TORONTO
CTV says Ottawa is considering raising the minimum down payment for home buyers as well as reducing the amortization period in order to stop some consumers from taking on too much debt.
In an interview with CTV Question Period, to be aired next week, Finance Minister Jim Flaherty says the measures will be taken if there's evidence of excessive demand in the housing market.
Flaherty says that the new measures would target consumers "who are taking on obligations that they will not be able to handle in the future when the interest rates do rise."
He says the likely measures the government will take is to increase the size of the down payment from five per cent "to a higher figure" and to reduce the amortization period "from a maximum of 35 years to something less."
Those measures would increase the monthly payments, making it more difficult for some people to take on a mortgage and purchase a home, without having to increase the interest rate.
Last week, the central bank warned that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Monday, December 21, 2009
Sunday, December 13, 2009
Ontario's Top Investment Towns Named For 2009 - 2014
Ontario's Top Investment Towns Named For 2009 - 2014
National Independent Real Estate Research Company
Releases Findings of Ontario Economic Analysis
"Technology Triangle remains the Number One place to invest in Ontario"
Oct. 2nd - The Real Estate Investment Network’s (REIN™) release of Top Ontario Investment Towns analyzes the current and future prospects for real estate investment opportunities in Ontario.The 108 page report states that recent market correction provides buying opportunities for home owners and investors; however, only in select regions of the province.It identifies which areas will outperform in the coming decade and finds that the Kitchener Waterloo Cambridge area is the top region in Ontario in which to invest in real estate.
REIN™ is Canada's leading real estate research, education, and consulting organization for the last 17 years and its latest report is an analysis of key economic fundamentals for investors and home owners across North America. The in-depth research is based on the latest statistics, economic and social trends, and on-the-ground reports from REIN™'s research staff, members and industry professionals.
Today's Market Turmoil means Opportunity for Investors & First Time Home-Buyers
"Despite today's continuing market turmoil, our research indicates that there are more buying opportunities now than in the last few years, meaning more investment options and better yields" said report lead author Don R. Campbell, REIN™ President and author of the best-selling books Real Estate Investing in Canada and 97 Tips For Real Estate Investing.
"With today’s mixed market signals it is critical that investors and home-buyers complete that extra level of due diligence.We are no longer in the Tiger Woods years of real estate investing, where you won no matter what you bought. Now we get back to market reality where economic fundamentals, not speculation, will once again play the key role in whether a property increases or drops in value. The years of skyrocketing prices are finally over; however, over the long term the economic fundamentals of these key regions will help their property values dramatically outperform other regions of the province."
The Top Ontario Investment Towns report list:
1) Technology Triangle:Kitchener, Waterloo, Cambridge
2) Hamilton
3) Simcoe Shores:Barrie- Orillia
4) Brampton
5) Durham Region – Whitby, Pickering, and Ajax
6) Ottawa
7) Brantford
8) Toronto
9) Vaughan
10) Whitchurch-Stouffville
KWC on Top of the list
The communities of Kitchener, Waterloo, and Cambridge, known collectively as Canada’s Technology Triangle, are becoming known as a competitive area in which to build high-tech businesses. The area is so strong economically that the Real Estate Investment Network™ in its past research has dubbed it the “Economic Alberta of Ontario”. This continues to prove true as the region was once again selected as the number-one investment town in Ontario. Within a 24 hours drive, the Technology Triangle has access to more than 60% of Canada’s population and 40% of the U.S. population. The reinvention of the region’s economy in the last few years has lead to investment in the information technology sector, a venture which has protected the Triangle from the steep increase in job losses experienced in many other Ontario communities. A commitment to infrastructure improvements and transportation projects will also help drive the economy and the real estate market in this area.
Breaking through its past, Hamilton jumps up with a bright future
Hamilton is poised to outperform most the province as it breaks through its past reputation and grabs a hold of the future.The continuing diversification of the City’s economy coupled with the increase in accessibility provided by the transportation improvements provides a strong economic base from which to work.Hamilton’s economy, in just a few short years will be unrecognizable when compared to the past decades.This renewal will help drive demand for real estate (rentals as well as ownership) in the City, especially in older neighbourhoods going through transition.
