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

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

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


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


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


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


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

No change to Prime Rate until 2013?

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

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


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

Why the sudden increase to Variable Rates?

Please enjoy this September 22, 2011 press release from Mortgage Brokers Association of British Columbia in regards to the recent increase to Variable Rates.

"The secret to the sudden increase in variable rate mortgages

Why could I get Prime minus .90 last week and today it is Prime minus .25?

 September 22, 2011 (Vancouver) – A great question, says the Mortgage Brokers Association of BC (MBABC), especially when fixed interest mortgage rates are remaining the same.  The quick answer?  As with many things, it all boils down to money.
Over the last couple of months, banks and other lenders have been offering historically low variable interest rates to qualified homebuyers in an effort to attract new clients and mortgage business.  In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages – a similar ‘loss leader’ tactic used by retailers to get consumers into their door.

“However”, says Geoff Parkin, MBABC’s president, “the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape.”   Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged.  The long-term outlook indicates continuing low fixed interest rates with no significant increases to the Prime rate.  “In a nutshell”, says Parkin, “the bank’s theory of anticipating rising profits on variable rates was proven wrong.  They’ve had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit.”

What does this mean for consumers who have variable rate mortgages?  Much of the same, says Parkin.  “We continue to see low fixed rates and the variable rate is under 3.0%.  There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker.”"

Need access to your Home Equity?

Whether you need extra cash to pay off debt, renovate your home, travel, or whatever the reason may be. With mortgage rates as low as they are, this is a great time to refinance.  In the past, most people have resorted to a second mortgage or home equity line of credit to access their equity. More often than not these days, its more beneficial to pay out your first mortgage, incur a penalty, and refinance an increased amount at a lower rate. Take a look at this example of a client SharieMarieMortgageTeam recently helped gain access to their equity.

Bob is currently amortized about 27 years on his mortgage of $270,000. He has been in this mortgage for just over 3 years and is paying an interest rate of 5.29%. Since he has a penalty of almost $9000 to pay out his mortgage early, he went to his financial institution to discuss a second mortgage to access some of his equity. Bob was quoted a second mortgage for $40,000 at 7%, or a blended rate mortgage at 4.50% (for another 5 years) for the entire $310,000. Since the blend and extend option saves Bob the $9,000 penalty, he was leaning towards this option. This is what his payments would be:

Currently for the $270,000 - $1490/month

Option A - Keep current mortgage in place 2 more years and take a second mortgage - $1770/month

Option B - Lock in 5 more years at 4.50% for total $310,000 - $1565/month

Bob approached our team to double check his options and make sure he was making the best choice financially for him. We recommended Bob refinance his current mortgage to $319,000, giving him the equity he wanted and including the penalty in his new mortgage to avoid having to come up with the cash out of his own pocket. 

Option C (SharieMarieMortgageTeam Solution) 

$319,000 at 3.29% for 5 years keeping amortization the same as it currently is - $1390/month

So as you can see, our option provided Bob with a lower rate to lock in at for another 5 years and gave him access to his equity. Even though he incurred a penalty of $9000, his monthly payment is actually $175 less. Saving him almost $11,000 over the five year term, and freeing up monthly cash flow for Bob. This solution worked well and met Bob's needs. This is not necessarily always the best option for people as it does increase the balance owing on the mortgage, but in this situation it was ideal for Bob's needs. 

If you'd like to see how you can access equity and free up monthly cash flow, call SharieMarieMortgageTeam today.

Why work with a Sharie Marie Mortgage Team Professional?

As with all mortgage professionals, we have access to a large number of lenders who each have their own products and rates. This allows us to essentially do the work for you when it comes to shopping for a mortgage. Rather than spend your time going bank to bank to find the best product for yourself, we'll take on the task to save you time. Plus, many of the lenders we deal with, don't deal with the general public, giving you more options than you even realized you had.

What sets apart the SharieMarieMortgageTeam from other brokers out there? Not only will we get you a great rate in a timely fashion, but we'll take the time to educate you on your mortgage. There's so much more to a mortgage than the rate, and many people still don't know this. Staying informed and having the knowledge to fully understand your mortgage can save you hundreds of thousands of dollars in interest over the lifetime of your mortgage.

What you're not taught costs you money, so let us teach you.

Mortgage Insurance

There are a ton of options when it comes to insuring yourself and your mortgage against unwanted surprises. Its always best to get a second opinion or the advice of someone you trust when you are offered an option. At TMG The Mortgage Group Canada Inc. we will always offer you Life, Disability, and Critical Illness Insurance. Here are some scary facts:

• A life threatening cancer is diagnosed every four minutes
• Someone dies of heart disease or stroke every seven minutes
• Every day 144 people suffer a stroke - 21 of them will die and 110 will be left with some form of permanent damage

Take the necessary steps to protect yourself against these unexpected tragedies. If you've decided a Mortgage Insurance product is your best option, speak to a Sharie Marie Mortgage Team Professional today. Make sure you understand the advantages and restrictions of any insurance or mortgage product you purchase. For instance, if you purchase mortgage insurance through your LENDER and decide to refinance with a different lender, you will likely lose your coverage. If during the period of time before your switch something had happened with your health making you "Un-insurable" you may not be able to get any insurance in place. TMG's insurance products are fully portable, house to house as well as lender to lender.

Speak to a SharieMarieMortgageTeam Professional today about protecting yourself.

Prime rate remains unchanged - Lenders Prime 3%

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic outlook has deteriorated in recent weeks as several downside risks to the projection in the Bank's JulyMonetary Policy Report (MPR) have been realized. The European sovereign debt crisis has intensified, a broad range of data has signalled slower global growth, and financial market volatility has increased sharply. Recent benchmark revisions show that the U.S. recession was deeper and its recovery has been shallower than previously reported. In combination with recent economic data, this implies that U.S. growth will be weaker than previously anticipated. The Bank expects that American household spending will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions. Fiscal stimulus in the United States will also soon turn into material fiscal drag. Acute fiscal and financial strains in Europe have triggered a generalized retrenchment from risk-taking and could prompt more severe dislocations in global financial markets. Resolution of these strains will require additional significant initiatives by European authorities. Growth in emerging-market economies has been robust, although its rate and composition will be affected by weakness in major advanced economies. While commodity prices have declined owing to diminished global growth prospects, they remain relatively high.

Largely due to temporary factors, Canadian economic growth stalled in the second quarter. The Bank continues to expect that growth will resume in the second half of this year, led by business investment and household expenditures, although lower wealth and incomes will likely moderate the pace of investment and consumption growth. The supply and price of credit to businesses and households remain very stimulative. However, financial conditions in Canada have tightened somewhat and could tighten further in the event that global financial conditions continue to deteriorate. Net exports are now expected to remain a major source of weakness, reflecting more modest global demand and ongoing competitiveness challenges, in particular the persistent strength of the Canadian dollar.

Slower global economic momentum will dampen domestic resource utilization and inflationary pressures. The Bank expects total CPI inflation to continue to moderate as temporary factors, such as significantly higher food and energy prices, unwind. Core inflation is expected to remain well-contained as labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.