By The Canadian Press, reported in The Vancouver Sun
OTTAWA - Federal officials say fewer Canadians are falling behind in their mortgage payments.
Canada Mortgage and Housing Corp. says it has found a downward trend in the number of Canadian residential mortgage payments that are overdue by three months or more.
It says the rate of mortgages in arrears dropped to 0.36 per cent in the first half of 2012.
That's down from 0.41 per cent in 2011.
By comparison, the CMHC report says the U.S. arrears rate in the second quarter of 2012 was more than eight times higher at 3.04 per cent.
The information is included in the federal agency's 2012 Canadian Housing Observer.
Monday 31 December 2012
Sunday 30 December 2012
Where the “Deals” Are
Rob McLister, Canadian Mortgage Trends
As rate comparison websites evolve, something interesting will happen. Lenders and brokers will realize how easy it is to put special offers in front of thousands of eyeballs.
As new competitors see this, they’ll join the online fray and rate discounts will slowly improve…one basis point at a time.
The best deals won’t always come from one single lender. At any given time, lenders anxious to place money will advertise aggressive specials, fill their pipeline with applications, pull out of the market and let someone else take the lead.
This isn’t much different from how it works today, except that Internet-focused lenders will get their fill a lot quicker than they do through current distribution models (because rate sites will give them more exposure).
But these changes will take time to set in. If you’re looking for the lowest advertised rates today, credit unions and online mortgage brokers are clearly the market leaders. Here’s a quick look at where the national market stands for well-qualified borrowers:
As rate comparison websites evolve, something interesting will happen. Lenders and brokers will realize how easy it is to put special offers in front of thousands of eyeballs.
As new competitors see this, they’ll join the online fray and rate discounts will slowly improve…one basis point at a time.
The best deals won’t always come from one single lender. At any given time, lenders anxious to place money will advertise aggressive specials, fill their pipeline with applications, pull out of the market and let someone else take the lead.
This isn’t much different from how it works today, except that Internet-focused lenders will get their fill a lot quicker than they do through current distribution models (because rate sites will give them more exposure).
But these changes will take time to set in. If you’re looking for the lowest advertised rates today, credit unions and online mortgage brokers are clearly the market leaders. Here’s a quick look at where the national market stands for well-qualified borrowers:
6-month Fixed: There aren’t many 6-month specials out there unless you live in Manitoba where Cambrian, Carpathia and Crosstown Credit Unions feature 2.19% (an exceptional rate that’s equivalent to prime – 0.81%).
1-year Fixed: Rates of 2.39% (or slightly less) are available through a handful of credit unions like First Calgary (Calgary, AB) and Assiniboine (Winnipeg and Northern Manitoba), and also through various brokers online.
2-year fixed: Investors Group has the best widely available special at 2.35%.
3-year Fixed: Scotiabank, Canadiana Financial and a slew of credit unions are at 2.79%, while at handful of online brokers are advertising 2.69%.
4-year Fixed: Dozens of credit unions and brokers are at 2.89%. At the moment, this term has the least amount of price competition of any in the market.
5-year Fixed: While most brick and mortar institutions advertise 3.09% or more, the real market is at 2.99% or less. Numerous brokers are advertising 2.89%, but some of these rates are restricted and/or for “quick close” mortgages only.
10-year Fixed: 3.89% is the worst rate you can expect for a full-feature decade-long term. Online brokers are routinely advertising 3.79%-3.84%.
Variable: Once again, Manitoba credit unions (Assiniboine, Crosstown, Caisse Financial Group and Steinbach) dominate the variable-rate market. They’re all at prime – 0.50%. In the rest of the country, most bank reps and brokers have access to prime – 0.35%, with a few brokers at prime - 0.40%.
HELOC: Banks, credit unions and brokers are all huddled around prime + 0.50% (i.e., 3.50%). A few small and local credit unions, like iNova (Halifax, NS) advertise 3.25%.
Side Note: This survey only reviews rates. It says nothing about the quality of the mortgages themselves, your ability to qualify or the support you can expect with a given rate. Keep in mind, most deeply discounted rates come with little service or mortgage planning. If you want someone who takes time to carefully review your best alternatives and warn you of lender restrictions, it is rational to pay 5-10 basis points extra for that service (2.99% instead of 2.89% for example). That difference is chicken feed if you need advice, because bad mortgage selection will balloon your cost of borrowing after closing.
1-year Fixed: Rates of 2.39% (or slightly less) are available through a handful of credit unions like First Calgary (Calgary, AB) and Assiniboine (Winnipeg and Northern Manitoba), and also through various brokers online.
2-year fixed: Investors Group has the best widely available special at 2.35%.
3-year Fixed: Scotiabank, Canadiana Financial and a slew of credit unions are at 2.79%, while at handful of online brokers are advertising 2.69%.
4-year Fixed: Dozens of credit unions and brokers are at 2.89%. At the moment, this term has the least amount of price competition of any in the market.
5-year Fixed: While most brick and mortar institutions advertise 3.09% or more, the real market is at 2.99% or less. Numerous brokers are advertising 2.89%, but some of these rates are restricted and/or for “quick close” mortgages only.
10-year Fixed: 3.89% is the worst rate you can expect for a full-feature decade-long term. Online brokers are routinely advertising 3.79%-3.84%.
Variable: Once again, Manitoba credit unions (Assiniboine, Crosstown, Caisse Financial Group and Steinbach) dominate the variable-rate market. They’re all at prime – 0.50%. In the rest of the country, most bank reps and brokers have access to prime – 0.35%, with a few brokers at prime - 0.40%.
HELOC: Banks, credit unions and brokers are all huddled around prime + 0.50% (i.e., 3.50%). A few small and local credit unions, like iNova (Halifax, NS) advertise 3.25%.
Side Note: This survey only reviews rates. It says nothing about the quality of the mortgages themselves, your ability to qualify or the support you can expect with a given rate. Keep in mind, most deeply discounted rates come with little service or mortgage planning. If you want someone who takes time to carefully review your best alternatives and warn you of lender restrictions, it is rational to pay 5-10 basis points extra for that service (2.99% instead of 2.89% for example). That difference is chicken feed if you need advice, because bad mortgage selection will balloon your cost of borrowing after closing.
Friday 28 December 2012
Why the housing market won’t crash in 2013
LARRY MACDONALD, Special to The Globe and Mail
The 12-month change in the Teranet-National Bank House Price Index has decelerated in recent months to 3.4 per cent, led by declines in Vancouver (-1.4 per cent) and Victoria (-1.7 per cent). Some people interpret this weakness as a sign that a housing crash has started – see, for example, the Canadian Business article “Canada’s housing crash begins.” I don’t see a collapse in 2013 for several reasons. One is the highly supportive monetary environment.
In the case of the U.S. housing boom from 2003 to 2007, the overvaluation was pricked after the Federal Reserve dramatically tightened monetary policy to cool off an overheated economy. This catalyst is absent in Canada as 2013 commences.
Indeed, monetary policies in Canada, the U.S., Japan, China and elsewhere around the world are dialled to the opposite extreme. They are hyper-expansionary, with interest rates at record lows and printing presses running like never before.
This means that Canada and other countries should continue generating growth in jobs and income. Since higher employment and income typically support housing markets, prices are not likely to fall much in 2013. Or if they do, they shouldn’t stay down for long.
The crash crowd says Canadian houses are overvalued on the basis of the price-to-income ratio. So they fear the process of mean reversion will take prices down by 25 per cent or more. But with so much monetary stimulus in the system, the price-to-income ratio should also be normalized by income increases.
Interest rates may begin edging up later in 2013. They shouldn’t threaten the housing market because income and employment will be climbing as well, creating offsetting demand for housing. Similarly, the one-off impact of a tightening in mortgage rules during 2012 should not be cause for a serious setback.
There are other reasons for expecting a crash to be a no-show in 2013. Suffice it to say that the monetary cycle suggests a soft-landing scenario. This is not to deny there are pockets of extreme overvaluation or oversupply, where the risk of substantial correction remains. Cases in point could be Vancouver housing and Toronto condos.
Dealing With Private Insurers is Now More “Necessary”
Rob McLister, CanadianMortgageTrends
Finance Minister Flaherty has publicly stated his preference for a privatized default insurance system. (See: Selling CMHC’s Insurance Arm…)
Now, coincidentally or not, the government has officially increased the private mortgage insurance ceiling to $300 billion while leaving CMHC’s limit stuck at $600 billion.
Last week, Andy Charles, president and CEO of Canada Guaranty, offered us his take on the government’s insurance-in-force policy:
Finance Minister Flaherty has publicly stated his preference for a privatized default insurance system. (See: Selling CMHC’s Insurance Arm…)
Now, coincidentally or not, the government has officially increased the private mortgage insurance ceiling to $300 billion while leaving CMHC’s limit stuck at $600 billion.
Last week, Andy Charles, president and CEO of Canada Guaranty, offered us his take on the government’s insurance-in-force policy:
“My view is that the increase in the (private insurer) limit is a strong indication that the Department of Finance would like the private mortgage insurers to take on more of the housing market risk, thereby placing private capital ahead of public capital in terms of managing the government’s exposure to the market.”
He adds: “To the lenders, it is a clear indication that doing reasonable business volumes with the private mortgage insurers has become much more of a necessary condition today than in the past.”
Indeed, many lenders would face higher funding costs if it weren’t for Genworth and Canada Guaranty providing low-ratio insurance. By insuring low-ratio mortgages, lenders can more easily sell them to investors, and/or reduce their capital costs. The prior go-to source for this type of insurance was CMHC, which drastically cut back on it about a year ago.
To private insurers, the government’s actions to slow CMHC’s expansion have been a market share gift. Looking ahead, “There are no constraints to Canada Guaranty's growth in the market,” says Charles, whose company added Scotiabank, ING Direct and RBC as customers this year. He expects significant new growth in 2013, albeit in a “disciplined manner.”
Sidebar: Despite all this, some mortgage investors still prefer to buy CMHC-insured mortgages due largely to their 100% federal guarantee. (By contrast, there’s only a 90% government backstop in the remote chance that a private insurer goes under.)
He adds: “To the lenders, it is a clear indication that doing reasonable business volumes with the private mortgage insurers has become much more of a necessary condition today than in the past.”
Indeed, many lenders would face higher funding costs if it weren’t for Genworth and Canada Guaranty providing low-ratio insurance. By insuring low-ratio mortgages, lenders can more easily sell them to investors, and/or reduce their capital costs. The prior go-to source for this type of insurance was CMHC, which drastically cut back on it about a year ago.
To private insurers, the government’s actions to slow CMHC’s expansion have been a market share gift. Looking ahead, “There are no constraints to Canada Guaranty's growth in the market,” says Charles, whose company added Scotiabank, ING Direct and RBC as customers this year. He expects significant new growth in 2013, albeit in a “disciplined manner.”
Sidebar: Despite all this, some mortgage investors still prefer to buy CMHC-insured mortgages due largely to their 100% federal guarantee. (By contrast, there’s only a 90% government backstop in the remote chance that a private insurer goes under.)
Tuesday 25 December 2012
Alberta resale housing market tops Canada in annual sales growth
By Mario Toneguzzi, Calgary Herald
CALGARY — Alberta will lead the country this year and in 2013 in the pace of growth in the resale housing market, according to a new forecast by the Canadian Real Estate Association.
The national association of realtors said Monday that Alberta MLS sales this year will finish up 13.1 per cent from last year to 60,800 transactions and sales will lead the country next year as well with 1.3 per cent growth to 61,600.
Nationally, sales are forecast to decline by 0.5 per cent this year to 456,300 and fall by another 2.0 per cent in 2013 to 447,400 transactions.
The Real Estate Investment Network in Canada is “hot” on Calgary’s potential and has ranked it the top investment city in Canada for 2013 to 2016, said Melanie Reuter, director of research for the organization.
“This ranking came as a result of extensive research into the underlying economic fundamentals driving Calgary’s economy as well as the current housing market’s response to these fundamentals,” she said. “The job market is strong and is poised to lead the country in job and population growth. Immigration from other parts of Canada as well as abroad is putting a steep downward pressure on vacancy rates and a strong upward movement on rents. This pressure is not predicted to ease significantly in the coming years.
“The high average-weekly-earnings in the city mean more disposable income in this PST-free province, which is creating a country leading consumer confidence level. This is creating further stimulation of the economy through consumer spending, which in turn brings increased employers, people, and demand for housing.”
The CREA forecast for sales in both Alberta and across the country is down from a previous forecast it released in September. At that time, the organization predicted Alberta annual sales growth of 13.8 per cent this year and another 1.7 per cent in 2013. For Canada, it had forecast sales to increase by 1.9 per cent this year but decline by 1.9 per cent in 2013.
On Monday, CREA said the average sale price in Alberta is expected to rise by 2.7 per cent this year to $363,100 and by another 2.3 per cent in 2013 to $371,300.
Across Canada, the national average sale price is forecast to increase by 0.3 per cent this year and next year to $363,900 and $365,100, respectively.
In November, Calgary MLS sales of 1,831 were up 10.6 per cent compared with last year while on the national level sales dipped by 11.9 per cent to 30,573.
The average sale price in Calgary rose by 3.8 per cent to $413,921 but fell by 0.8 per cent across the country to $356,687.
In Alberta, sales increased by 3.2 per cent to 4,034 transactions and the average price was up 4.3 per cent to $365,999.
“National sales activity has remained fairly steady at lower levels since mortgage rules were changed earlier this year, but that stability masks some real differences in trends among local housing markets,” said Wayne Moen, CREA’s president.