Vaughan will benefit tremendously from increased housing values due to transportation projects
With the largest job growth in all of Canada between 2001 and 2006, the economy of Vaughan is becoming increasingly more diverse. Its extensive transportation network, available land, and the lowest commercial and industrial property taxes in the GTA continue to attract new businesses to the area. The City of Vaughan has become a preferred location for investment, leading the country’s cities in the per capita of building permits issued. Once all the region’s transportation and other infrastructure projects are completed (like the expansion of the TTC Spadina Line and the construction of the Vaughan Corporate Centre), Vaughan will be among the most accessible regions in the Greater Toronto Area; this combined with the fact that the City has the lowest commercial and industrial taxes in the GTA, will drive demand for both residential and commercial/industrial property.
Scarborough has the best opportunities in the City of Toronto
Toronto continues to be a major economic engine for Canada, as it continues to be the financial and head office capital of the country. This, combined with a strong growth of immigration to the city will help to provide an ongoing source of both rental and ownership demand in the housing market. Some regions of the city will prove to be provincial leaders, while other regions will lag sadly behind. Investors in the Toronto market must focus on areas with future potential, while at the same time ignoring past neighbourhood reputations. One breakout region in coming years will be Scarborough. With home prices consistently below other regions of Toronto and a planned Rapid Transit expansion, the region will experience rapid growth.
National Independent Real Estate Research Company
Releases Findings of Ontario Economic Analysis
"Technology Triangle remains the Number One place to invest in Ontario"
Oct. 2nd - The Real Estate Investment Network’s (REIN™) release of Top Ontario Investment Towns analyzes the current and future prospects for real estate investment opportunities in Ontario.The 108 page report states that recent market correction provides buying opportunities for home owners and investors; however, only in select regions of the province.It identifies which areas will outperform in the coming decade and finds that the Kitchener Waterloo Cambridge area is the top region in Ontario in which to invest in real estate.
REIN™ is Canada's leading real estate research, education, and consulting organization for the last 17 years and its latest report is an analysis of key economic fundamentals for investors and home owners across North America. The in-depth research is based on the latest statistics, economic and social trends, and on-the-ground reports from REIN™'s research staff, members and industry professionals.
Today's Market Turmoil means Opportunity for Investors & First Time Home-Buyers
"Despite today's continuing market turmoil, our research indicates that there are more buying opportunities now than in the last few years, meaning more investment options and better yields" said report lead author Don R. Campbell, REIN™ President and author of the best-selling books Real Estate Investing in Canada and 97 Tips For Real Estate Investing.
"With today’s mixed market signals it is critical that investors and home-buyers complete that extra level of due diligence.We are no longer in the Tiger Woods years of real estate investing, where you won no matter what you bought. Now we get back to market reality where economic fundamentals, not speculation, will once again play the key role in whether a property increases or drops in value. The years of skyrocketing prices are finally over; however, over the long term the economic fundamentals of these key regions will help their property values dramatically outperform other regions of the province."
The Top Ontario Investment Towns report list:
1) Technology Triangle:Kitchener, Waterloo, Cambridge
2) Hamilton
3) Simcoe Shores:Barrie- Orillia
4) Brampton
5) Durham Region – Whitby, Pickering, and Ajax
6) Ottawa
7) Brantford
8) Toronto
9) Vaughan
10) Whitchurch-Stouffville
KWC on Top of the list
The communities of Kitchener, Waterloo, and Cambridge, known collectively as Canada’s Technology Triangle, are becoming known as a competitive area in which to build high-tech businesses. The area is so strong economically that the Real Estate Investment Network™ in its past research has dubbed it the “Economic Alberta of Ontario”. This continues to prove true as the region was once again selected as the number-one investment town in Ontario. Within a 24 hours drive, the Technology Triangle has access to more than 60% of Canada’s population and 40% of the U.S. population. The reinvention of the region’s economy in the last few years has lead to investment in the information technology sector, a venture which has protected the Triangle from the steep increase in job losses experienced in many other Ontario communities. A commitment to infrastructure improvements and transportation projects will also help drive the economy and the real estate market in this area.
Breaking through its past, Hamilton jumps up with a bright future
Hamilton is poised to outperform most the province as it breaks through its past reputation and grabs a hold of the future.The continuing diversification of the City’s economy coupled with the increase in accessibility provided by the transportation improvements provides a strong economic base from which to work.Hamilton’s economy, in just a few short years will be unrecognizable when compared to the past decades.This renewal will help drive demand for real estate (rentals as well as ownership) in the City, especially in older neighbourhoods going through transition.
