Different way to use your RRSPs

For those tired of paying mortgage interest to a bank, there is a technique that allows you to use your retirement savings to help buy your home or even finance a cottage or investment property.

The technique is known as a self-directed mortgage and is not widely used. In fact, Rowena Chan, a vice president with discount broker TD Waterhouse, says it’s one of the “least common” investments she deals with. But for those who have a mortgage, are looking for a fixed income investment, and have more than $50,000 sitting in their RRSP, it’s an option they might consider.

This is how it works:

There must be cash in your RRSP that you can borrow in what is called a non-arms length mortgage and the transaction must be made through a bank, bank broker or licensed lender. The lump sum is borrowed and applied to the mortgage and like a regular mortgage, a repayment schedule is set up. Those payments go directly into your RRSP and you keep all the interest. The interest rate must be the same as the posted rate at the bank, but like any other mortgage you can shop around for different rates at different lenders.

Gerry Hogenhout firm Hogenhout & Associates Inc. specializes in these investment vehicles. He says anyone thinking of using this investment needs to clearly understand what’s involved, including the fees.

TD Waterhouse charges $250 to set up the account and has an annual $225 account fee. Regardless of the equity in your home, the entire amount has to be insured by CMHC, which is 0.5 per cent of the entire loan. This is a good thing because you are protecting your retirement savings. Also budget about $1,000 for legal and other professional fees.

So it is worth it?

Suppose you have $50,000 cash sitting in your RRSP and a mortgage on your home. You borrow the $50,000 and pay down your mortgage, repaying your RRSP every two weeks over a five-year term. The interest paid is not a contribution, but is treated the same as a dividend payment from a stock you hold in your RRSP.

The current five-year fixed rate is 5.19 per cent. Your bi-weekly payments are $136 and after five years will have paid more than $12,000 in interest and $6000 towards principal. Your fees, insurance costs and legal charges will total approximately $2,625. That leaves more than $9,500 that you would have paid to the bank that is now in your RRSP.

If you take that same $50,000 inside your RRSP and invest it in a fixed rate GIC at the current 2.75 per cent with Ally Bank your investment will grow to $57,369. Total gain approximately $7,300.

And you will still be paying interest on the $50,000 you owe to the bank.

You can also use your self-directed mortgage to lend money to a third party in what is referred to as an arms length mortgage. There’s more risk involved and for this reason you can charge a higher interest rate. The money is lent to a third party who repays it monthly like a normal mortgage. In this case you are often lending to borrowers looking to expand their business into a new property or buy more real estate and the banks won’t lend them the money.

As with all investing, self directed mortgages are not for everyone. They aren’t for those looking to make quick gains. They also require a long-term commitment, because unlike a stock you can’t sell your self-directed mortgage. They also require the account holder to have a large amount of cash in their portfolio that they are willing to invest for the long term. And always there are risks because home values could fall and your mortgage could be more than the property it is backing.

Always consult a financial planner before committing to any investment method.

Rubina Ahmed Haq is a Toronto freelance writer. Reach her at rubinaahmedhaq@gmail.com

Sharie Marie Mortgage Team wins Big Award

Heather Thomson, Alberni Valley Times

Published: Monday, January 30, 2012

Only a year after starting her business, Sharie Marie Francoeur has been named real estate company of the year.

Francoeur was excited and surprised when she won the Vancouver Island Business Award, handed out by the Business Examiner on Thursday night in Victoria.

"It gives our team some recognition and shows people they can have faith in us," she said.

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"And it makes me feel more confident in growing my team."

In 2011, Francoeur set up Sharie Marie Mortgage Team in Port Alberni. She grew up here, and had been living in Victoria since she graduated from Alberni District Secondary School five years ago. But her love of the city and its community feel brought her back.

Francoeur thinks one of the reasons she won was the speed at which the company grew. She also established the Mortgage Mentoring Program in Ladysmith, which put her up for the entrepreneur of the year award on Thursday night. Through that program, her company has grown rapidly. She now has 10 licenced mortgage brokers and 13 in training. Two are in Port Alberni, and the rest are around Vancouver Island.

"I wanted to help other mort-gage brokers learn, not only what's in the books, but what they will need in the job," she said.