CREA on Monday also released its MLS Home Price Index of seven major Canadian markets. Regina’s annual price growth of 11.58 per cent led the nation followed by Calgary at 7.13 per cent.
The national association of realtors said Monday that Alberta MLS sales this year will finish up 13.1 per cent from last year to 60,800 transactions and sales will lead the country next year as well with 1.3 per cent growth to 61,600.
Nationally, sales are forecast to decline by 0.5 per cent this year to 456,300 and fall by another 2.0 per cent in 2013 to 447,400 transactions.
The Real Estate Investment Network in Canada is “hot” on Calgary’s potential and has ranked it the top investment city in Canada for 2013 to 2016, said Melanie Reuter, director of research for the organization.
“This ranking came as a result of extensive research into the underlying economic fundamentals driving Calgary’s economy as well as the current housing market’s response to these fundamentals,” she said. “The job market is strong and is poised to lead the country in job and population growth. Immigration from other parts of Canada as well as abroad is putting a steep downward pressure on vacancy rates and a strong upward movement on rents. This pressure is not predicted to ease significantly in the coming years.
“The high average-weekly-earnings in the city mean more disposable income in this PST-free province, which is creating a country leading consumer confidence level. This is creating further stimulation of the economy through consumer spending, which in turn brings increased employers, people, and demand for housing.”
The CREA forecast for sales in both Alberta and across the country is down from a previous forecast it released in September. At that time, the organization predicted Alberta annual sales growth of 13.8 per cent this year and another 1.7 per cent in 2013. For Canada, it had forecast sales to increase by 1.9 per cent this year but decline by 1.9 per cent in 2013.
On Monday, CREA said the average sale price in Alberta is expected to rise by 2.7 per cent this year to $363,100 and by another 2.3 per cent in 2013 to $371,300.
Across Canada, the national average sale price is forecast to increase by 0.3 per cent this year and next year to $363,900 and $365,100, respectively.
In November, Calgary MLS sales of 1,831 were up 10.6 per cent compared with last year while on the national level sales dipped by 11.9 per cent to 30,573.
The average sale price in Calgary rose by 3.8 per cent to $413,921 but fell by 0.8 per cent across the country to $356,687.
In Alberta, sales increased by 3.2 per cent to 4,034 transactions and the average price was up 4.3 per cent to $365,999.
“National sales activity has remained fairly steady at lower levels since mortgage rules were changed earlier this year, but that stability masks some real differences in trends among local housing markets,” said Wayne Moen, CREA’s president.
CREA on Monday also released its MLS Home Price Index of seven major Canadian markets. Regina’s annual price growth of 11.58 per cent led the nation followed by Calgary at 7.13 per cent.
The national aggregate price rose 3.5 per cent year-over-year, the seventh time in as many months that the year-over-year gain shrank and it marks the slowest rate of increase since May 2011.
David Madani, Canada Economist for Capital Economics, said the continued decline in existing home sales across Canaada supports its view that a potentially severe housing correction is underway.
“Assuming that sales continue to trend lower heading into next year, then sharper demand and supply imbalances will eventually lead to widespread home price declines,” he said. “We still think that house prices will decline by 25 per cent over the next year or two.”
mtoneguzzi@calgaryherald.com
David Madani, Canada Economist for Capital Economics, said the continued decline in existing home sales across Canaada supports its view that a potentially severe housing correction is underway.
“Assuming that sales continue to trend lower heading into next year, then sharper demand and supply imbalances will eventually lead to widespread home price declines,” he said. “We still think that house prices will decline by 25 per cent over the next year or two.”
mtoneguzzi@calgaryherald.com
Thursday 20 December 2012
BoC’s interest rate warnings drove homeowners to lock in mortgages: Carney
John Shmuel, Financial Post
TORONTO — Two prominent voices made the case on Tuesday that Canada’s housing market is currently undergoing a soft landing, and that a “sustainable” path is around the corner.
In a speech to the CFA Society in Toronto, Bank of Canada governor Mark Carney said a combination of new mortgage rules introduced by the federal government, as well as a clear tightening bias from the central bank, are working successfully together to cool Canada’s red hot housing market.
That observation came as another optimistic view of the housing market was presented by Scotiabank’s senior economist, Adrienne Warren. She predicted that Canada’s housing market was “shifting toward a more sustainable path.”
“Canada’s housing market so far appears to have achieved a soft landing, with cooler but fairly steady sales and pricing through the fall,” she said.
There have been persistent warnings — from both the Bank of Canada and from many economists — about the risk Canada’s heated housing market poses to the economy this year.
But in his speech, Mr. Carney said that he is seeing “encouraging” signs in the housing market.
Mr. Carney said there is already evidence that Canadian consumers, who have one of the highest debt-to-income ratios in the world, are taking warnings of looming rate hikes seriously. As evidence, he pointed to the mortgage market, in which he says the share of fixed-rate mortgages in Canada has almost doubled to 90% this year, while variable-rate mortgages have seen a corresponding decline. Consumers tend to hover toward variable-rate mortgages when they expect interest rates to be low for a very long time.
Mr. Carney has been sounding the alarm on household debt in Canada for the past year, especially given that household debt-to-income levels have hit the same unsustainable levels that U.S. and British consumers experienced prior to the financial crisis.
Ms. Warren pointed out that while Canada’s housing market appears to be positioning itself into a soft landing, specific markets are set to fare better than others. She said she expects demand to be soft in Vancouver and Toronto, the former of which is currently experiencing significant drops in home prices and sales. Meanwhile, markets in Alberta and Saskatchewan, which continue to benefit from a resource-fuelled economic boom, will see ongoing strength in prices due to a growing population.
“However, with the Canadian economy continuing to post healthy job growth, and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely,” she said.
Although Ms. Warren calls the current housing situation an “orderly slowdown,” she cautioned there are still risks.
“There’s a lot of uncertainty out there in terms of the global economic outlook, whether it’s the U.S. fiscal cliff or the eurozone problems, that can have a significant impact on the Canadian economy and Canadian hiring in 2013,” she said in an interview.
Canada will probably avoid a housing crash, but Ms. Warren cautioned it may be too early to celebrate, given that even a soft landing has serious implications for the economy.
“A lot of activity in recent years, especially Canada’s relative outperformance to other economies, is attributable to the strength of the housing market,” she said. “It’s generated jobs, a lot of retail spending. We see [a slowdown as] being a drag on the overall economy.”
With files from Melissa Leong
TORONTO — Two prominent voices made the case on Tuesday that Canada’s housing market is currently undergoing a soft landing, and that a “sustainable” path is around the corner.
In a speech to the CFA Society in Toronto, Bank of Canada governor Mark Carney said a combination of new mortgage rules introduced by the federal government, as well as a clear tightening bias from the central bank, are working successfully together to cool Canada’s red hot housing market.
I wouldn’t say mission accomplished … but a more sustainable housing situation in Canada is within sight“I wouldn’t say mission accomplished … but a more sustainable housing situation in Canada is within sight,” he said.
That observation came as another optimistic view of the housing market was presented by Scotiabank’s senior economist, Adrienne Warren. She predicted that Canada’s housing market was “shifting toward a more sustainable path.”
“Canada’s housing market so far appears to have achieved a soft landing, with cooler but fairly steady sales and pricing through the fall,” she said.
There have been persistent warnings — from both the Bank of Canada and from many economists — about the risk Canada’s heated housing market poses to the economy this year.
But in his speech, Mr. Carney said that he is seeing “encouraging” signs in the housing market.
Mr. Carney said there is already evidence that Canadian consumers, who have one of the highest debt-to-income ratios in the world, are taking warnings of looming rate hikes seriously. As evidence, he pointed to the mortgage market, in which he says the share of fixed-rate mortgages in Canada has almost doubled to 90% this year, while variable-rate mortgages have seen a corresponding decline. Consumers tend to hover toward variable-rate mortgages when they expect interest rates to be low for a very long time.
Mr. Carney has been sounding the alarm on household debt in Canada for the past year, especially given that household debt-to-income levels have hit the same unsustainable levels that U.S. and British consumers experienced prior to the financial crisis.
Ms. Warren pointed out that while Canada’s housing market appears to be positioning itself into a soft landing, specific markets are set to fare better than others. She said she expects demand to be soft in Vancouver and Toronto, the former of which is currently experiencing significant drops in home prices and sales. Meanwhile, markets in Alberta and Saskatchewan, which continue to benefit from a resource-fuelled economic boom, will see ongoing strength in prices due to a growing population.
“However, with the Canadian economy continuing to post healthy job growth, and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely,” she said.
Although Ms. Warren calls the current housing situation an “orderly slowdown,” she cautioned there are still risks.
“There’s a lot of uncertainty out there in terms of the global economic outlook, whether it’s the U.S. fiscal cliff or the eurozone problems, that can have a significant impact on the Canadian economy and Canadian hiring in 2013,” she said in an interview.
Canada will probably avoid a housing crash, but Ms. Warren cautioned it may be too early to celebrate, given that even a soft landing has serious implications for the economy.
“A lot of activity in recent years, especially Canada’s relative outperformance to other economies, is attributable to the strength of the housing market,” she said. “It’s generated jobs, a lot of retail spending. We see [a slowdown as] being a drag on the overall economy.”
With files from Melissa Leong
Tuesday 18 December 2012
Canada's Housing Market: a victim of demographics
Rob Carrick, The Globe and Mail
Demographic trends built up our housing market, and now they’re going to start pulling it apart.
Prepare yourselves, buyers and sellers. The years ahead for housing will look nothing like the last decade.
A report issued by Pacifica Partners Capital Management in B.C., describes the housing market as we know it today as a product of a wave of buying by baby boomers in their peak earning years. Now, as they start entering retirement, boomers aren’t buying houses any more and the younger generation isn’t large enough to pick up the slack.
Anyone still think the housing market’s going to snap back from the weakening trend that has taken hold in the past couple of months? It’s not, so act accordingly. Adjusting our expectations about housing won’t be easy because we’ve seen prices rise dramatically. Canadian Real Estate Association numbers show an average annual price gain of 7.7 per cent over the past 10 years on a national basis.
Aman Bhangu, Pacifica’s vice-president of research, said real estate has performed a lot like stocks did before the twin stock market crashes of the past decade. “At the end of the 1980s and 1990s, you had that mantra of ‘buy and hold, stock markets always go up, just get in there.’ It’s likewise with real estate – ‘real estate always goes up.’”
Mr. Bhangu said that taking a fresh look at the fundamentals supporting the real estate sector suggests prices are overvalued today by one-third, while other estimates call for a price decline of 10 to 25 per cent from current levels. Forecasts like these are educated guesses, whereas the demographic impact on housing is rooted in basic numbers.
Pacifica’s report says people aged 45 to 64 used to account for just below 20 per cent of the population. In the 1990s and 2000s, however, this cohort claimed an additional 10 per cent of the population. In round numbers, there are 4.3 million more 45- to 64-year-olds now than there were in 1990. Most housing bubbles in the industrialized world have occurred after sharp growth in the number of 45- to 64-year-olds, Pacific said in paraphrasing research issued last fall by the French bank Société Générale.
In previous generations, the supply of young people in Canada was big enough to replenish the gaps created as older workers moved into retirement. Now, with baby boomers such a disproportionate part of the population, there’s a shortfall.
Young adults buy starter homes from people moving up to the more expensive houses where boomers live. Gen Y, you’ve just been handed the perfect comeback the next time a boomer dismisses your complaints about high tuition costs and a tough job market. Just say: “Good luck selling your house, old timer.”
Mr. Bhangu said immigration could help support the housing market as boomers age, but he’s unsure how much of the impact of shifting demographics can be overcome. A key question is whether the job market in Canada can sustain the level of immigration needed to maintain equilibrium in the housing market.
Here’s what Mr. Bhangu suggests if you’re a boomer who has ideas about selling the family home any time soon. Consider all your financial assets and savings, and determine how much you’re depending on the value locked in your home to meet your financial goals. If your home is a dominant part of your net worth, think about selling it now so you can diversify your holdings.
Mr. Bhangu said young people shouldn’t dismiss renting for the near term, in part because it gives them mobility in finding a job. Those who want to buy a house need not feel as if they have to rush into the market now, before house prices climb out of reach. “At this time, there’s more risk going in than there is in holding out.”
That’s the investing point of view on home ownership. Before the rapid increase in house prices of the past decade, people generally bought houses for lifestyle reasons. If that’s your view on owning a home and you figure on staying for 10 years or more, then ignore demographics and focus on affordability.
Here, there’s good news. Housing prices are under pressure as sales decline, and a five-year fixed-rate mortgage can be had with minimal hassle for roughly 3 per cent. Only buy a house you love, though. It’ll carry you through the days ahead when people talk about what a terrible investment housing is.
Demographic trends built up our housing market, and now they’re going to start pulling it apart.
Prepare yourselves, buyers and sellers. The years ahead for housing will look nothing like the last decade.
A report issued by Pacifica Partners Capital Management in B.C., describes the housing market as we know it today as a product of a wave of buying by baby boomers in their peak earning years. Now, as they start entering retirement, boomers aren’t buying houses any more and the younger generation isn’t large enough to pick up the slack.
Anyone still think the housing market’s going to snap back from the weakening trend that has taken hold in the past couple of months? It’s not, so act accordingly. Adjusting our expectations about housing won’t be easy because we’ve seen prices rise dramatically. Canadian Real Estate Association numbers show an average annual price gain of 7.7 per cent over the past 10 years on a national basis.