Vaughan will benefit tremendously from increased housing values due to transportation projects
With the largest job growth in all of Canada between 2001 and 2006, the economy of Vaughan is becoming increasingly more diverse. Its extensive transportation network, available land, and the lowest commercial and industrial property taxes in the GTA continue to attract new businesses to the area. The City of Vaughan has become a preferred location for investment, leading the country’s cities in the per capita of building permits issued. Once all the region’s transportation and other infrastructure projects are completed (like the expansion of the TTC Spadina Line and the construction of the Vaughan Corporate Centre), Vaughan will be among the most accessible regions in the Greater Toronto Area; this combined with the fact that the City has the lowest commercial and industrial taxes in the GTA, will drive demand for both residential and commercial/industrial property.
Scarborough has the best opportunities in the City of Toronto
Toronto continues to be a major economic engine for Canada, as it continues to be the financial and head office capital of the country. This, combined with a strong growth of immigration to the city will help to provide an ongoing source of both rental and ownership demand in the housing market. Some regions of the city will prove to be provincial leaders, while other regions will lag sadly behind. Investors in the Toronto market must focus on areas with future potential, while at the same time ignoring past neighbourhood reputations. One breakout region in coming years will be Scarborough. With home prices consistently below other regions of Toronto and a planned Rapid Transit expansion, the region will experience rapid growth.
Thursday, October 22, 2009
Ontario's new Harmonized Sales tax Transition Rules
HST Transition Rules
October 21, 2009 -- The provincial government has provided rules/guidance on how it will transition to the implementation of the proposed Harmonized Sales Tax.
Background
The provincial government has announced that it intends to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
The HST is NOT YET IN EFFECT. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010; however, note transition rules below.
HST will not apply on the purchase price of re-sale homes.
HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
Transitional Rules for New Housing
Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.
Additional Transitional Rules
Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,
Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.
With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.
More Detail
Additional detail on the transition rules is available at the provincial government web site here or by calling the provincial government enquiry line at 1-800-337-7222.
October 21, 2009 -- The provincial government has provided rules/guidance on how it will transition to the implementation of the proposed Harmonized Sales Tax.
Background
The provincial government has announced that it intends to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
The HST is NOT YET IN EFFECT. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010; however, note transition rules below.
HST will not apply on the purchase price of re-sale homes.
HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
Transitional Rules for New Housing
Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.
Additional Transitional Rules
Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,
Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.
With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.
More Detail
Additional detail on the transition rules is available at the provincial government web site here or by calling the provincial government enquiry line at 1-800-337-7222.
Tuesday, September 1, 2009
Why Buy Real Estate?
Why Buy Real Estate?
Reasons to buy? High inventory, low prices, low interest rates, etc. Reasons not to buy? Prices still in decline, renting isn't a crime, financing is more complicated, etc.
Good reasons, but what about the real reasons that people buy and don't buy? What if, I broke it down and really made it easy to figure out if it's a good idea to buy or not to buy? What if some people don't really buy because of interest rates after all, and what's all this about a market bottom?
What if people buy because they're confident and don't buy because they're scared and the rest of the reasons are just fluff? If people buy because of interest rates, why did anyone buy a home from 1980 to 1983? Interest rates aren’t the key, market indicators aren’t the key, lifestyle accomplishment is the key.
First, let's get this "market bottom” theory out of our way. Market bottoms are only easy to identify once they've happened. Look at the stock market. By most accounts, we've been to the market bottom of this recession cycle.
What is true for the stock market is also true of the housing market. Market bottoms sound great in theory, but they're just too darn hard to identify while they're happening. Instead of an identifiable bottom, why don't we just focus on a bottom trough, a trough that we're certainly in right now.
So if we're in the market, why buy? Do you believe the market bulls or bears? Do you focus on positive signs, or are you negative and you prefer to side with the cons? Go right ahead and rent for the rest of your life, and maybe, just maybe your landlord will let you paint a white wall tan. If you ask nicely.
What if you just let the reasons to buy and the reasons to wait cancel each other out, and buy for lifestyle. Buy because that house you grew up admiring just came on the market. Buy because you‘re confident in your job status, and that new development just slashed their prices. Buy because the city heat is just about to make your head explode, and cool lake breezes are better than warm alley breezes any day of the week. Buy because you’ll walk a little taller if you live on that street where the Maples high overhead reach across the street and shake hands with each other Above all, buy because you want a better lifestyle for you, for your friends, and for your family, and the purchase you’re contemplating allows you to more easily obtain that lifestyle.