Francoeur was not the only Alberni Valley business to be nominated in these awards. Seven other businesses got the nod, including Van Isle Ford, Kismet Quilts (small business), West Coast SLAM (community leader), Catalyst Paper (forestry/wood products company), NSS Investments (real estate), Trends Design Team and Trends 2 (small business) and Acoustic Wood Ltd. (small business).

"Port Alberni tends to have a really negative image," Francoeur explained. "It is important that business owners in small towns, especially Port, get out there and show what we can really do and start to change that image."

Even being nominated offers advantages. Rosanne Gray, owner of Trends Design Team, said they are grateful for the community support and honoured to be nominated again this year.

"The competition was very tough, and we are very proud to be included in the same category as the other finalists," Gray said. "Trends Design Team will continue to provide professional services to all our customers and look forward to continued success and growth."

HThomson@avtimes.net

CMHC Portfolio Insurance

CMHC Insurance Limits: A Wake-up Call for Lenders

Many have now seen this National Post article.

The gist of it: CMHC is approaching its $600 billion government-imposed limit on issuing mortgage default insurance. That’s happening largely because of lenders’ enormous appetite for something called portfolio insurance (a.k.a., “bulk insurance”).

No one fully grasps the repercussions yet, but our sense is that the news is not great (at least in the short-to-medium term) for mortgage consumers, smaller lenders and brokers.

On the other hand, it may be healthy long-term for the housing market. Here’s why…

What is Portfolio Insurance?

Mortgage default insurance is typically only “required” when someone with less than 20% equity gets a mortgage.

Despite that, almost three-quarters of CMHC’s outstanding mortgage insurance is low-ratio (i.e., 20% equity or more). That’s largely because banks have been buying portfolio insurance in gobs to insure against defaults on low-risk conventional mortgages.

Banks do that because, even though the risk is low, there is still risk. Investors who buy these mortgages like to know that the government is behind them, if borrowers default and the lender can’t pay up. Because of regulatory capital rules, bulk insurance also enables banks to lend more with the precious capital they have.

CMHC summarizes portfolio insurance as follows:

“Portfolio insurance helps lenders manage their capital more efficiently and small lenders to compete on an equal footing with large lenders. It allows more lenders to compete in the mortgage loan insurance market by lowering entry barriers, thus expanding consumer choice.”

Note: Nothing is changing with high-ratio insured mortgages. So if you’re getting a mortgage with less than 20%, this news probably won’t impact you (for a while at least).

CMHC’s Insurance Limit

Despite the above benefits, we’re hearing that CMHC has announced it is slashing the amount of bulk insurance lenders can access. That’s because CMHC is limited by law to writing no more than $600 billion worth of policies.

Normally, every 3-5 years as the mortgage market grows, CMHC has asked for, and received, approval from parliament to raise this limit. It was last raised by $150 billion in 2008.

Now media frenzy has politicians scurrying to offload mortgage risk from the government back to the private sector. (The government guarantees CMHC’s liabilities, so public concern is certainly understandable.)

As a result, many question whether CMHC will get its $600 billion limit raised anytime soon.

Here’s some reaction on that:

• TD Bank economist Sonya Gulati tells CBC that not increasing the limit “may serve to tighten the housing market."
• RBC economist Robert Hogue told Global News that increasing the limit “…would be, policywise, a very delicate balance to strike."
• The Post quoted an unnamed industry source as saying: “...What will the government do, not increase (CMHC’s) limit? This could kill the entire housing market.”

Who Uses Portfolio Insurance?

Portfolio insurance is widely relied on by many smaller lenders who must resell their mortgages (as opposed to fund them from deposits).

More commonly, portfolio insurance is used by the Big 6 Banks. That’s because insured mortgages have virtually a “zero-risk” weighting in regulators’ eyes, allowing banks to lend more, earn higher returns, and keep mortgage rates lower than otherwise possible.

(One fast-growing use of bulk insurance is for guaranteeing covered bonds. Covered bonds are a relatively new source of mortgage funding in Canada. More on that here.)

In any event, spokesperson, Charles Sauriol, says CMHC “has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.” That insurance is using up CMHC’s capacity.

(Incidentally, the biggest bulk insurance customer recently has been Scotiabank, which reportedly had an abnormally large and predominantly insured $17+ billion mortgage-backed securities issuance in December.)