Aman Bhangu, Pacifica’s vice-president of research, said real estate has performed a lot like stocks did before the twin stock market crashes of the past decade. “At the end of the 1980s and 1990s, you had that mantra of ‘buy and hold, stock markets always go up, just get in there.’ It’s likewise with real estate – ‘real estate always goes up.’”
Mr. Bhangu said that taking a fresh look at the fundamentals supporting the real estate sector suggests prices are overvalued today by one-third, while other estimates call for a price decline of 10 to 25 per cent from current levels. Forecasts like these are educated guesses, whereas the demographic impact on housing is rooted in basic numbers.
Pacifica’s report says people aged 45 to 64 used to account for just below 20 per cent of the population. In the 1990s and 2000s, however, this cohort claimed an additional 10 per cent of the population. In round numbers, there are 4.3 million more 45- to 64-year-olds now than there were in 1990. Most housing bubbles in the industrialized world have occurred after sharp growth in the number of 45- to 64-year-olds, Pacific said in paraphrasing research issued last fall by the French bank Société Générale.
In previous generations, the supply of young people in Canada was big enough to replenish the gaps created as older workers moved into retirement. Now, with baby boomers such a disproportionate part of the population, there’s a shortfall.
Young adults buy starter homes from people moving up to the more expensive houses where boomers live. Gen Y, you’ve just been handed the perfect comeback the next time a boomer dismisses your complaints about high tuition costs and a tough job market. Just say: “Good luck selling your house, old timer.”
Mr. Bhangu said immigration could help support the housing market as boomers age, but he’s unsure how much of the impact of shifting demographics can be overcome. A key question is whether the job market in Canada can sustain the level of immigration needed to maintain equilibrium in the housing market.
Here’s what Mr. Bhangu suggests if you’re a boomer who has ideas about selling the family home any time soon. Consider all your financial assets and savings, and determine how much you’re depending on the value locked in your home to meet your financial goals. If your home is a dominant part of your net worth, think about selling it now so you can diversify your holdings.
Mr. Bhangu said young people shouldn’t dismiss renting for the near term, in part because it gives them mobility in finding a job. Those who want to buy a house need not feel as if they have to rush into the market now, before house prices climb out of reach. “At this time, there’s more risk going in than there is in holding out.”
That’s the investing point of view on home ownership. Before the rapid increase in house prices of the past decade, people generally bought houses for lifestyle reasons. If that’s your view on owning a home and you figure on staying for 10 years or more, then ignore demographics and focus on affordability.
Here, there’s good news. Housing prices are under pressure as sales decline, and a five-year fixed-rate mortgage can be had with minimal hassle for roughly 3 per cent. Only buy a house you love, though. It’ll carry you through the days ahead when people talk about what a terrible investment housing is.
Monday 17 December 2012
Canadian housing market comes in for ‘a soft landing’
The Vancouver Sun
TORONTO — The Canadian housing market appears to have achieved “a soft landing” so far with sales cooler but still fairly steady along with prices, Scotiabank says.
Nationally, sales in October were down about 10 per cent from the spring, but only marginally below the average pace of the past decade, said the report Tuesday by Scotiabank economist Adrienne Warren.
Warren noted the moderation mirrors a modest softening in the job market over the summer and follows repeated warnings to Canadians to be careful about the amount of money they borrow.
The easing also follows a tightening of mortgage lending rules by the federal government in the summer.
“The latest round of regulatory changes that took effect in early July, including the lowering of the maximum amortization period from 30 to 25 years, has contributed to the softening but does not appear to have sharply accelerated the decline,” Warren wrote in the report.
“Meanwhile, anecdotal reports point to a lower level of investor and/or foreign demand.”
A report by the Canadian Real Estate Association last month suggested that the resale of homes across Canada in October was down slightly from September and a year ago, while prices held steady.
However, some of the country’s hottest markets — Vancouver, Toronto and Montreal — saw sales down from a year ago.
Warren said housing demand is expected to remain on the softer side for now.
“This could put some further downward pressure on sales volumes as well as prices, especially in markets that have already shifted into buyers’ territory or in certain market segments that are potentially oversupplied,” she said.
“However, with the Canadian economy continuing to post healthy job growth and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely.”
The Scotiabank report noted that globally there is still more weakness than strength in housing markets around the world, though the downward pressure on prices in a number of countries has eased.
“In the majority of advanced and emerging-nation property markets we track, average inflation-adjusted house prices were negative on a year-over-year basis in the third quarter,” Warren wrote.
“However, many are showing some tentative signs of stabilization, including the U.S., the U.K., Australia and China, supported in part by highly accommodative monetary policy.”
Warren suggest the relatively flat global performance suggests households are being cautious, even with low interest rates and lower prices making homes more affordable.
Housing markets remain weakest in Europe.
Nationally, sales in October were down about 10 per cent from the spring, but only marginally below the average pace of the past decade, said the report Tuesday by Scotiabank economist Adrienne Warren.
Warren noted the moderation mirrors a modest softening in the job market over the summer and follows repeated warnings to Canadians to be careful about the amount of money they borrow.
The easing also follows a tightening of mortgage lending rules by the federal government in the summer.
“The latest round of regulatory changes that took effect in early July, including the lowering of the maximum amortization period from 30 to 25 years, has contributed to the softening but does not appear to have sharply accelerated the decline,” Warren wrote in the report.
“Meanwhile, anecdotal reports point to a lower level of investor and/or foreign demand.”
A report by the Canadian Real Estate Association last month suggested that the resale of homes across Canada in October was down slightly from September and a year ago, while prices held steady.
However, some of the country’s hottest markets — Vancouver, Toronto and Montreal — saw sales down from a year ago.
Warren said housing demand is expected to remain on the softer side for now.
“This could put some further downward pressure on sales volumes as well as prices, especially in markets that have already shifted into buyers’ territory or in certain market segments that are potentially oversupplied,” she said.
“However, with the Canadian economy continuing to post healthy job growth and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely.”
The Scotiabank report noted that globally there is still more weakness than strength in housing markets around the world, though the downward pressure on prices in a number of countries has eased.
“In the majority of advanced and emerging-nation property markets we track, average inflation-adjusted house prices were negative on a year-over-year basis in the third quarter,” Warren wrote.
“However, many are showing some tentative signs of stabilization, including the U.S., the U.K., Australia and China, supported in part by highly accommodative monetary policy.”
Warren suggest the relatively flat global performance suggests households are being cautious, even with low interest rates and lower prices making homes more affordable.
Housing markets remain weakest in Europe.
© Copyright (c) The Vancouver Sun
Friday 14 December 2012
Sellers in Toronto and Vancouver Just Say No as Housing Markets Sink
Michael Babad, The Globe and Mail
Vancouver, Toronto hit
Homeowners looking to sell are pulling back or holding out - and buyers are taking a breather - in the fast-cooling Vancouver and Toronto markets.
Both cities, the focus of concern as Canada’s housing market slows, are feeling the heat, as the latest numbers show.
As The Globe and Mail’s Brent Jang reports today, sales fell almost 29 per cent in November from a year earlier, to 1,686, while prices declined by 1.7 per cent.
“Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties,” said the realtor group’s president, Eugen Klein.
“On the other hand, buyers appear to be expecting prices to moderate.”
Indeed, new listings fell more than 14 per cent last month, and were almost 13 per cent below the 10-year average for the month of November.
“Sales are down 42 per cent from the past-decade norm, a victim of excessive valuations, tougher mortgage rules and the temporary suspension of the Immigrant Investor Program,” said senior economist Sal Guatieri of BMO Nesbitt Burns.
“Price declines have quickened, too, down 1.7 per cent year-over-year and off 4.5 per cent from the spring peak. Vancouver’s market is on the downslope of its historical roller-coaster ride, though low interest rates are keeping it on the tracks.”
According to the Toronto Real Estate Board today, sales in November fell 16 per cent from a year earlier to 5,793, with condos particularly hard hit. Average prices rose 1.6 per cent.
New listings fell 1.3 per cent, while active listings climbed almost 18 per cent.
“Stricter mortgage lending guidelines, including a reduced maximum amortization period and a purchase price ceiling of $1-million for government insured mortgages, have prompted some buyers to move to the sidelines,” said the group’s president, Ann Hannah.
“This situation has been exacerbated in the City of Toronto because the additional upfront Land Transfer Tax takes money away from buyers that otherwise could be used for a larger down payment.”
The cooling of Canada’s housing market is expected to play out across the country, and most observers expect a soft landing.
“Moderating home sales are expected to slow the pace of residential building, particularly in the overbuilt condo markets in Vancouver and Toronto,” Bank of Nova Scotia economists said in a new forecast.
Vancouver, Toronto hit
Homeowners looking to sell are pulling back or holding out - and buyers are taking a breather - in the fast-cooling Vancouver and Toronto markets.
Both cities, the focus of concern as Canada’s housing market slows, are feeling the heat, as the latest numbers show.
As The Globe and Mail’s Brent Jang reports today, sales fell almost 29 per cent in November from a year earlier, to 1,686, while prices declined by 1.7 per cent.
“Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties,” said the realtor group’s president, Eugen Klein.
“On the other hand, buyers appear to be expecting prices to moderate.”
Indeed, new listings fell more than 14 per cent last month, and were almost 13 per cent below the 10-year average for the month of November.
“Sales are down 42 per cent from the past-decade norm, a victim of excessive valuations, tougher mortgage rules and the temporary suspension of the Immigrant Investor Program,” said senior economist Sal Guatieri of BMO Nesbitt Burns.
“Price declines have quickened, too, down 1.7 per cent year-over-year and off 4.5 per cent from the spring peak. Vancouver’s market is on the downslope of its historical roller-coaster ride, though low interest rates are keeping it on the tracks.”
According to the Toronto Real Estate Board today, sales in November fell 16 per cent from a year earlier to 5,793, with condos particularly hard hit. Average prices rose 1.6 per cent.
New listings fell 1.3 per cent, while active listings climbed almost 18 per cent.
“Stricter mortgage lending guidelines, including a reduced maximum amortization period and a purchase price ceiling of $1-million for government insured mortgages, have prompted some buyers to move to the sidelines,” said the group’s president, Ann Hannah.
“This situation has been exacerbated in the City of Toronto because the additional upfront Land Transfer Tax takes money away from buyers that otherwise could be used for a larger down payment.”
The cooling of Canada’s housing market is expected to play out across the country, and most observers expect a soft landing.
“Moderating home sales are expected to slow the pace of residential building, particularly in the overbuilt condo markets in Vancouver and Toronto,” Bank of Nova Scotia economists said in a new forecast.
Variables Still Play Second Fiddle
By Rob McLister, Canadian Mortgage Trends
Will we ever stop writing about which rate is better: fixed or variable?
It's doubtful.
And the answer will probably always be: “It depends.”
Yesterday, Rob Carrick from the Globe & Mail ran this story on why variable-rate mortgages should not be written off. Its main arguments are that rate risk has declined and historical studies support variable rates.
Well, in our books, Carrick is one of the best tell-it-like-it-is writers in personal finance. But this particular story needs at least a teaspoon of perspective.
Will we ever stop writing about which rate is better: fixed or variable?
It's doubtful.
And the answer will probably always be: “It depends.”
Yesterday, Rob Carrick from the Globe & Mail ran this story on why variable-rate mortgages should not be written off. Its main arguments are that rate risk has declined and historical studies support variable rates.
Well, in our books, Carrick is one of the best tell-it-like-it-is writers in personal finance. But this particular story needs at least a teaspoon of perspective.
The premise of the article is that variable-rate mortgages are worth a second look, for the following reasons:
1) Because rates won’t rise much
David Larock, a good broker and an equally good blogger, is quoted as saying “(Will rates rise anytime soon?) I just don’t see it, no.”
But there lies a problem. Apart from the very short term, we all know rates are entirely unpredictable. When the Bank of Canada (with its virtually unlimited resources) cannot consistently forecast economic activity, we as laypeople and brokers have absolutely and unequivocally zero chance of doing so.
The economy surprises analysts almost every single year.1 There’s always something we didn’t foresee that moves interest rates in ways we didn’t predict. Yet, because we’re emotional creatures who overestimate our own abilities, we insist on forming rate opinions (and those opinions are invariably either too optimistic or too pessimistic).
The point is, while our gut may point to low rates for longer, we don’t know:
Note: A 75 basis point increase to prime rate would still put us 35 bps below the 10-year average (not that averages have significant predictive power).
2) Because variable rates have won in the past
The story cites a statistic (presumably from Moshe Milevsky’s research) that variable-rate mortgages have been cheaper 90% of the time.
That stat is easily the most misinterpreted statistic in the mortgage business. The actual research shows that assumptions are everything. (Here’s more on that: Fixed/Variable Research)
In brief, that 90% figure is based on an environment that no longer exists, one of posted rates and a long-term rate-downtrend.
Milevsky found that a simulation based on discounted mortgage rates (instead of posted) makes fixed mortgages come out on top roughly one-quarter of the time.
And, if you wanted to take it a step further, you could backtest rates using today’s tiny 39 basis point fixed-variable spread. If you did that, you'd quickly see that the fixed vs. variable decision becomes a statistical toss-up.
For most people, especially younger borrowers, going variable today is like betting on red or black. You’ve got to pick your gambles in life and, for new mortgages, the variable-rate odds simply aren't enough in your favour.
Of course, rates could theoretically fall from here (or go sideways for years) and make floating rates a winner. But that wouldn’t mean that variable rates are the right choice based on the information we have today.
If you do need a short-term mortgage, go with a 1-year fixed instead. They’re cheaper upfront, more flexible and a 1-year potentially lets you renew into a variable rate with a deeper discount.