If you need fundamentals to buy, realize that interest rates are unbelievably low. Realize that whether or not the market creates an identifiable bottom, you're not going to know when it does. Just buy because of the 80 years of summer we're all hoping for out of life, way too many of them have already been wasted worrying about market swings, and interest rates.
Reasons to buy? High inventory, low prices, low interest rates, etc. Reasons not to buy? Prices still in decline, renting isn't a crime, financing is more complicated, etc.
Good reasons, but what about the real reasons that people buy and don't buy? What if, I broke it down and really made it easy to figure out if it's a good idea to buy or not to buy? What if some people don't really buy because of interest rates after all, and what's all this about a market bottom?
What if people buy because they're confident and don't buy because they're scared and the rest of the reasons are just fluff? If people buy because of interest rates, why did anyone buy a home from 1980 to 1983? Interest rates aren’t the key, market indicators aren’t the key, lifestyle accomplishment is the key.
First, let's get this "market bottom” theory out of our way. Market bottoms are only easy to identify once they've happened. Look at the stock market. By most accounts, we've been to the market bottom of this recession cycle.
What is true for the stock market is also true of the housing market. Market bottoms sound great in theory, but they're just too darn hard to identify while they're happening. Instead of an identifiable bottom, why don't we just focus on a bottom trough, a trough that we're certainly in right now.
So if we're in the market, why buy? Do you believe the market bulls or bears? Do you focus on positive signs, or are you negative and you prefer to side with the cons? Go right ahead and rent for the rest of your life, and maybe, just maybe your landlord will let you paint a white wall tan. If you ask nicely.
What if you just let the reasons to buy and the reasons to wait cancel each other out, and buy for lifestyle. Buy because that house you grew up admiring just came on the market. Buy because you‘re confident in your job status, and that new development just slashed their prices. Buy because the city heat is just about to make your head explode, and cool lake breezes are better than warm alley breezes any day of the week. Buy because you’ll walk a little taller if you live on that street where the Maples high overhead reach across the street and shake hands with each other Above all, buy because you want a better lifestyle for you, for your friends, and for your family, and the purchase you’re contemplating allows you to more easily obtain that lifestyle.
If you need fundamentals to buy, realize that interest rates are unbelievably low. Realize that whether or not the market creates an identifiable bottom, you're not going to know when it does. Just buy because of the 80 years of summer we're all hoping for out of life, way too many of them have already been wasted worrying about market swings, and interest rates.
Thursday, July 23, 2009
Central banks vow to keep lid on rates
Kevin Carmichael
Ottawa — Globe and Mail Update
Last updated on Thursday, Jul. 23, 2009 09:05AM EDT
The U.S. and Canadian central banks are promising to keep borrowing rates at record lows well into next year as they seek to foster a recovery that both institutions say won't hit its stride until 2011.
Both the U.S. Federal Reserve Board and the Bank of Canada signalled yesterday the recessions in their countries are all but over, echoing their counterparts at the Bank of Japan and Reserve Bank of Australia, which published similar assessments.
But just as they agree the worst is over, Fed chairman Ben Bernanke and Bank of Canada Governor Mark Carney are united in their nervousness over the fragility of a rebound that is being fuelled almost entirely by benchmark interest rates that are near zero and hundreds of billions of dollars in short-term government spending.
North America's climb out of the deepest global recession since the Great Depression is being slowed by rising unemployment that is a threat to consumer confidence and an impediment to domestic spending.
The two central banks said those concerns are offsetting what would otherwise be stronger gains from better financial conditions and increasing signs that economic activity is expanding in other parts of the world.
“I want to be clear: We have a very long haul here,” Mr. Bernanke said during three hours of testimony to the U.S. House financial services committee. “It's not going to feel like a very strong economy.”
Mr. Bernanke, who returns to Capitol Hill today to complete his semi-annual report to the U.S. Congress by submitting to questions from senators, reaffirmed that he intends to leave the federal funds rate at “exceptionally low levels for an extended period of time.”
The benchmark U.S. lending rate is currently in a range of zero to 0.25 per cent, while Canada's key overnight target is 0.25 per cent, the lowest it can go without roiling short-term money markets.