The Risk of Portfolio Insurance

Portfolio insurance can sell like hotcakes indefinitely, and there will never be a problem…unless the unthinkable happens: mass defaults.

The question then becomes: Are insurers taking in enough in premiums to offset potential claims—thus avoiding a federal bailout?

In exploring that question, it’s important to remember that there’s a relatively strong relationship between default risk and loan-to-value (LTV). In other words, the more equity a mortgagor has, the less likely they’ll stop making their payments.

That said, if housing were to crash, insurer claims on portfolio insurance would soar. The premiums they’ve collected from lenders are their first line of defense in that case (unlike high-ratio insurance, lenders usually pay the premiums on portfolio insurance themselves, not the borrower).

According to a very good source, however, there is a problem with these premiums. Major banks have negotiated the premiums down to levels that may not be enough to cover extreme conventional default rates.

(We haven’t found any current data on conventional mortgage default rates, but they’re ostensibly less than the 0.38% for overall arrears—a number which includes higher-risk, high-ratio mortgages.)

CMHC’s Wherewithal

CMHC has continually been accused, in the media, of creating undue risk for Canadian taxpayers. A few weeks ago, we spoke with Pierre Serré, Vice- President, CMHC Insurance Product and Business Development, to try and get a sense for that risk.

He stated: “…We focus on prudent underwriting practices and the adequacy of our capital levels. CMHC is well positioned through its available capital to handle even extremely adverse economic conditions.”

He noted that CMHC has a total of $17.4 billion that could be used to back-up its insurance business and pay claims.

CMHC's actual losses on claims have been much lower. They were $454 million for the first nine months of 2011, for example. That coincides with a 0.42% default rate.

CMHC has 38 times that $454 million in capital and reserves to cover adverse housing shocks. It can handle some pretty devastating housing scenarios, especially given that the average mortgage in its portfolio has equity of 45%.

Net of all claims and expenses, CMHC’s insurance business earned a total of $1.042 billion in Q1-Q3 2011. Moreover, contrary to many critics, CMHC’s core mortgage insurance business has never needed to be bailed out.

“…There has been no reimbursement of funds by the Government of Canada with respect to CMHC’s commercial mortgage insurance operations,” said Serré. “The losses CMHC experienced in the early 1980s (shortfalls totalling $555.6 million) were a result of costs under two specific government programs, the Assisted Homeownership Program (AHOP) and the Assisted Rental Program (ARP).”

“CMHC's mandate for its mortgage insurance business was changed in 1997 to allow it to operate on a commercial basis without having to rely on the Government of Canada for support,” Serré said, “even in less favourable economic times.”

(If you’re interested, see page 99 of this report for CMHC’s estimates of losses given a 100 bps rate increase, adverse unemployment, or slowing home prices.)

In a bad-case scenario (e.g., severe prolonged unemployment or a dramatic spike in rates), you can darn well bet our housing market would get butchered. The harshest critics we’ve spoken with say you could take today’s average loss numbers and multiply them by 15-20.

Well, if you do that, it would be far beyond any insurance losses Canada has ever experienced. Yet, in that scenario, CMHC would still have billions in capital left over before asking for government handouts.

Potential Outcomes

Looking forward, CMHC’s cutback on bulk insurance has numerous potential repercussions. No one has the answers yet because we're still waiting to see how things shake out.

That said, here's our best guess. Barring a CMHC announcement that it's raising its portfolio insurance limits, then:

1. Smaller lenders may be forced to pay more for conventional mortgage funding (for some period of time).
   • This could kill off rate competition from many non-bank lenders in the conventional mortgage market (Banks are probably licking their chops at this prospect.)
2. Bank capital costs could potentially increase.
   • That would impact earnings and/or lift mortgage rates somewhat (to what extent we don’t know.)
3. It would discourage new non-bank lenders from entering the market,
   • Resulting in less choice for mortgage shoppers.
4. It would force lenders to find alternative, uninsured funding sources for conventional mortgages.
   • That’s largely a positive long-term—to the extent it would cut government exposure in the unlikely event of mass conventional mortgage defaults.
5. It may kick-start the uninsured covered bond market.
   • Uninsured covered bonds transfer risk from the government to major financial institutions.
   • “…We believe there is a high probability that Canadian banks will not be permitted to use CMHC-insured mortgages” as collateral for future covered bond issuance, BMO Capital Markets analyst, George Lazarevski, told the Financial Post.
   • So far in Canada, only RBC has issued uninsured covered bonds. Those bonds are rated AAA and mostly consist of 5-year fixed mortgages with a typical LTV near 72%.
   • Unfortunately, most smaller lenders have almost no access to covered bond funding.
   • These developments may very well encourage the government to lift its current bank limit on covered bond issuance (which is 4% of bank assets). If the government doesn’t, and it continues to restrain bulk insurance, lenders tell us it could seriously harm conventional mortgage liquidity.
6. Given their reduced access to portfolio insurance (and thus the reduced potential for low-ratio mortgage business), smaller lenders may now get even more choosy on which conventional borrowers they lend to.
   • This could limit conventional mortgage options somewhat, unless you were a top-qualified borrower
7. Brokers may be increasingly forced to rely on banks for conventional financing.
   • It’s not unthinkable that banks respond with higher pricing on conventional mortgages, given the greater funding costs and demand from brokers.
   • Some industry observers doubt that banks would price quite as high in their retail channels (since they favour those channels).
8. Private insurers may realize benefits from all this for a year or so, as lenders shut out by CMHC turn to Genworth and Canada Guaranty.
   • That could allow private insurers to charge more for bulk insurance
   • Pretty soon the privates themselves could run out of insurance space.

The End Result

Mortgage insurance is a business. By participating in that business, the government takes risk, but it gets paid well for that risk. The government of Canada has earned $14+ billion in profits over the last decade from CMHC alone.

But the past is the past. Today we’re facing new realities (not the least of which is a hyperactive housing market). We're therefore compelled to ask:

• Which is the bigger risk, limiting portfolio insurance or staying our present course?
• Instead of curtailing bulk insurance, should underwriting criteria be tightened more?
• Or should the government simply force insurers to boost premiums (or levy surcharges of some sort), thus padding insurers’ buffers in the event of adverse default scenarios?

These are questions that policymakers have been asking themselves in private for a while now

Rob McLister, CMT

Top 26 Grants and Credits for BC Home Buyers

Check out this article to see if there may be grants or credits you're missing out on!

http://www.rebgv.org/sites/default/files/Top%2026%20Grants%20and%20Rebates%20-%20Updated%20January%2010,%202012.pdf

Canadian Economy

When Bank of Canada governor Mark Carney made his inaugural speech as head of the banking industry's global regulator on November 8 he said the world economy is getting hurt by a slump in liquidity, meaning banks are less willing or less able to lend money. And because global liquidity has fluctuated over the past five years, Carney said that Europe is already in a recession. He used the 2008 collapse of the U.S. investment bank Lehman Brothers as an example. The impact of that was that banks shied away from lending to both companies and consumers. That helped plunge the world economy into a major recession.

Clearly, if banks stop lending, consumers stop spending and businesses stop spending. For an economy to function, money needs to keep moving.

There has been talk recently that Carney might lower the prime interest rate to keep inflation in check. Carney has also said that the Canadian economy won't fully recover until well into 2013. Currently the prime rate is sitting at 1%. Inflation is approximately 2.7% and is predicted to slow to 1% in the second quarter of 2012. The Bank of Canada likes to keep the inflation rate between 1 and 3%. 

So what does that all mean for Canadians?

So far, the credit crunch hasn't hit Canada. While mortgage lending has tightened up a bit, banks are still lending money to businesses. The federal government has been making slight concessions to make sure Canada continues to grow:

• For example, on November 27, Finance Minister Jim Flaherty eliminated $32-million in manufacturing tariffs. This will allow businesses to lower their costs, enhance their ability to compete globally, which will help stimulate growth and job creation.
• On November 23, Mark Carney said he would stay flexible on interest rates. Despite the fact that inflation has been creeping higher, Carney said that although it may take longer to return inflation to target, being flexible with the rates will protect the country from any economic and/or financial shocks.
• The federal government is also moving ahead to change the laws that govern financial institutions, adding more oversight to protect consumers. "Canada has been ranked as having the soundest banks in the world by the World Economic Forum for four consecutive years," said Jim Flaherty, Minister of Finance in a statement released on November 23. "The Financial System Review Act will ensure our financial system continues to be secure for Canadians and a fundamental strength for our economy."