Some Footnotes:
1 The Citigroup Economic Surprise Index compares analyst expectations to actual economic readings. It shows how often the pros over- and under-estimate economic activity—and in turn, interest rates.
2 This analysis measures interest cost only and assumes: (a) a 25-year amortization, and (b) that the variable- and fixed-rate mortgage payments are made equal (this compares cash flows on an apples-to-apples basis).
Monthly interest isn’t the only determinant of borrowing cost. Fees, penalties, amortization and a slew of other factors must also be considered. That’s why telling everyone to lock in is like telling everyone to buy bonds instead of stocks. It's not appropriate since personal circumstances affect suitability.
If, for example, you’re quite financially stable and already in a deeply discounted variable (like prime – 0.80%), you’re likely better off riding it out. (Here are some additional fixed vs. variable suitability criteria.)
For the reasons above, the fixed-rate commentary in this post is primarily aimed at people who are:
1) Because rates won’t rise much
David Larock, a good broker and an equally good blogger, is quoted as saying “(Will rates rise anytime soon?) I just don’t see it, no.”
But there lies a problem. Apart from the very short term, we all know rates are entirely unpredictable. When the Bank of Canada (with its virtually unlimited resources) cannot consistently forecast economic activity, we as laypeople and brokers have absolutely and unequivocally zero chance of doing so.
The economy surprises analysts almost every single year.1 There’s always something we didn’t foresee that moves interest rates in ways we didn’t predict. Yet, because we’re emotional creatures who overestimate our own abilities, we insist on forming rate opinions (and those opinions are invariably either too optimistic or too pessimistic).
The point is, while our gut may point to low rates for longer, we don’t know:
- how low
- for how long, and
- how the timing of future rate changes will coincide with our mortgage renewal date(s).
Note: A 75 basis point increase to prime rate would still put us 35 bps below the 10-year average (not that averages have significant predictive power).
2) Because variable rates have won in the past
The story cites a statistic (presumably from Moshe Milevsky’s research) that variable-rate mortgages have been cheaper 90% of the time.
That stat is easily the most misinterpreted statistic in the mortgage business. The actual research shows that assumptions are everything. (Here’s more on that: Fixed/Variable Research)
In brief, that 90% figure is based on an environment that no longer exists, one of posted rates and a long-term rate-downtrend.
Milevsky found that a simulation based on discounted mortgage rates (instead of posted) makes fixed mortgages come out on top roughly one-quarter of the time.
And, if you wanted to take it a step further, you could backtest rates using today’s tiny 39 basis point fixed-variable spread. If you did that, you'd quickly see that the fixed vs. variable decision becomes a statistical toss-up.
********
The takeaway here is that it’s a tad early to declare "variable-rate mortgages are back."For most people, especially younger borrowers, going variable today is like betting on red or black. You’ve got to pick your gambles in life and, for new mortgages, the variable-rate odds simply aren't enough in your favour.
Of course, rates could theoretically fall from here (or go sideways for years) and make floating rates a winner. But that wouldn’t mean that variable rates are the right choice based on the information we have today.
If you do need a short-term mortgage, go with a 1-year fixed instead. They’re cheaper upfront, more flexible and a 1-year potentially lets you renew into a variable rate with a deeper discount.
Some Footnotes:
1 The Citigroup Economic Surprise Index compares analyst expectations to actual economic readings. It shows how often the pros over- and under-estimate economic activity—and in turn, interest rates.
2 This analysis measures interest cost only and assumes: (a) a 25-year amortization, and (b) that the variable- and fixed-rate mortgage payments are made equal (this compares cash flows on an apples-to-apples basis).
Monthly interest isn’t the only determinant of borrowing cost. Fees, penalties, amortization and a slew of other factors must also be considered. That’s why telling everyone to lock in is like telling everyone to buy bonds instead of stocks. It's not appropriate since personal circumstances affect suitability.
If, for example, you’re quite financially stable and already in a deeply discounted variable (like prime – 0.80%), you’re likely better off riding it out. (Here are some additional fixed vs. variable suitability criteria.)
For the reasons above, the fixed-rate commentary in this post is primarily aimed at people who are:
- suited to either a fixed or variable mortgage
- getting a new mortgage (as opposed to someone in an existing variable rate)
- unlikely to make significant mortgage changes in the next five years.
Wednesday 12 December 2012
Bank of Canada pins hopes on the New Year
By Kevin Carmichael, The Globe and Mail
The Bank of Canada is looking past weaker economic growth, holding to a projection that Canada’s economy will gather pace next year.
Policy makers appear little moved by a report last week that showed Canada’s gross domestic product grew at an annual rate of 0.6 per cent in the third quarter, a poor showing that fell short of the Bank of Canada’s already dim projection for growth of 1 per cent in the July-August period.
The central bank acknowledged Tuesday that the third-quarter number was “weak,” but attributed part of the slump to “transitory disruptions” in the energy industry. Policy makers held to their view that ultralow borrowing costs will stir enough household consumption and business investment in the months ahead to avoid a prolonged slump. The Bank of Canada in October predicted the economy would expand at a rate of 2.5 per cent in the fourth quarter.
“Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013,” the Bank of Canada said in a statement, as it held its benchmark interest rate unchanged at 1 per cent at the end of its latest round of policy deliberations.
The central bank’s response to the third-quarter growth figures suggests Bank of Canada Governor Mark Carney and his deputies on the governing council remain more inclined to raise interest rates than to lower them, although a change in stance is unlikely for some time.
Policy makers left in place their guidance on the likely path for interest rates, reiterating their view that “over time, some modest withdrawal of monetary policy stimulus will likely be required” to keep inflation from topping the central bank’s 2-per-cent target. “The timing and degree of any such withdrawal will be weighed against global and domestic developments, including the evolution of imbalances in the household sector,” the statement said.
Canada’s central bank finds itself in the unique situation of having to confront an unstable global economy while having to look over its shoulder at an uncomfortably large burst of household debt. On the opposite side of the world, faced with a resource boom that appears to have peaked, the Reserve Bank of Australia Tuesday cut its benchmark lending rate to 3 per cent, its level during the financial crisis, in a bid to spark domestic industries, including a lacklustre real estate market.
Canada’s overnight target stayed where it has been for more than two years. That’s an extremely low level, and it’s unusual to leave policy unchanged for such a long period; the last time the central bank left borrowing costs unchanged for this long was the early 1950s. As a result, murmurs that Mr. Carney is fuelling an unsustainable expansion of household debt and a housing bubble likely will persist.
The Bank of Canada noted that the housing market is beginning to cool, and the growth of credit is starting to slow. “It is too early, however, to determine whether the moderation in housing activity and credit growth will be sustained,” the statement said.
Some analysts said Canada’s central bankers should stop worrying about a housing bubble and focus on a deteriorating economy. Paul-André Pinsonnault, senior fixed-income economist at National Bank Financial in Montreal, said the economy’s problems extend beyond temporary issues in the energy industry. Corporate profits are declining, and hiring is stagnant. “We continue to see no reason for any rate hikes before 2014,” Mr. Pinsonnault said.
The Bank of Canada isn’t exactly sanguine. It reiterated that weak global growth – accentuated by a recession in Europe and a “gradual” recovery in the United States – is impeding exports.
Predicting where the global economy is headed is extremely difficult right now. The Bank of Canada said the deceleration of China’s economy has “stabilized,” which is a positive sign. At the same time, strained budget negotiations in Washington are holding back the U.S. recovery by making it impossible to predict tax policy. Until that cloud lifts, it also will be difficult to set Canadian monetary policy.
The Bank of Canada is looking past weaker economic growth, holding to a projection that Canada’s economy will gather pace next year.
Policy makers appear little moved by a report last week that showed Canada’s gross domestic product grew at an annual rate of 0.6 per cent in the third quarter, a poor showing that fell short of the Bank of Canada’s already dim projection for growth of 1 per cent in the July-August period.
The central bank acknowledged Tuesday that the third-quarter number was “weak,” but attributed part of the slump to “transitory disruptions” in the energy industry. Policy makers held to their view that ultralow borrowing costs will stir enough household consumption and business investment in the months ahead to avoid a prolonged slump. The Bank of Canada in October predicted the economy would expand at a rate of 2.5 per cent in the fourth quarter.
“Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013,” the Bank of Canada said in a statement, as it held its benchmark interest rate unchanged at 1 per cent at the end of its latest round of policy deliberations.
The central bank’s response to the third-quarter growth figures suggests Bank of Canada Governor Mark Carney and his deputies on the governing council remain more inclined to raise interest rates than to lower them, although a change in stance is unlikely for some time.
Policy makers left in place their guidance on the likely path for interest rates, reiterating their view that “over time, some modest withdrawal of monetary policy stimulus will likely be required” to keep inflation from topping the central bank’s 2-per-cent target. “The timing and degree of any such withdrawal will be weighed against global and domestic developments, including the evolution of imbalances in the household sector,” the statement said.
Canada’s central bank finds itself in the unique situation of having to confront an unstable global economy while having to look over its shoulder at an uncomfortably large burst of household debt. On the opposite side of the world, faced with a resource boom that appears to have peaked, the Reserve Bank of Australia Tuesday cut its benchmark lending rate to 3 per cent, its level during the financial crisis, in a bid to spark domestic industries, including a lacklustre real estate market.
Canada’s overnight target stayed where it has been for more than two years. That’s an extremely low level, and it’s unusual to leave policy unchanged for such a long period; the last time the central bank left borrowing costs unchanged for this long was the early 1950s. As a result, murmurs that Mr. Carney is fuelling an unsustainable expansion of household debt and a housing bubble likely will persist.
The Bank of Canada noted that the housing market is beginning to cool, and the growth of credit is starting to slow. “It is too early, however, to determine whether the moderation in housing activity and credit growth will be sustained,” the statement said.
Some analysts said Canada’s central bankers should stop worrying about a housing bubble and focus on a deteriorating economy. Paul-André Pinsonnault, senior fixed-income economist at National Bank Financial in Montreal, said the economy’s problems extend beyond temporary issues in the energy industry. Corporate profits are declining, and hiring is stagnant. “We continue to see no reason for any rate hikes before 2014,” Mr. Pinsonnault said.
The Bank of Canada isn’t exactly sanguine. It reiterated that weak global growth – accentuated by a recession in Europe and a “gradual” recovery in the United States – is impeding exports.
Predicting where the global economy is headed is extremely difficult right now. The Bank of Canada said the deceleration of China’s economy has “stabilized,” which is a positive sign. At the same time, strained budget negotiations in Washington are holding back the U.S. recovery by making it impossible to predict tax policy. Until that cloud lifts, it also will be difficult to set Canadian monetary policy.
Tuesday 11 December 2012
Reasons to Celebrate: Smart Consumers and Low Unemployment
Article written by Boris Bozic, Merix Financial
For some time now, finding positive news about the mortgage industry and the real estate market in general required a Sherpa Guide and a donkey. “I think I just heard something positive about mortgages… OOPS, my bad, it’s just Big Foot.”
It hasn’t been easy but over the past couple of weeks there’s been news which leads me to believe the Four Horsemen of the Apocalypse may not be on the way.
CAAMP’s Annual State of the Residential Mortgage Market in Canada (love those short titles) was released just prior to Mortgage Forum 2012 in Vancouver. It’s a must read for everyone in the industry. All the major media outlets have picked up the report and there’s been a significant amount of coverage based on the report. One aspect of the report that bodes well for the industry, and should give regulators some degree of comfort, is how responsible Canadian borrowers are. I found it striking that 32% of borrowers either increased their monthly payments or made principal reductions over the past 12 months. It is estimated that $3.5 billion in additional monthly payments were made, and a further $20 billion in lump sum payments. Yes, consumers are taking on more debt but they’re looking at paying off their debt sooner. When stories are written about consumer debt levels, a word or two should be dedicated to how responsible Canadians are in attempting to eliminate their debt.
Here’s another indication that consumers maybe be smarter than the press give them credit for. Over the past 12 months there’s been a high level of ARM conversions to 5 year fixed terms, and the product of choice today is 5 year fixed. Maybe, just maybe consumers are smart enough to know that now is not the time to gamble. They’re looking at five year terms and saying the rate is competitive and it’s worth the peace of mind for the next five years.
As far as I’m concerned, the only stat that matters to our industry is the unemployment rate. Everything else, where prime is going etc., is secondary. Our industry, our entire economy will rise and fall with employment numbers. It’s simple, if borrowers are working and they have access to cheap money, like they do now and will have for the next few years, there’s less reason to dump a property. A home owner may not get the price they’re looking for but because the home is affordable there is less reason to discount the price.
If a home owner loses their job a completely different set of circumstances arise. That’s why there’s reason for optimism over the most recent employment numbers. According to Stat’s Canada, 59 thousand new jobs were created in November. On a year over year basis 294 thousand new jobs have been created, and hours worked have also increased. These numbers are critical, not only to our industry but to our economy. Anytime we see a reduction in the employment rate it’s a reason for a high five or fist bump. So turn around and give your work mate a fist bump because our unemployment rate has been reduced to 7.2%.
There’s more good news that will be readily available when the full Maritz survey becomes public in January, another must read. But even if we only take into account the data available today there’s reason for optimism, and lessons to be learned. For instance, consumers do not require regulators to legislate responsibility. Consumers are miles ahead on that one.
Until next time,
Cheers.
For some time now, finding positive news about the mortgage industry and the real estate market in general required a Sherpa Guide and a donkey. “I think I just heard something positive about mortgages… OOPS, my bad, it’s just Big Foot.”