Mr. Carney, through the Bank of Canada's latest policy statement, recommitted to keep the overnight target at 0.25 per cent until June, 2010, conditional on an unexpected burst of inflation.
Economic conditions in Canada have improved enough to warrant a brighter outlook from the central bank.
Policy makers used yesterday's statement to adjust their forecast for 2009 to a contraction of 2.3 per cent, compared with an April prediction that gross domestic product would collapse 3 per cent. GDP will expand 3 per cent next year, compared with a previous estimate for growth of 2.5 per cent, the Bank of Canada said.
The revisions reflect what the central bank said are “increasing signs that economic activity has begun to expand in many countries” as a result of unprecedented monetary and fiscal stimulus.
“The recovery is nascent,” the Bank of Canada said.
“Effective and resolute policy implementation remains critical to sustained global growth.”
At home, domestic demand also is getting a boost from improved financial conditions, firmer commodity prices and a rebound in business and consumer confidence, the Bank of Canada said. Growth is being significantly offset by a higher dollar that is crimping exports and restructuring in the auto and forestry industries.
The central bank's revised outlook, which it will explain when it releases its latest quarterly economic report tomorrow, puts it in line with the 2009 forecasts of Canada's biggest banks and leaves it more optimistic about 2010.
Inflation remains tame and is unlikely to pose a threat for some time. Canadian policy makers don't expect the economy to return to a level at which it risks sparking rapid inflation until mid-2011.
Ottawa — Globe and Mail Update
Last updated on Thursday, Jul. 23, 2009 09:05AM EDT
The U.S. and Canadian central banks are promising to keep borrowing rates at record lows well into next year as they seek to foster a recovery that both institutions say won't hit its stride until 2011.
Both the U.S. Federal Reserve Board and the Bank of Canada signalled yesterday the recessions in their countries are all but over, echoing their counterparts at the Bank of Japan and Reserve Bank of Australia, which published similar assessments.
But just as they agree the worst is over, Fed chairman Ben Bernanke and Bank of Canada Governor Mark Carney are united in their nervousness over the fragility of a rebound that is being fuelled almost entirely by benchmark interest rates that are near zero and hundreds of billions of dollars in short-term government spending.
North America's climb out of the deepest global recession since the Great Depression is being slowed by rising unemployment that is a threat to consumer confidence and an impediment to domestic spending.
The two central banks said those concerns are offsetting what would otherwise be stronger gains from better financial conditions and increasing signs that economic activity is expanding in other parts of the world.
“I want to be clear: We have a very long haul here,” Mr. Bernanke said during three hours of testimony to the U.S. House financial services committee. “It's not going to feel like a very strong economy.”
Mr. Bernanke, who returns to Capitol Hill today to complete his semi-annual report to the U.S. Congress by submitting to questions from senators, reaffirmed that he intends to leave the federal funds rate at “exceptionally low levels for an extended period of time.”
The benchmark U.S. lending rate is currently in a range of zero to 0.25 per cent, while Canada's key overnight target is 0.25 per cent, the lowest it can go without roiling short-term money markets.
Mr. Carney, through the Bank of Canada's latest policy statement, recommitted to keep the overnight target at 0.25 per cent until June, 2010, conditional on an unexpected burst of inflation.
Economic conditions in Canada have improved enough to warrant a brighter outlook from the central bank.
Policy makers used yesterday's statement to adjust their forecast for 2009 to a contraction of 2.3 per cent, compared with an April prediction that gross domestic product would collapse 3 per cent. GDP will expand 3 per cent next year, compared with a previous estimate for growth of 2.5 per cent, the Bank of Canada said.
The revisions reflect what the central bank said are “increasing signs that economic activity has begun to expand in many countries” as a result of unprecedented monetary and fiscal stimulus.
“The recovery is nascent,” the Bank of Canada said.
“Effective and resolute policy implementation remains critical to sustained global growth.”
At home, domestic demand also is getting a boost from improved financial conditions, firmer commodity prices and a rebound in business and consumer confidence, the Bank of Canada said. Growth is being significantly offset by a higher dollar that is crimping exports and restructuring in the auto and forestry industries.
The central bank's revised outlook, which it will explain when it releases its latest quarterly economic report tomorrow, puts it in line with the 2009 forecasts of Canada's biggest banks and leaves it more optimistic about 2010.
