose 20.7 per cent over the 15 years. Education has improved, especially with university graduation rates soaring. But our international rating has declined in literacy, math and science.  While Romanow, the former NDP premier of Saskatchewan, is the face of the new index, he says the work put into the index is far from political or ideological. Rather, the data is taken from Statistics Canada and elsewhere, collected and crunched by a wide variety experts in their field. The work is recognized by the Organization for Economic Co-operation as leading edge.  The policy prescriptions, however, point to failures at every level of government over the past couple of decades, Romanow says — adding that he, too, carries some of the blame. "We all wear some of this."  Instead of focusing on redistributing wealth and building programs that improve quality of life for Canadians, governments are obsessed with juicing GDP, he said. The result has been to whittle away at the vibrancy of the middle class, and undermine core Canadian values that encourage individual effort, in part, through redistribution of wealth, Romanow said. "I think this is a yellow light. A cautionary light," he added. "We want to be able to make sure that ... our societal values are not diminished here."

Heather Scoffield, The Canadian Press, On Thursday October 20, 2011, 6:40 am

By Heather Scoffield, The Canadian Press

Average resale home prices rise 6.5%

"A September surge in home buying helped boost the number of Canadian homes sold in the first nine months of this year an unexpected 1.2 per cent compared to the same period last year, according to figures compiled by the Canadian Real Estate Association.

Sales of existing homes rose 2.7 per cent in September compared with August, according to a monthly report released Monday by CREA. On a year-over-year basis, home sales in September were up 11 per cent from the same month in 2010.

The strong September activity drove the number of homes sold on CREA's multiple listing service in the first nine months of 2011 to 361,749.

The increase over last year was surprising given that many economists and industry watchers, including CREA, had earlier predicted that sales this year would decline over the same time in 2010.

TD economist Sonya Gulati said she expects a “tug of war” between several factors — including low interest rates and waning consumer confidence — to take hold in the coming months, leaving conditions fairly balanced, with sales and prices holding steady at current levels over the next year.

“Several factors appear to have clipped the wings on resale activity this year, including: (1) new mortgage eligibility rules; (2) a wave of economic uncertainty emerging in recent months; and (3) a growing saturation of the first-time home buyer category,” she said.

“Helping cushion the impact of these negative forces has been the persistence of low mortgage rates. “

Sales have remained stronger and for longer than expected largely because the period of ultra-low interest rates has been extended beyond earlier expectations due to an uncertain global economic outlook. The Bank of Canada's overnight lending rate currently sits at 1 per cent.

Low interest rates impact variable mortgages and other loans tied to a bank's prime rates, and have encouraged many, especially first-time buyers and those who might not otherwise afford ownership, to enter the market.

The Bank of Canada dropped rates to an emergency low 0.25 per cent during the recession of 2009 to encourage Canadians to spend on big purchases like houses.

Buyers entered the market in droves during the latter half of 2009 and early part of 2010, driving prices higher as some — encouraged by low lending rates — engaged in bidding wars to secure a home while rates were low.

That drove prices to record levels that some economists have predicted are not sustainable. Others have said a drastic drop could be on the way.

The national average price for a resale home made its smallest year-over-year increase since January, rising to $352,600 — up 6.5 per cent from September a year earlier.

That's down from as much as 9.3 per cent year-over-year increases posted in July, noted Bank of Montreal economist Robert Kavcic.

The upward pressure on prices from high-end sales in the expensive Vancouver and Toronto markets appears to be receding, he added.

“Note that sales in formerly white-hot Vancouver are now just two per cent above year-ago levels compared to nearly 30 per cent year-over-year in the spring, and average prices have come off the boil in recent months, though they're still up 10.5 per cent year-over-year.”

“Meantime, Toronto (and most of Ontario for that matter) is now seeing sales growth at a heated 21.3 per cent year-over-year pace, but that compares to a depressed period last summer.”

The September increase in activity reflects strengthened activity in a number of major markets, led by Toronto, CREA said.

The number of newly listed homes nationally was little changed in September from the previous two months and more that two-thirds of markets were in balanced territory.

New listings were up from the previous month in a number of major markets including Toronto, Montreal, Ottawa, Oakville and Vancouver, but declined in Edmonton and British Columbia's Fraser Valley.

The national sales-to-new listings ratio, a measure of supply and demand, stood at 52.8 per cent in September, up from 51.6 per cent in August.

“Canada's housing market remains stable amid continuing financial market volatility, contributing to Canadians' confidence in the economy and providing support for Canadian economic growth,” said Gregory Klump, CREA's chief economist.

“Interest rates are expected to remain low for longer, and evidence suggests that recent changes to mortgage regulations are preventing the kind of excesses they were designed to avert. Both of these developments are good news for the housing market.”

Economists have predicted interest rates will remain on hold until 2013. However, Mr. Kavcic said he believes sales and prices will fall somewhat next year.

“Canadian housing continues to look balanced and healthy, as low mortgage rates and a falling jobless rate are offsetting weaker consumer confidence and tighter mortgage rules,”he said.

“We continue to expect sales and prices to cool in the year ahead, but the landing should be a soft one.”

SUNNY FREEMAN

Ottawa— The Canadian Press

Class action lawsuit filed against one of the 'Big 6" banks

A class action lawsuit has been filed against one of the largest banks in Canada in regards to calculations of prepayment penalties. The lawsuit alleges that this bank has been improperly calculating prepayment penalties since 2005.


The lawyer heading the suit has stated that "Starting in 2005, [the bank] started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated," says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.


The vagueness of the above mentioned language is said to make this bank's prepayment penalty unenforceable. The case was started with a single mother getting divorced had to sell their family home and ended up with a $47,000 prepayment penalty. Prepayment penalties have always been one of the main complaints amongst consumers and without some kind of change to our system that is likely to remain the same. 


While most do look at Canada's banking rules and regulations regarding mortgage to be superior to many other nations, it's possible we may be lacking in progress in this area. In recent years we've seen other countries bring in legislation attempting to unify the process and calculation for these penalties, instead of letting each individual lender have full range of how they interpret an Interest Rate Differential penalty. Maybe this lawsuit will be the beginning of a change in the right direction. 


By working with a Sharie Marie Mortgage Team professional, we'll keep you informed on the penalty calculation with your lender. Visit www.SharieMarieMortgageTeam.com today to set up an appointment.

No change to Prime Rate until 2013?

BMO Capital Markets pushed its rate hikes forecast back to 2013 on Tuesday, citing continued serious economic risks both home and abroad.

"The new forecast pushes the expected time frame for the Bank of Canada to raise its benchmark interest rates back from previous expectations of the second half of 2012. As recently as this spring, economists had been speculating about a rate hike before the end of 2011, but the market turmoil of the past few months sparked by the eurozone debt crisis has changed all that. "As global economic risks have escalated, casting commodity prices and the Canadian dollar much weaker, the Bank of Canada's diminishing tightening bias has probably diminished further," Michael Gregory, senior economist with BMO Capital Markets, said in a report. Mr. Gregory noted that the market has now actually swung all the way into cut territory pricing in two 25-basis point rate cuts by April 2012. But with inflation slightly below target, a weak loonie and credit markets still functioning, movement in either direction is unlikely. "The policy easing bar remains high. Short of signs of imminent recession, the bank should remain on hold," he said. Mr. Gregory also forecasts the loonie to tumble further, down to US93¢ before recovering to parity by 2013." - Eric Lam, Financial Post


To discuss whether fixed or variable rate is right for you call a Sharie Marie Mortgage Team Professional today.