It hasn’t been easy but over the past couple of weeks there’s been news which leads me to believe the Four Horsemen of the Apocalypse may not be on the way.
CAAMP’s Annual State of the Residential Mortgage Market in Canada (love those short titles) was released just prior to Mortgage Forum 2012 in Vancouver. It’s a must read for everyone in the industry. All the major media outlets have picked up the report and there’s been a significant amount of coverage based on the report. One aspect of the report that bodes well for the industry, and should give regulators some degree of comfort, is how responsible Canadian borrowers are. I found it striking that 32% of borrowers either increased their monthly payments or made principal reductions over the past 12 months. It is estimated that $3.5 billion in additional monthly payments were made, and a further $20 billion in lump sum payments. Yes, consumers are taking on more debt but they’re looking at paying off their debt sooner. When stories are written about consumer debt levels, a word or two should be dedicated to how responsible Canadians are in attempting to eliminate their debt.
Here’s another indication that consumers maybe be smarter than the press give them credit for. Over the past 12 months there’s been a high level of ARM conversions to 5 year fixed terms, and the product of choice today is 5 year fixed. Maybe, just maybe consumers are smart enough to know that now is not the time to gamble. They’re looking at five year terms and saying the rate is competitive and it’s worth the peace of mind for the next five years.
As far as I’m concerned, the only stat that matters to our industry is the unemployment rate. Everything else, where prime is going etc., is secondary. Our industry, our entire economy will rise and fall with employment numbers. It’s simple, if borrowers are working and they have access to cheap money, like they do now and will have for the next few years, there’s less reason to dump a property. A home owner may not get the price they’re looking for but because the home is affordable there is less reason to discount the price.
If a home owner loses their job a completely different set of circumstances arise. That’s why there’s reason for optimism over the most recent employment numbers. According to Stat’s Canada, 59 thousand new jobs were created in November. On a year over year basis 294 thousand new jobs have been created, and hours worked have also increased. These numbers are critical, not only to our industry but to our economy. Anytime we see a reduction in the employment rate it’s a reason for a high five or fist bump. So turn around and give your work mate a fist bump because our unemployment rate has been reduced to 7.2%.
There’s more good news that will be readily available when the full Maritz survey becomes public in January, another must read. But even if we only take into account the data available today there’s reason for optimism, and lessons to be learned. For instance, consumers do not require regulators to legislate responsibility. Consumers are miles ahead on that one.
Until next time,
Cheers.
Monday 10 December 2012
Buying a Rental Property? How the Financing Game has Changed.
Robert McLister, Special to the Globe and Mail
Just four short years ago, you could buy an investment property with nothing down and get the best interest rates in the market.
That was then. Today, rental financing is night-and-day different. To mortgage a small (a one-to-four unit, non-owner occupied) rental property now, you need to plop down one-fifth of the purchase price. And even then, you don’t always get the lowest rate.
With a tipsy housing market and the credit crisis still fresh in memory, regulators and lenders are putting higher-risk borrowers under a microscope. That includes real estate investors.
As a result, it’s now trickier to qualify for a rental property mortgage – especially compared to the days before April 19, 2010. (That’s when federal legislation put an end to insured rental mortgages with less than 20 per cent down.)
So if you are considering a small rental property and need a mortgage soon, here are some things to remember.
You’ll need an ample down payment
If you buy a rental home that you won’t live in, almost every lender in Canada will want at least 20 per cent down. That’s $72,000 on the average $360,000 residential property.
And if you’re purchasing a condo or buying in a “higher-risk” city (like Vancouver), many lenders will want an additional 5 per cent.
Picking the right lender matters more than ever
If you want to be approved, your “total debt ratio” must fall within lender limits. At the risk of oversimplifying, your “total debt ratio” is generally your total monthly expenses divided by total monthly income from all sources, including rentals.
That sounds simple, but it’s not. A borrower’s ability to qualify often depends on how much of her rental income the lender recognizes.
You’d think that if a tenant pays you $1,000 a month, you could add that $1,000 to your income when qualifying for a mortgage. But in many cases, lenders will credit you with only 50 per cent of the rental income you receive, making it harder for you to qualify.
In all, there are four ways that lenders calculate your debt ratios, which are beyond the scope of this column. Suffice it to say, any competent mortgage adviser can point out lenders with borrower-friendly methods.
And there’s one last thing to keep in mind about debt ratios. Different lenders have different limits. Some lenders let you have a 42 per cent total debt ratio. Most others permit just 40 per cent. That extra 2 per cent can make a big difference , especially for folks with mortgages on multiple properties.
The moral here is that the lender you pick can have a major impact on your approval chances. If your qualifications aren’t perfect, you’ll need a lender that is open to some common sense underwriting exceptions, and those are getting harder to find.
Multiple rental properties = headaches
Many lenders prohibit you from owning and/or financing an unlimited number of rental properties.
Even if they don’t explicitly forbid it, the inability to count all your rental income in debt ratio calculations can make approvals challenging, and sometimes impossible. In fact, it often forces people with big rental portfolios to renew mortgages with their existing lender at unfavourable rates and terms.
So if you plan to finance a small rental empire, find a broker that has several clients with 10 or more rental properties. They’ll need that experience to help you know which lenders to use, and in what order.
The key to remember is that lenders with the best rates often have the tightest rules. If you want the best terms, you’ll want to use the more restrictive lenders early in your empire building and save the flexible ones for last. That ensures you don’t run out of competitive lenders when your portfolio gets big.
More paperwork
A few years ago, it was easier to use an appraiser’s estimate of a property’s rental income in lieu of a signed lease. Today, more and more lenders want to see a signed written lease or other proof of rental income.
It also helps to have two years’ tax returns available. That’s because using tax returns to show your net gain or loss on a property can make it easier to qualify, as opposed to using other standard debt service calculations.
The rate is often secondary
Rental mortgages are higher risk so many lenders now charge rate premiums.
Fortunately, you can still find lenders that extend their best rates on investment financing. The question is, do they offer the other features you need?
In keeping with supply and demand, the most flexible mortgages usually cost more. That’s especially true for investment property financing. Be prepared to pay a little extra if you need a lender that satisfies more than a few of these criteria:
If you want the best rental rate and most flexibility, an experienced no-fee broker is the way to go.
Rental financing is truly a specialization and probably only one in 10 mortgage professionals are actually proficient at it.
Rick Robertson, founder of the lender comparison firm Mortgage Mentor, says one way to screen brokers is to ask how many properties they’ve financed in the last year. If the number is less than 10 or 15, find a more experienced broker.
And Mr. Robertson adds, “Deal with a broker that uses a lot of lenders. Each lender has its own niche and no two lenders in Canada have the same rental policy.”
Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICOintelliMortgage. You can also follow him on twitter at @CdnMortgageNews.
That was then. Today, rental financing is night-and-day different. To mortgage a small (a one-to-four unit, non-owner occupied) rental property now, you need to plop down one-fifth of the purchase price. And even then, you don’t always get the lowest rate.
With a tipsy housing market and the credit crisis still fresh in memory, regulators and lenders are putting higher-risk borrowers under a microscope. That includes real estate investors.
As a result, it’s now trickier to qualify for a rental property mortgage – especially compared to the days before April 19, 2010. (That’s when federal legislation put an end to insured rental mortgages with less than 20 per cent down.)
So if you are considering a small rental property and need a mortgage soon, here are some things to remember.
You’ll need an ample down payment
If you buy a rental home that you won’t live in, almost every lender in Canada will want at least 20 per cent down. That’s $72,000 on the average $360,000 residential property.
And if you’re purchasing a condo or buying in a “higher-risk” city (like Vancouver), many lenders will want an additional 5 per cent.
Picking the right lender matters more than ever
If you want to be approved, your “total debt ratio” must fall within lender limits. At the risk of oversimplifying, your “total debt ratio” is generally your total monthly expenses divided by total monthly income from all sources, including rentals.
That sounds simple, but it’s not. A borrower’s ability to qualify often depends on how much of her rental income the lender recognizes.
You’d think that if a tenant pays you $1,000 a month, you could add that $1,000 to your income when qualifying for a mortgage. But in many cases, lenders will credit you with only 50 per cent of the rental income you receive, making it harder for you to qualify.
In all, there are four ways that lenders calculate your debt ratios, which are beyond the scope of this column. Suffice it to say, any competent mortgage adviser can point out lenders with borrower-friendly methods.
And there’s one last thing to keep in mind about debt ratios. Different lenders have different limits. Some lenders let you have a 42 per cent total debt ratio. Most others permit just 40 per cent. That extra 2 per cent can make a big difference , especially for folks with mortgages on multiple properties.
The moral here is that the lender you pick can have a major impact on your approval chances. If your qualifications aren’t perfect, you’ll need a lender that is open to some common sense underwriting exceptions, and those are getting harder to find.
Multiple rental properties = headaches
Many lenders prohibit you from owning and/or financing an unlimited number of rental properties.
Even if they don’t explicitly forbid it, the inability to count all your rental income in debt ratio calculations can make approvals challenging, and sometimes impossible. In fact, it often forces people with big rental portfolios to renew mortgages with their existing lender at unfavourable rates and terms.
So if you plan to finance a small rental empire, find a broker that has several clients with 10 or more rental properties. They’ll need that experience to help you know which lenders to use, and in what order.
The key to remember is that lenders with the best rates often have the tightest rules. If you want the best terms, you’ll want to use the more restrictive lenders early in your empire building and save the flexible ones for last. That ensures you don’t run out of competitive lenders when your portfolio gets big.
More paperwork
A few years ago, it was easier to use an appraiser’s estimate of a property’s rental income in lieu of a signed lease. Today, more and more lenders want to see a signed written lease or other proof of rental income.
It also helps to have two years’ tax returns available. That’s because using tax returns to show your net gain or loss on a property can make it easier to qualify, as opposed to using other standard debt service calculations.
The rate is often secondary
Rental mortgages are higher risk so many lenders now charge rate premiums.
Fortunately, you can still find lenders that extend their best rates on investment financing. The question is, do they offer the other features you need?
In keeping with supply and demand, the most flexible mortgages usually cost more. That’s especially true for investment property financing. Be prepared to pay a little extra if you need a lender that satisfies more than a few of these criteria:
- has highly flexible rental income rules
- allows you to carry a greater debt ratio
- lets you put a property in a company name for liability protection
- lets you finance more than four or five properties
- doesn’t impose a minimum net worth requirement
- allows 30– to 35-year amortizations to maximize your cash flow
- lets you prove rental income with “market rent” appraisals
- allows a gifted or borrowed down payment
- allows you to add a second mortgage
- will lend on large mortgages (e.g., $750,000+)
- has a low minimum credit score (e.g. 600 versus 650)
- allows rental income from suites that don’t conform with current municipal bylaws
- provides cash back (sometimes handy for improvements and closing costs)
- allows you to add a vendor take-back mortgage (this is where part of your purchase is financed by the property seller)
- offers a line of credit with your rental mortgage
- pays for your switching fees (this is far less common with rental mortgages than it is for regular mortgages)
If you want the best rental rate and most flexibility, an experienced no-fee broker is the way to go.
Rental financing is truly a specialization and probably only one in 10 mortgage professionals are actually proficient at it.
Rick Robertson, founder of the lender comparison firm Mortgage Mentor, says one way to screen brokers is to ask how many properties they’ve financed in the last year. If the number is less than 10 or 15, find a more experienced broker.
And Mr. Robertson adds, “Deal with a broker that uses a lot of lenders. Each lender has its own niche and no two lenders in Canada have the same rental policy.”
Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICOintelliMortgage. You can also follow him on twitter at @CdnMortgageNews.
Friday 7 December 2012
Cooler Canadian housing market may be good for parts of economy: CIBC
By The Canadian Press, as reported in the Vancouver Sun
TORONTO - One of the country's big banking groups has issued a report saying that a cooling in Canadian house prices may not be all bad news.
The CIBC World Markets says the slowing of Canadian home sales will "take a bite" out of economic growth but adds there could be "winners as well as losers across the economy."
CIBC economist Avery Shenfeld recognizes that a home owner may have to lower retirement spending if the property brings in less money when it's sold.
On the other hand, Shenfeld says, first-time buyers may welcome a letup in home prices and may have more money available for retail spending.
It's the latest in a series of CIBC reports that downplay some of the concerns about the potential for a devastating U.S.-style crash in residential real-estate.
More pessimistic analysts have warned some types of Canadian real-estate in some markets are overpriced and at risk of tipping into a rapid decline.
Read more: http://www.vancouversun.com/business/real-estate/Cooler+Canadian+housing+market+good+parts+economy/7627311/story.html#ixzz2EPpOeyma
TORONTO - One of the country's big banking groups has issued a report saying that a cooling in Canadian house prices may not be all bad news.
The CIBC World Markets says the slowing of Canadian home sales will "take a bite" out of economic growth but adds there could be "winners as well as losers across the economy."
CIBC economist Avery Shenfeld recognizes that a home owner may have to lower retirement spending if the property brings in less money when it's sold.
On the other hand, Shenfeld says, first-time buyers may welcome a letup in home prices and may have more money available for retail spending.
It's the latest in a series of CIBC reports that downplay some of the concerns about the potential for a devastating U.S.-style crash in residential real-estate.
More pessimistic analysts have warned some types of Canadian real-estate in some markets are overpriced and at risk of tipping into a rapid decline.