Inflation remains tame and is unlikely to pose a threat for some time. Canadian policy makers don't expect the economy to return to a level at which it risks sparking rapid inflation until mid-2011.
Tuesday, July 21, 2009
Canadian Central bank sees brighter economic picture
Julian Beltrame
THE CANADIAN PRESS
OTTAWA – The Bank of Canada all but sounded the all-clear Tuesday on the credit crisis that has crippled the economy the past year, saying Canada is poised for a stronger rebound than previously expected.
In a surprising move, the central bank said it is reducing the amount of money it is making available to chartered banks in order to support borrowing and lending because the need for such extraordinary measures is waning.
"Conditions in funding markets have continued to improve," the central bank said in an accompanying statement to its scheduled interest rate announcement.
"Indicative measures of bank funding costs ... have declined steadily from the September 2008 peak to stabilize at their lowest levels since the onset of the financial crisis."
Governor Mark Carney did as expected Tuesday in keeping the bank's key policy rate at the lowest possible level of 0.25 per cent.
And he reiterated the conditional commitment he made in April to keep it at the so-called "lower bound" until the second quarter of 2010.
But there is little doubt from the statement he released in explanation of the decision, and a second release on credit conditions, that Carney believes much has changed in the world and in Canada during the past three months.
The governor said the Canadian economy will now contract by 2.3 per cent this year, not the three per cent he had forecast in April, the last time the central bank released an outlook.
And he said the economy will advance by three per cent next year, a half-point better than his thinking in April.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," he said in the statement.
"Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period."
In bank speak, that means that growth will happen sooner and stronger, all but signalling that the recession that cost Canadians almost 400,000 jobs since October is close to, or already, over.
But Carney has not changed his mind on the strength of the overall recovery.
He maintains that it will take until the middle of 2011 for the economy to again reach full capacity. As a result, growth in 2011 will be lower than previously thought for that year because it happened earlier.
Part of the reason the recovery will be a long and drawn-out process is the strong Canadian dollar that will keep exports low, and the ongoing restructuring in key industrial sectors, the bank said.
As for the global economy, the bank said "there are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus."
However, the recovery is in its early stages, the central bank cautioned.
The decision to reduce the level of money the bank is injecting into the system had been suggested by some economists, noting that in some cases banks were not drawing down as much as the Bank of Canada was making available.
Some instruments were not being used at all.
As well as making less liquidity available, the bank also has increased the maturity dates for the term purchase and resale agreements.
The central bank noted, however, that it remains committed to providing liquidity "as required," to support the stability of the financial system.
THE CANADIAN PRESS
OTTAWA – The Bank of Canada all but sounded the all-clear Tuesday on the credit crisis that has crippled the economy the past year, saying Canada is poised for a stronger rebound than previously expected.
In a surprising move, the central bank said it is reducing the amount of money it is making available to chartered banks in order to support borrowing and lending because the need for such extraordinary measures is waning.
"Conditions in funding markets have continued to improve," the central bank said in an accompanying statement to its scheduled interest rate announcement.
"Indicative measures of bank funding costs ... have declined steadily from the September 2008 peak to stabilize at their lowest levels since the onset of the financial crisis."
Governor Mark Carney did as expected Tuesday in keeping the bank's key policy rate at the lowest possible level of 0.25 per cent.
And he reiterated the conditional commitment he made in April to keep it at the so-called "lower bound" until the second quarter of 2010.
But there is little doubt from the statement he released in explanation of the decision, and a second release on credit conditions, that Carney believes much has changed in the world and in Canada during the past three months.
The governor said the Canadian economy will now contract by 2.3 per cent this year, not the three per cent he had forecast in April, the last time the central bank released an outlook.
And he said the economy will advance by three per cent next year, a half-point better than his thinking in April.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," he said in the statement.
"Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period."
In bank speak, that means that growth will happen sooner and stronger, all but signalling that the recession that cost Canadians almost 400,000 jobs since October is close to, or already, over.
But Carney has not changed his mind on the strength of the overall recovery.
He maintains that it will take until the middle of 2011 for the economy to again reach full capacity. As a result, growth in 2011 will be lower than previously thought for that year because it happened earlier.
Part of the reason the recovery will be a long and drawn-out process is the strong Canadian dollar that will keep exports low, and the ongoing restructuring in key industrial sectors, the bank said.