These changes likely won't have a direct impact on most Canadians but the after effects will. They include more jobs, higher profits for all businesses, access to low cost money for home buying and investing, stable housing markets and a strong and healthy banking system. 

All of this makes Canada a growing, stable economy that can weather short term fluctuations for a strong and prosperous future.

Penalty Calculations

"When a Certified Financial Planner (CFP) can’t figure out how to calculate his mortgage penalty, it’s got to be really tough for Joe Borrower.

Globe & Mail columnist Ted Rechtshaffen, a CFP, recently wrote about this very topic. He says: “My mortgage breakage cost truly is a mystery…I have read my mortgage contract…It can’t be found in the fine print.”

Like many banks, his (TD Bank) explains how to calculate its penalty, but people have to deduce the numbers to plug into the formula themselves.

Those numbers include:

1. The contracted interest rate (easy enough)
2. The posted rate at origination (not as easy)
3. The months left on the term (easy)
4. The relevant comparison rate (not as easy)
5. The current mortgage balance

To confirm these numbers, the borrower generally has to call his or her lender.

Wouldn’t it be nice, however, if you could log into your lender’s website and get this information with one click? It would, but lenders would much rather you call them for it. That way they can try to sell you a new mortgage.

A key point Rechtshaffen makes is that some lenders go out of their way to muddy the waters with respect to mortgage penalty calculations. They do that by:

• Not including certain inputs for calculating your penalty in their mortgage contracts (like the posted rate); and/or,
• Not telling you where to get the inputs on your own; and/or,
• Not clearly explaining (with examples) which term to use when determining yourcomparison rate; and/or,
• Writing penalty explanations in language that almost requires a law degree.

Penalty calculation shouldn’t be this cryptic. CAAMP says that 47% of people who refinance before maturity have to pay penalties. (It’s actually more than that if you include refis with blended rates [which have penalties built in].) So it’s not like this is some infrequent obscure need that borrowers have.

Lenders who believe they have their customers’ best interest at heart should provide a web page that clients can log into. It should provide an instant penalty quote, with a comprehensible explanation of how that penalty was calculated, showing the math.

RBC has a semi-workable solution with its penalty calculator. Unfortunately, you have to fill in the blanks yourself and few people will know what to enter for things like the “Discount off posted rate.”

In any event, one of the nice benefits of not getting a big bank mortgage is that your penalty is often based on discounted rates instead of posted rates. That often saves people hundreds or thousands of dollars. It’s even more meaningful given that most people break their five-year fixedterms in 3.5 to four years on average."

Rob McLister, CMT

CAAMP Consumer Survey Highlights

CAAMP just released its Fall Consumer Survey. Here are a few highlights from that report. To get your copy of the report visit CAAMP's website at www.caamp.org * The total value of owner-occupied housing in Canada is estimated at $3.017 trillion. Mortgages and lines of credit on these homes total $982 billion, leaving $2.035 trillion in home owners' equity. The equity is equal to 68% of the total value of the housing. * Among those who renewed or refinanced an existing mortgage during the past 12 months, 21% changed lenders and 79% remained with the same lender. The rate of switching has edged upwards - two years ago it was 12%. * Fixed rate mortgages remain most popular (60%). * Among borrowers who renewed, a large majority (78%) saw reductions, a smaller proportion (13%) saw their rates rise, and 9% had no change. * Based on the housing market forecasts, the volume of residential mortgage credit outstanding is forecast to continue expanding. Growth is forecast at about 7.7% during2011 ($80 billion) and 7.3% in 2012 ($81 billion). A preliminary look at 2013 suggests growth of 7.0% ($83 billion). Call or email Sharie Marie Mortgage Team today to discuss how your mortgage.

Canadians realistic about household debt

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

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

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

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

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

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

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


-Debbie Thomas TMG The Mortgage Group Canada Inc.


For more information please contact a Sharie Marie Mortgage Team Professional

Fifteen years of economic growth means little in everyday lives

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

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

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

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

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

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

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

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

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

By Heather Scoffield, The Canadian Press

Average resale home prices rise 6.5%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SUNNY FREEMAN

Ottawa— The Canadian Press