Read more: http://www.vancouversun.com/business/real-estate/Cooler+Canadian+housing+market+good+parts+economy/7627311/story.html#ixzz2EPpOeyma
Thursday 6 December 2012
Downsize thoughtfully
By Jim Yih, Edmonton Journal, as reported in The Vancouver Sun
Over the past 15 years, we have seen debt rise across the nation, and more and more Canadians are retiring with debt. According to a recent survey by CIBC, 59 per cent of retirees are carrying debt in retirement and the trend may continue as more baby boomers head into their retirement years.
What happened to the notion that we had to be debt-free before we retired?
Over the past 20 years I've been asked an increasing number of questions by attendees at my retirement seminars. "Can you still retire if you are not debt free?" "Is it OK to have debt in retirement?" "How do you pay down debt in retirement?" "Are reverse mortgages good?"
A common solution is to downsize. For most people, this simply means selling a large, family-style home and buying a smaller house that is more suited to retirement. While downsizing may appear to be an intuitive solution, it may not help with the finances as much as you think.
I recently met a woman who wanted to sell her bigger home and move into a condo, but she soon realized that despite being smaller, the condo would actually cost more. The condo designed for retirees was new, with lots of upgrades, compared to her 20-year-old house. It was a real reality check to discover that her downsizing retirement plan was not going to save her any money.
CONDO FEES IN RETIREMENT
Retirement communities are becoming increasingly popular for the lifestyle benefits they offer, such as lower maintenance from smaller houses and yards, and travelling with peace of mind knowing your place will be looked after.
It's important to be aware, though, that these communities usually involve monthly condo fees or strata fees, which can really impact finances in retirement.
While it's not always a solution, I've met many people for whom downsizing has been financially rewarding. Some have prepared for retirement by buying vacation property, then downsizing from two homes to one. Others have sold homes in more expensive cities to move to quieter ones and have saved money that way. Others have utilized traditional downsizing to their advantage by moving from a bigger home to a smaller one.
There is no cookie-cutter solution . The lifestyle you want in retirement - including family, hobbies, climate and health - will strongly affect the house you choose.
For some, downsizing brings the opportunity to clean out years' worth of collected household items and start fresh. But many struggle with throwing things away and selling a family home that is filled with memories.
If you are looking to downsizing as a way to reduce debt in retirement, make sure you plan ahead and explore your options early.
Jim Yih (twitter.com/jimyih) is a financial expert. Visit his award-winning blog , RetireHappyBlog.ca
Read more: http://www.edmontonjournal.com/homes/Downsize+thoughtfully/7072165/story.html#ixzz2EJt5xGlX
Over the past 15 years, we have seen debt rise across the nation, and more and more Canadians are retiring with debt. According to a recent survey by CIBC, 59 per cent of retirees are carrying debt in retirement and the trend may continue as more baby boomers head into their retirement years.
What happened to the notion that we had to be debt-free before we retired?
Over the past 20 years I've been asked an increasing number of questions by attendees at my retirement seminars. "Can you still retire if you are not debt free?" "Is it OK to have debt in retirement?" "How do you pay down debt in retirement?" "Are reverse mortgages good?"
A common solution is to downsize. For most people, this simply means selling a large, family-style home and buying a smaller house that is more suited to retirement. While downsizing may appear to be an intuitive solution, it may not help with the finances as much as you think.
I recently met a woman who wanted to sell her bigger home and move into a condo, but she soon realized that despite being smaller, the condo would actually cost more. The condo designed for retirees was new, with lots of upgrades, compared to her 20-year-old house. It was a real reality check to discover that her downsizing retirement plan was not going to save her any money.
CONDO FEES IN RETIREMENT
Retirement communities are becoming increasingly popular for the lifestyle benefits they offer, such as lower maintenance from smaller houses and yards, and travelling with peace of mind knowing your place will be looked after.
It's important to be aware, though, that these communities usually involve monthly condo fees or strata fees, which can really impact finances in retirement.
While it's not always a solution, I've met many people for whom downsizing has been financially rewarding. Some have prepared for retirement by buying vacation property, then downsizing from two homes to one. Others have sold homes in more expensive cities to move to quieter ones and have saved money that way. Others have utilized traditional downsizing to their advantage by moving from a bigger home to a smaller one.
There is no cookie-cutter solution . The lifestyle you want in retirement - including family, hobbies, climate and health - will strongly affect the house you choose.
For some, downsizing brings the opportunity to clean out years' worth of collected household items and start fresh. But many struggle with throwing things away and selling a family home that is filled with memories.
If you are looking to downsizing as a way to reduce debt in retirement, make sure you plan ahead and explore your options early.
Jim Yih (twitter.com/jimyih) is a financial expert. Visit his award-winning blog , RetireHappyBlog.ca
Read more: http://www.edmontonjournal.com/homes/Downsize+thoughtfully/7072165/story.html#ixzz2EJt5xGlX
Wednesday 5 December 2012
Housing downturn may help young buyers
Dana Flavelle, TheStar.com
A cooler housing market isn’t all bad news, a major Canadian bank says.
Lower prices could benefit young couples struggling to save for a down payment and also retirees who dream of moving to British Columbia, the report by CIBC World Markets predicts.
While slowing home sales will “take a bite” out of Canada’s economic growth, “less well understood” is the fact there will be winners and losers across the economy, the report released Thursday said.
“What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process,” CIBC chief economist Avery Shenfeld wrote in a note to clients.
It could also benefit cities like Toronto and Vancouver that have been priced out of many immigrants’ and retirees’ reach, the report said.
Overall, slowing home sales will have a negative impact on the economy, the report acknowledges, chopping nearly a percentage point from Canada’s already tepid economic growth.
Fewer housing starts and related sales of furniture and appliances will cause most of the drag, the report said. As well, Canadian home owners who were counting on selling their homes to fund their retirement might find themselves with less spending money, the report said.
But Canada is not in danger of the type of housing crash seen in the U.S. and Ireland, Shenfeld wrote.
Falling prices weren’t the cause of the problem in those economies; rather, it was the accompanying wave of mortgage defaults that was the issue, Shenfeld wrote.
“Canada hasn’t lent as aggressively to its lower-income home buyers,” he noted.
Historically, most declines in wealth coincided with other economic problems, such as rising unemployment or high interest rates, he noted.
A gradual retreat in home prices now is preferable to a harder landing from higher prices down the road, he added.
“As a home owner, I’d prefer that one particular Toronto street stays insulated from any house price declines,” Shenfeld joked, referring to his own address. “But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years.”
The report is the latest in a series by CIBC to downplay the potential for Canada to experience a U.S.-style crash in residential real estate.
A cooler housing market isn’t all bad news, a major Canadian bank says.
Lower prices could benefit young couples struggling to save for a down payment and also retirees who dream of moving to British Columbia, the report by CIBC World Markets predicts.
While slowing home sales will “take a bite” out of Canada’s economic growth, “less well understood” is the fact there will be winners and losers across the economy, the report released Thursday said.
“What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process,” CIBC chief economist Avery Shenfeld wrote in a note to clients.
It could also benefit cities like Toronto and Vancouver that have been priced out of many immigrants’ and retirees’ reach, the report said.
Overall, slowing home sales will have a negative impact on the economy, the report acknowledges, chopping nearly a percentage point from Canada’s already tepid economic growth.
Fewer housing starts and related sales of furniture and appliances will cause most of the drag, the report said. As well, Canadian home owners who were counting on selling their homes to fund their retirement might find themselves with less spending money, the report said.
But Canada is not in danger of the type of housing crash seen in the U.S. and Ireland, Shenfeld wrote.
Falling prices weren’t the cause of the problem in those economies; rather, it was the accompanying wave of mortgage defaults that was the issue, Shenfeld wrote.
“Canada hasn’t lent as aggressively to its lower-income home buyers,” he noted.
Historically, most declines in wealth coincided with other economic problems, such as rising unemployment or high interest rates, he noted.
A gradual retreat in home prices now is preferable to a harder landing from higher prices down the road, he added.
“As a home owner, I’d prefer that one particular Toronto street stays insulated from any house price declines,” Shenfeld joked, referring to his own address. “But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years.”
The report is the latest in a series by CIBC to downplay the potential for Canada to experience a U.S.-style crash in residential real estate.
Monday 3 December 2012
6 Ways to Make your Home More Enticing to Buyers
Investopedia.com
There's little doubt that the housing market is finally showing signs of a measurable recovery. The recent Case Schiller Index, a report that tracks the selling prices of homes nationally, showed a 1.2% increase in home prices from July 2011. The authors of the report cited stabilizing home markets and slight increases in household wealth as reasons for the encouraging data
. This is positive news for the real estate market but for homeowners still struggling to sell their homes, this data is of little value. Homeowners face stiff competition from the many other similar properties on the market. How do you make your home stand out among the many other homes prospective buyers will see before making an offer?
Make a Video
Before listing your home, switch roles. Make a detailed video that shows the interior and exterior of your home. Include closets, areas behind doors, the fence and all of the other less visible features. Then, view your video and think like a buyer. What do you see that would cause you to lose interest if you weren't the owner of the home? Show the video to friends and family, and ask them to give you candid comments. The smallest details are sometimes the difference between a buyer making an offer or moving on to the next home.
If your home isn't catching the eye of buyers, it might need more some work. A high-priced kitchen remodel to entice buyers probably isn't a great idea, but replacing damaged base boards, worn carpet and dead shrubbery are essential renovations in today's real estate market. If the video uncovered some eyesores, fix them. Luckily, these types of renovations don't have to be high-dollar projects.
Weekday Open House
The weekends are full of open houses. Not only are there more weekend open houses than there are prospective buyers, an increasing number of people work on the weekends to produce extra income. A weekday open house reduces the competition, and the evening time may allow parents to view your home when their kids are at a sports practice or other activity. Open houses cost nothing, so trying it on a weekend will only take some of your time.
Find a Better Agent
The economic downturn that resulted in millions of people losing their jobs produced a class of new real estate agents looking for additional income. If your agent is new to the real estate market, he or she may not have the professional network to get your home in front of large amounts of buyers.
If you're desperate to sell, find a high-volume agent in your area. To ensure the agent gives your home priority over his or her other listings, offer a bonus or higher commission for a quick sale. Make sure he or she adds it to the Multiple Listing Service (MLS) so other agents know that your house comes with a higher payout.
Don't Take a Backseat Role
Even if your realtor is advertising your home and working hard, two people marketing your home is better than one. Put your home on your Facebook page, Craigslist, Twitter and other social media sites. Post flyers on company-approved bulletin boards and talk to local family and friends. Most people would rather buy from somebody they know and respect. You'll still have to pay your realtor a commission, but if you're desperate to sell, take an active role in the marketing process.
If your home isn't producing offers or interest, it's probably time to lower your asking price. Realtors will help you to set your initial price based on comparable homes in your market, but in the end, their analysis is just an educated guess. Always keep the price higher than the lowest price you're willing to accept. This allows for room to haggle.
The Bottom Line
According to the National Association of Realtors, the average number of days to sell a home in July 2012 was 69 - down nearly 30% from July 2011. This is encouraging news for homeowners, but selling a home is still difficult. It will take meticulous attention to detail and a strategy to make it stand out from the many other homes that prospective buyers will see before making their choices.
Read more: http://www.investopedia.com/financial-edge/1012/6-ways-to-make-your-home-more-enticing-to-buyers.aspx#ixzz2E2S93Jnx
There's little doubt that the housing market is finally showing signs of a measurable recovery. The recent Case Schiller Index, a report that tracks the selling prices of homes nationally, showed a 1.2% increase in home prices from July 2011. The authors of the report cited stabilizing home markets and slight increases in household wealth as reasons for the encouraging data
. This is positive news for the real estate market but for homeowners still struggling to sell their homes, this data is of little value. Homeowners face stiff competition from the many other similar properties on the market. How do you make your home stand out among the many other homes prospective buyers will see before making an offer?Make a Video
Before listing your home, switch roles. Make a detailed video that shows the interior and exterior of your home. Include closets, areas behind doors, the fence and all of the other less visible features. Then, view your video and think like a buyer. What do you see that would cause you to lose interest if you weren't the owner of the home? Show the video to friends and family, and ask them to give you candid comments. The smallest details are sometimes the difference between a buyer making an offer or moving on to the next home.
Renovate
If your home isn't catching the eye of buyers, it might need more some work. A high-priced kitchen remodel to entice buyers probably isn't a great idea, but replacing damaged base boards, worn carpet and dead shrubbery are essential renovations in today's real estate market. If the video uncovered some eyesores, fix them. Luckily, these types of renovations don't have to be high-dollar projects.
Weekday Open House
The weekends are full of open houses. Not only are there more weekend open houses than there are prospective buyers, an increasing number of people work on the weekends to produce extra income. A weekday open house reduces the competition, and the evening time may allow parents to view your home when their kids are at a sports
practice or other activity. Open houses cost nothing, so trying it on a weekend will only take some of your time.Find a Better Agent
The economic downturn that resulted in millions of people losing their jobs produced a class of new real estate agents looking for additional income. If your agent is new to the real estate market, he or she may not have the professional network to get your home in front of large amounts of buyers.
If you're desperate to sell, find a high-volume agent in your area. To ensure the agent gives your home priority over his or her other listings, offer a bonus or higher commission for a quick sale. Make sure he or she adds it to the Multiple Listing Service (MLS) so other agents know that your house comes with a higher payout.
Don't Take a Backseat Role
Even if your realtor is advertising your home and working hard, two people marketing your home is better than one. Put your home on your Facebook page, Craigslist, Twitter and other social media sites. Post flyers on company-approved bulletin boards and talk to local family and friends. Most people would rather buy from somebody they know and respect. You'll still have to pay your realtor a commission, but if you're desperate to sell, take an active role in the marketing process.
Lower Your Price
If your home isn't producing offers or interest, it's probably time to lower your asking price. Realtors will help you to set your initial price based on comparable homes in your market, but in the end, their analysis is just an educated guess. Always keep the price higher than the lowest price you're willing to accept. This allows for room to haggle.
The Bottom Line
According to the National Association of Realtors, the average number of days to sell a home in July 2012 was 69 - down nearly 30% from July 2011. This is encouraging news for homeowners, but selling a home is still difficult. It will take meticulous attention to detail and a strategy to make it stand out from the many other homes that prospective buyers will see before making their choices.
Read more: http://www.investopedia.com/financial-edge/1012/6-ways-to-make-your-home-more-enticing-to-buyers.aspx#ixzz2E2S93Jnx
The Pros And Cons Of Home Additions
Investopedia.com
All homeowners have, at least once, been challenged by the question, "Should I add to my home or purchase a new one?" There is no absolute right or wrong answer, and the best choice is always one that fits your situation and strong preferences. Before making this major financial and emotional commitment, weigh these pros and cons of building a home addition.
Pros of Building a Home Addition
Pros of Building a Home Addition
Enjoy a high cost-value ratio
If built correctly, your sparkling new addition may improve your home dollar-for-dollar, resulting in a higher sales price when you finally put it on the market. This, of course, assumes a "normal" real estate market. A depressed home market may or may not warrant building an addition if you plan to sell in the near future. In that case, you might want to concentrate on home shopping to take advantage of depressed prices.
Additions are cheaper
Even in a depressed home value market, building an addition will be a less expensive option than buying a new home with the floor space you want. Should you be strongly attached to your current home, this pro becomes even more significant. You might create your dream home right where you are.
Express creativity
Unlike purchasing an existing home, a new addition can be whatever you want it to be and look however you want it to look. It's like designing your own new home without all the expense of building an entire house from the dirt up.
Cons of Building a Home Addition
You risk "over improving" the home
Every neighborhood or location, regardless of how desirable it may be, has an upper price ceiling. Adding a fabulous addition can come back to bite you. For example, if your home becomes the most expensive home in the neighborhood, you may have trouble attracting buyers when you decide to sell.
Disrupted living quarters
Once you've decided to build your exceptional new addition, you are filled with excitement and enthusiasm. However, the construction noise, worker conversations and disruptions to your living space can destroy your positive emotions. You may just want the dirt, noise and construction to stop.
Extra costs and change orders
If you start with a tight budget, cost overruns and last-minute changes can destroy your carefully constructed financial plan. These events tend to happen whether you're building a medieval castle or simply adding an extra bedroom. Try to closely monitor progress and communicate regularly with your contractor to avoid this fate.
Additions shrink yard space and add utility costs
Homeowners sometimes have an unpleasant "ah-ha" moment when they realize that their prized lawn or yard has mysteriously shrunk because of the new addition. A similar unwelcome surprise is the realization that you're going to need to clean, heat and cool the new room(s). Only then do you realize that you should have given this more thought before the first nail was driven.
The Bottom Line
In most cases, if you like your home and neighborhood, it's wise to build the addition you want to get the space and look you crave. Be careful not to over improve your property and be aware of the other cons. This will help you have a relatively stress-free and enjoyable project. Don't forget, choosing to build an addition in lieu of buying a new home also eliminates the pesky costs that come with moving.
Read more: http://www.investopedia.com/financial-edge/0512/the-pros-and-cons-of-home-additions.aspx#ixzz2E2QznUdh
Five Ways to Make Your Home Renos Pay Off
The Globe and Mail
Remodeling a home can be a very costly venture. Homeowners looking to add value to their homes may try to add upgrades or renovate entire sections of their homes to make them more marketable. Not all home upgrades and renovations are worth spending your hard-earned money on, though. Here is a look at five ways to make your home renovation worth the money and effort you put into it, along with some pitfalls to avoid along the way.
Repair What Needs to be Fixed
The renovations that will yield the most value for your home are repairs. Focus on fixing the areas of your house that are in desperate need of attention from a contractor or handyman. According to an article released by Realtor.com, you will be more likely to get the best value from handling repairs than any other renovation. Whether you are planning to sell or stay in your home, handling repairs is most certainly worth the effort. Examples of repairs that go a long way include fixing a leaking roof, replacing broken kitchen tile and having an electrician rewire a faulty outlet. Even the smallest of repairs can increase your home value.
Plan to Stay a While
If you are going through with your plans to renovate, it is likely that you are either deciding to stick around for a while or you've decided to move. While at one time homeowners could expect to get back what they put into their home renovations, either out of use or when they sell their home, in today's still stabilizing housing market, there is no guarantee. This is called ROI, or return on investment, and the amount you get back all depends on the type of renovation project that you have decided to take on.
Forget the Add-On
When it comes to larger renovations, ditch the add-on plans and instead opt to remodel and upgrade the structure you already have. Additions can be very costly, and the amount that is added to your home value is not likely to come anywhere close to the amount you paid for the remodel in the first place. Rather than shelling out a lot of cash on an addition to your house, work with what you have and upgrade your home where feasible.
Go Green
A smart move to make when remodeling is to include energy efficient appliances, windows, doors and more. Not only will these add-ons help you save money on energy, but there may also be tax breaks that you can take advantage of to make going green a financially and ecologically smart move.
Focus on the Kitchen and Bathroom
Two areas of the house where a remodel would most benefit you is the kitchen and the bathroom. According to an article released by HGTV.com, kitchens and baths are the most expensive rooms to renovate. They are also the most frequently used, however, so the remodel will definitely be well appreciated. Additionally, by renovating these rooms, you typically get a 100% return on investment. Regardless of whether you sell or remain within your home, the upgrades you make in the kitchen and bathroom will be well worth the money and effort you put into them.
The Bottom Line
Home remodels and renovations can definitely pay off if you plan carefully. Repairs, along with upgrades in the bathroom and kitchen, far outweigh other renovations and add-on projects you would undertake. By planning ahead and understanding how your renovation project will affect your bottom line, as well as home value, you are protecting your investments and hard-earned money in the process.
Remodeling a home can be a very costly venture. Homeowners looking to add value to their homes may try to add upgrades or renovate entire sections of their homes to make them more marketable. Not all home upgrades and renovations are worth spending your hard-earned money on, though. Here is a look at five ways to make your home renovation worth the money and effort you put into it, along with some pitfalls to avoid along the way.
Repair What Needs to be Fixed
The renovations that will yield the most value for your home are repairs. Focus on fixing the areas of your house that are in desperate need of attention from a contractor or handyman. According to an article released by Realtor.com, you will be more likely to get the best value from handling repairs than any other renovation. Whether you are planning to sell or stay in your home, handling repairs is most certainly worth the effort. Examples of repairs that go a long way include fixing a leaking roof, replacing broken kitchen tile and having an electrician rewire a faulty outlet. Even the smallest of repairs can increase your home value.
Plan to Stay a While
If you are going through with your plans to renovate, it is likely that you are either deciding to stick around for a while or you've decided to move. While at one time homeowners could expect to get back what they put into their home renovations, either out of use or when they sell their home, in today's still stabilizing housing market, there is no guarantee. This is called ROI, or return on investment, and the amount you get back all depends on the type of renovation project that you have decided to take on.
Forget the Add-On
When it comes to larger renovations, ditch the add-on plans and instead opt to remodel and upgrade the structure you already have. Additions can be very costly, and the amount that is added to your home value is not likely to come anywhere close to the amount you paid for the remodel in the first place. Rather than shelling out a lot of cash on an addition to your house, work with what you have and upgrade your home where feasible.
Go Green
A smart move to make when remodeling is to include energy efficient appliances, windows, doors and more. Not only will these add-ons help you save money on energy, but there may also be tax breaks that you can take advantage of to make going green a financially and ecologically smart move.
Focus on the Kitchen and Bathroom
Two areas of the house where a remodel would most benefit you is the kitchen and the bathroom. According to an article released by HGTV.com, kitchens and baths are the most expensive rooms to renovate. They are also the most frequently used, however, so the remodel will definitely be well appreciated. Additionally, by renovating these rooms, you typically get a 100% return on investment. Regardless of whether you sell or remain within your home, the upgrades you make in the kitchen and bathroom will be well worth the money and effort you put into them.
The Bottom Line
Home remodels and renovations can definitely pay off if you plan carefully. Repairs, along with upgrades in the bathroom and kitchen, far outweigh other renovations and add-on projects you would undertake. By planning ahead and understanding how your renovation project will affect your bottom line, as well as home value, you are protecting your investments and hard-earned money in the process.
Friday 30 November 2012
Cooling housing market not all bad news, says CIBC
Canadian Press
Recent cooling in Canada’s housing market has many believing we will escape a painful correction, but not all are convinced. Check out this review and decide
TORONTO — One of the country’s big banking groups has issued a report saying that a cooling in Canadian house prices may not be all bad news.
The CIBC World Markets says the slowing of Canadian home sales will “take a bite” out of economic growth, but adds there could be “winners as well as losers across the economy.”
CIBC economist Avery Shenfeld recognizes that a home owner may have to lower retirement spending if the property brings in less money when it’s sold.
On the other hand, Shenfeld says, first-time buyers may welcome a letup in home prices and may have more money available for retail spending.
It’s the latest in a series of CIBC reports that downplay some of the concerns about the potential for a devastating U.S.-style crash in residential real-estate.
More pessimistic analysts have warned some types of Canadian real-estate in some markets are overpriced and at risk of tipping into a rapid decline.
Wednesday 28 November 2012
Eight Ways to Improve Your Credit Score
Dave Larock, Mortgage Market Update
If you have read our credit report primer called “Credit Reports: Your Financial DNA,” then you understand how your credit score is calculated and how important it is during the mortgage adjudication process. What you may not yet know is that there are ways to improve your credit score that don’t involve guys in trench coats or hacking into databases. Put a different way, you may be inadvertently hurting your score with the decisions you make regarding credit. Here are eight tips for putting your best credit foot forward.
1. First and foremost, check your credit report. You can get a summary report for free, or pay a small amount for the full version, and then you’ll see what the lenders see. If your FICO score is 680 or higher, you’re in good shape. Anything less than that and you should consider the tips I offer below. (Here are links to Equifax and Transunion if you want to order a copy of your report.)
2. Pay your bills on time. Setting up automatic payments using your chequing account or credit card is a good way to make sure you don’t accidentally miss a due date.
3. Keep your credit card balance well below your account limit. Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month. There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.
4. Use it. Lenders want to see an active history on your file so try to use your credit a little each month (not a problem for most of us!) and your score will be better for it.
5. If you can’t pay the full amount, especially on credit cards, make very sure you pay at least the minimum. Also, if you’re falling behind, try calling the creditor and explaining your situation. You might be able to work out a deal whereby you can delay some of the payment without their filing a late payment on your credit report. The worst thing you can do is miss your payment date and say nothing.
6. Don’t apply for credit all over town, especially if you have limited and/or newer credit. While the hit to your credit score will vary depending on your overall profile, a flurry of credit application activity will temporarily impact your score (this impact is reduced as time passes, provided that you don’t keep applying).
7. Beware of having too many credit lines. If you have a series of small loans it can hurt your score because a) it looks like your cobbling together any credit you can get your hands on and b) lenders will worry that you could end up in a position where you have borrowed more than you can pay back. The best way to avoid this is to consolidate your debt into one large loan (refinancing an existing mortgage is one way to do this).
8. If you are disputing a charge from a creditor (cell phone companies and gyms come to mind), make sure that you submit a brief statement to Equifax and/or Transunion explaining your side of the story. This submission will be added to your file. Doing this won’t get the charge removed but if your credit is otherwise good, it makes your explanation that the blemish is due to a dispute, and not based on an inability to pay, more believable to lenders.
Follow these tips and your credit score will thank you (if it could talk, that is).
If you have read our credit report primer called “Credit Reports: Your Financial DNA,” then you understand how your credit score is calculated and how important it is during the mortgage adjudication process. What you may not yet know is that there are ways to improve your credit score that don’t involve guys in trench coats or hacking into databases. Put a different way, you may be inadvertently hurting your score with the decisions you make regarding credit. Here are eight tips for putting your best credit foot forward.
1. First and foremost, check your credit report. You can get a summary report for free, or pay a small amount for the full version, and then you’ll see what the lenders see. If your FICO score is 680 or higher, you’re in good shape. Anything less than that and you should consider the tips I offer below. (Here are links to Equifax and Transunion if you want to order a copy of your report.)
2. Pay your bills on time. Setting up automatic payments using your chequing account or credit card is a good way to make sure you don’t accidentally miss a due date.
3. Keep your credit card balance well below your account limit. Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month. There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.
4. Use it. Lenders want to see an active history on your file so try to use your credit a little each month (not a problem for most of us!) and your score will be better for it.
5. If you can’t pay the full amount, especially on credit cards, make very sure you pay at least the minimum. Also, if you’re falling behind, try calling the creditor and explaining your situation. You might be able to work out a deal whereby you can delay some of the payment without their filing a late payment on your credit report. The worst thing you can do is miss your payment date and say nothing.
6. Don’t apply for credit all over town, especially if you have limited and/or newer credit. While the hit to your credit score will vary depending on your overall profile, a flurry of credit application activity will temporarily impact your score (this impact is reduced as time passes, provided that you don’t keep applying).
7. Beware of having too many credit lines. If you have a series of small loans it can hurt your score because a) it looks like your cobbling together any credit you can get your hands on and b) lenders will worry that you could end up in a position where you have borrowed more than you can pay back. The best way to avoid this is to consolidate your debt into one large loan (refinancing an existing mortgage is one way to do this).
8. If you are disputing a charge from a creditor (cell phone companies and gyms come to mind), make sure that you submit a brief statement to Equifax and/or Transunion explaining your side of the story. This submission will be added to your file. Doing this won’t get the charge removed but if your credit is otherwise good, it makes your explanation that the blemish is due to a dispute, and not based on an inability to pay, more believable to lenders.
Follow these tips and your credit score will thank you (if it could talk, that is).
David Larock is an independent full-time mortgage planner and industry insider.
Credit Reports: Your Financial DNA
Dave Larock, Mortgage Market Updates
Imagine if your car insurance company knew exactly how you handle your car, how often you exceeded the speed limit, by how much and for how long. Well thankfully they haven’t figured out how to do that yet but when it comes to how you handle your money, your credit report can measure to that precise level of detail. It’s where all of your personal information is gathered, such as income, debt repayment history, total approved credit limits, credit usage levels and more. This personal history, your financial DNA, is crunched using a proprietary scoring system that assigns you a number between 300 and 900, known as your FICO score (the higher the better). Here is a breakdown of how your score is calculated:
Now I will give you a quick overview of how this works but if you want detailed information both myfico.com and the Financial Consumer Agency of Canada do an excellent job of laying it out for you.
“Payment history” tracks how consistently you have paid back money you owe (credit cards, car loans, gym memberships, you name it!) If payments are missed, the length of time taken to get caught up is also measured.
“Amounts owed” is a measure of how much you owe on different types of accounts and of the proportion of your outstanding balance to your maximum limit. Your overall capacity usage is important because it indicates how close you get to running out of credit each month.
“Length of credit history” indicates how long your accounts have been in existence as well as the time since you last used them. Old debt is not as relevant as recent debt.
“New Credit” measures how many credit inquiries have been made, and how many new accounts have been opened by you in the recent past. This section is looking for ‘credit seeking’ activities where people who are running out of money try to borrow as much as possible to keep afloat.
“Types of Credit Used” creates a score based on the kinds of credit you have. Basically, the harder it is to get approved for a loan, the more the scoring system likes it. Retail accounts are easy to get so they are less convincing. Car loans are more thoroughly vetted so they score more favourably.
With credit report data available for millions of Canadians, trends emerge. Using overall FICO score data, lenders can determine each borrower’s likelihood of successful repayment. Here is a summary of delinquency rates by FICO score (“delinquency” is the term for loans that are 90 days or more past due):
This data is also used by lenders when designing products. They set minimum FICO scores for certain product types, especially in cases where the products are attractively priced or where borrowers do not or can not provide traditional documentation during the application process. For example, a product that does not require proof of income would only be offered to borrowers with a very high probability of repayment (a FICO score of 680 or higher is often the cut-off point).
There are two main companies in Canada that provide FICO scores, Equifax and TransUnion. Both base their scoring system on a proprietary software sold by FairIssac and while the reports are not identical (some companies only report customer activity to one company and not the other) they are usually comparable.
Now that you know how a credit report is calculated and used, you may be wondering what your score is. You can receive a free summary report by contacting either Equifax or TransUnion, and both will provide a full report for a small fee. Most importantly, there are a number of ways to improve your credit report.
Imagine if your car insurance company knew exactly how you handle your car, how often you exceeded the speed limit, by how much and for how long. Well thankfully they haven’t figured out how to do that yet but when it comes to how you handle your money, your credit report can measure to that precise level of detail. It’s where all of your personal information is gathered, such as income, debt repayment history, total approved credit limits, credit usage levels and more. This personal history, your financial DNA, is crunched using a proprietary scoring system that assigns you a number between 300 and 900, known as your FICO score (the higher the better). Here is a breakdown of how your score is calculated:
Now I will give you a quick overview of how this works but if you want detailed information both myfico.com and the Financial Consumer Agency of Canada do an excellent job of laying it out for you.
“Payment history” tracks how consistently you have paid back money you owe (credit cards, car loans, gym memberships, you name it!) If payments are missed, the length of time taken to get caught up is also measured.
“Amounts owed” is a measure of how much you owe on different types of accounts and of the proportion of your outstanding balance to your maximum limit. Your overall capacity usage is important because it indicates how close you get to running out of credit each month.
“Length of credit history” indicates how long your accounts have been in existence as well as the time since you last used them. Old debt is not as relevant as recent debt.
“New Credit” measures how many credit inquiries have been made, and how many new accounts have been opened by you in the recent past. This section is looking for ‘credit seeking’ activities where people who are running out of money try to borrow as much as possible to keep afloat.
“Types of Credit Used” creates a score based on the kinds of credit you have. Basically, the harder it is to get approved for a loan, the more the scoring system likes it. Retail accounts are easy to get so they are less convincing. Car loans are more thoroughly vetted so they score more favourably.
With credit report data available for millions of Canadians, trends emerge. Using overall FICO score data, lenders can determine each borrower’s likelihood of successful repayment. Here is a summary of delinquency rates by FICO score (“delinquency” is the term for loans that are 90 days or more past due):
This data is also used by lenders when designing products. They set minimum FICO scores for certain product types, especially in cases where the products are attractively priced or where borrowers do not or can not provide traditional documentation during the application process. For example, a product that does not require proof of income would only be offered to borrowers with a very high probability of repayment (a FICO score of 680 or higher is often the cut-off point).
There are two main companies in Canada that provide FICO scores, Equifax and TransUnion. Both base their scoring system on a proprietary software sold by FairIssac and while the reports are not identical (some companies only report customer activity to one company and not the other) they are usually comparable.
Now that you know how a credit report is calculated and used, you may be wondering what your score is. You can receive a free summary report by contacting either Equifax or TransUnion, and both will provide a full report for a small fee. Most importantly, there are a number of ways to improve your credit report.
Tuesday 27 November 2012
Vast Majority Now Favour Fixed-Rate Mortgages
Tara Perkins, The Globe and Mail
While it looks like interest rates will remain low for some time, there has been a large swing from variable to fixed-rate mortgages over the past year, says a new report by the Canadian Association of Accredited Mortgage Professionals.
CAAMP’s annual report on the state of the residential mortgage market, released Monday, suggests that 79 per cent of the new mortgages taken out this year have been fixed-rate, 10 per cent have been variable, and 11 per cent are a combination.
That’s a significant shift from prior years, during which fixed-rate mortgages generally accounted for about two-thirds of the total, while variable or adjustable-rate mortgages were about one-quarter.
Canadians are likely locking in because of the very small difference between interest rates for variable-rate mortgages (which are in the neighbourhood of three per cent) and five-year fixed-rate mortgages (which are closer to 3.2 or 3.3 per cent, after discounts that the banks typically offer), the report says.
“The current spread of about one-quarter of a point is negligible compared to the average of 1.7 points during 2010 and 2011,” it says.
Meanwhile, the average mortgage interest rate for homeowners has fallen to 3.55 per cent, from 3.94 per cent a year ago. For homes bought this year, the average rate is 3.26 per cent.
The report, which is based in large part on an online survey of 2,018 Canadians by Maritz, also found that about six per cent of homeowners took equity out of their home in the past year. The average amount is estimated at $49,000, implying that $30-billion of equity has been taken out during the year.
But 87 per cent of Canadians have at least 25 per cent equity in their homes. Sixteen per cent of mortgage holders have increased their payments, 15 per cent have made lump sum payments, and 6 per cent have increased their payment frequency.
While it looks like interest rates will remain low for some time, there has been a large swing from variable to fixed-rate mortgages over the past year, says a new report by the Canadian Association of Accredited Mortgage Professionals.
CAAMP’s annual report on the state of the residential mortgage market, released Monday, suggests that 79 per cent of the new mortgages taken out this year have been fixed-rate, 10 per cent have been variable, and 11 per cent are a combination.
That’s a significant shift from prior years, during which fixed-rate mortgages generally accounted for about two-thirds of the total, while variable or adjustable-rate mortgages were about one-quarter.
Canadians are likely locking in because of the very small difference between interest rates for variable-rate mortgages (which are in the neighbourhood of three per cent) and five-year fixed-rate mortgages (which are closer to 3.2 or 3.3 per cent, after discounts that the banks typically offer), the report says.
“The current spread of about one-quarter of a point is negligible compared to the average of 1.7 points during 2010 and 2011,” it says.
Meanwhile, the average mortgage interest rate for homeowners has fallen to 3.55 per cent, from 3.94 per cent a year ago. For homes bought this year, the average rate is 3.26 per cent.
The report, which is based in large part on an online survey of 2,018 Canadians by Maritz, also found that about six per cent of homeowners took equity out of their home in the past year. The average amount is estimated at $49,000, implying that $30-billion of equity has been taken out during the year.
But 87 per cent of Canadians have at least 25 per cent equity in their homes. Sixteen per cent of mortgage holders have increased their payments, 15 per cent have made lump sum payments, and 6 per cent have increased their payment frequency.
Saturday 24 November 2012
How to check your credit report
CBC News
Everyone who's ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.
Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.
Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or "as agreed."
Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "Paid as agreed" notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.
The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they've applied for.
What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.
The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don't make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full.
This isn't too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.
Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.
Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved. (iStock)
The "free-report-by-mail" links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.
For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here.
If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.
To get your all-important credit score, you'll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90. There is no free service to access your credit score.
You can always try asking the lender you're trying to do business with, but they're not supposed to give credit score information to you.
Some credit bureau watchers estimate that there are errors in 10 to 33 per cent of credit files. Some of those mistakes can be serious enough to hurt your credit status. That hit to your credit score can result in a denied loan or a higher interest rate. Across Canada, provincial consumer agencies collectively get hundreds of complaints annually about credit bureaus.
If you find something if your file that you dispute, you can write the credit agency in question and tell them you think there's an error. The credit reporting agency usually sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. The dispute forms are online, too. You can access the Equifax form here. And here's how to dispute something in a TransUnion report.
Be sure to send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you're disputing.
If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.
If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.
You can also file a complaint with your provincial consumer agency.
There are companies that will take the effort of checking your credit report off your hands — for a price. The credit reporting bureaus are, not surprisingly, very active in this area. At TransUnion, their credit monitoring service costs $14.95 a month and includes unlimited access to your credit profile and credit score. At Equifax, credit monitoring and identity theft protection starts at $16.95 a month.
There are several other companies offering similar services for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.
It's a personal decision whether you feel these services are worth the money. The bottom line is you can always check your credit report for free by mail. Or, you can pay to get it online whenever you want. People who have been the victims of identity theft or people who are worried that they may be susceptible to ID theft may consider the expense worthwhile.
There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.
Everyone who's ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.
Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.
So what's in a credit report?
You may be surprised by the amount of personal financial data in your credit report. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or "as agreed."
Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "Paid as agreed" notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.
What's a credit score? And why is it so important?
A credit rating or score (also called a Beacon or a FICO score) is not part of a regular credit report. Basically, it's a mathematical formula that translates the data in the credit report into a three-digit number that lenders use to make credit decisions.The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they've applied for.
What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.
The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don't make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full.
This isn't too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.
How can I get a copy of my credit report and credit score?
You can ask for a free copy of your credit file by mail. There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.
Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved. (iStock)The "free-report-by-mail" links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.
For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here.
If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.
To get your all-important credit score, you'll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90. There is no free service to access your credit score.
You can always try asking the lender you're trying to do business with, but they're not supposed to give credit score information to you.
What if I find an error in my credit report?
Well, you won't be the first. In millions of files and hundreds of millions of reported entries, there are bound to be mistakes. Some are minor data-entry errors. Others are damaging whoppers. For example, we've heard of instances where negative credit files from one person got posted to the file of someone who had a similar name (the "close enough" school of credit reporting).Some credit bureau watchers estimate that there are errors in 10 to 33 per cent of credit files. Some of those mistakes can be serious enough to hurt your credit status. That hit to your credit score can result in a denied loan or a higher interest rate. Across Canada, provincial consumer agencies collectively get hundreds of complaints annually about credit bureaus.
If you find something if your file that you dispute, you can write the credit agency in question and tell them you think there's an error. The credit reporting agency usually sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. The dispute forms are online, too. You can access the Equifax form here. And here's how to dispute something in a TransUnion report.
Be sure to send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you're disputing.
If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.
If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.
You can also file a complaint with your provincial consumer agency.
What are credit monitoring services?
If you spot entries in your credit report that don't seem to relate to you (such as charge accounts you never opened or bad debt notations you never got), you may be a victim of the rapidly-growing crime of identity theft. You should notify the credit reporting company immediately.There are companies that will take the effort of checking your credit report off your hands — for a price. The credit reporting bureaus are, not surprisingly, very active in this area. At TransUnion, their credit monitoring service costs $14.95 a month and includes unlimited access to your credit profile and credit score. At Equifax, credit monitoring and identity theft protection starts at $16.95 a month.
There are several other companies offering similar services for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.
It's a personal decision whether you feel these services are worth the money. The bottom line is you can always check your credit report for free by mail. Or, you can pay to get it online whenever you want. People who have been the victims of identity theft or people who are worried that they may be susceptible to ID theft may consider the expense worthwhile.
Should I pay to use a credit repair service?
Industry Canada says there's no point in hiring a company that claims it can improve your credit rating. Firms that say they can "fix" a bad credit report are often little more than fly-by-night operations designed to relieve you of hundreds of dollars in return for nothing.There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.
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