As for the global economy, the bank said "there are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus."
However, the recovery is in its early stages, the central bank cautioned.
The decision to reduce the level of money the bank is injecting into the system had been suggested by some economists, noting that in some cases banks were not drawing down as much as the Bank of Canada was making available.
Some instruments were not being used at all.
As well as making less liquidity available, the bank also has increased the maturity dates for the term purchase and resale agreements.
The central bank noted, however, that it remains committed to providing liquidity "as required," to support the stability of the financial system.
Thursday, July 2, 2009
Battle over development fees heats up in Oakville
Phinjo Gombu
Urban affairs reporter Toronto Star
Peter Gilgan, one of Canada's most prolific homebuilders, is crying foul over municipal plans to stiffly increase development charges he must pay to build in north Oakville, an area poised for explosive growth.
In some places, he might have garnered a sympathetic response, especially after writing to prospective homeowners encouraging them to complain to the people they elected. But this is one showdown he's unlikely to win.
Politicians in Oakville and Halton Region are digging in their heels, saying it's time the development industry paid its fair share of the cost of services such as roads, water pipes, new libraries and recreation centres.
"It's our feeling that (developers) made a lot of money during the good times, and they should be using some of that money to pay for the services and stop using the argument that the economy is bad," says Halton regional chair Gary Carr.
"The cost is the cost," Carr says. "If they decide not to proceed, then it is their decision not to go forward, not ours."
Carr and Oakville Mayor Rob Burton were among a group of politicians who made the idea that growth should pay for itself a major plank in their platforms in the 2006 municipal elections. They believe existing residents shouldn't have to pay for infrastructure needed because of pressures brought on by new residents.
Halton Region already has some of the highest development fees in the GTA. A proposal to be debated in July would add a further $7,888 in infrastructure costs on to the current charge of $29,074 per home. The final amount paid per house would be about $63,813, when combined with a proposed 65 per cent increase in Oakville's development charges – which will be voted on a few days before the regional vote – as well as additional charges to cover education and transit.
Gilgan, president and CEO of Mattamy Homes Ltd., says that is "indefensible" and "intolerable." The cost, he says, will inevitably be passed on to new homebuyers, affect the affordability of new homes, slow down their construction and further hurt an already battered economy.
The proposed charges are based on "glaring errors" that assume construction costs will continue to go up, not down, he insists.
Regional staff and politicians dismiss those claims, saying that only the actual tendered costs are ever charged.
"The lack of accountability and transparency is appalling," says Gilgan, who wrote a letter to potential buyers urging them to complain about how the increase will hike the cost of a new home.
But in Halton, where green-leaning politicians considered freezing growth altogether last year in an effort to push the province and the industry toward coughing up more infrastructure funding, such complaints fall on deaf ears.
Emboldened by major victories against developers at the Ontario Municipal Board over the amount of green space that must be preserved in north Oakville when the homebuilders move in, they say they will not give in to complaints like Gilgan's.
The Halton debate has huge implications because south Milton and north Oakville, still nearly entirely rural, are poised for major growth, with more than 75,000 residents expected to move in by 2021.
Oakville councillors Allan Elgar and Tom Adams say they won't apologize for high development charges because that's simply the cost of doing business in the town.
"We don't want to subsidize the development industry any more than we have to," says Elgar.
Such blunt talk reflects pent-up anger over decisions made more than a decade ago.
In 1997, the Mike Harris Conservatives changed the law, reducing to 90 per cent the share developers were required to pay toward services such as parks, recreation centres and libraries in new communities.
Developers were also exempted from contributing to the community portion of new hospitals, which property taxes help cover today. (They are still expected to pay 100 per cent of the cost of new roads, water and waste-water pipes and plants.)
Municipal officials contend that since that change was made, property-tax payers have increasingly been saddled with costs that should rightly be borne by developers and new homebuyers.
What's rankling the industry today is Halton politicians' willingness to use every available tool in their belt, including a clause in the region's Official Plan that allows water and sewer connections to new homes to be withheld until an acceptable financing plan for new infrastructure is in place.
Other GTA regions – York Region, notably – have built infrastructure at the front end, hoping to recover costs from developers later. Halton requires them to pay up front.
All of this has led the Building, Industry and Land Development Association, the industry lobbying group, to complain that such charges "will have far-reaching effects across the Greater Toronto Area."
Urban affairs reporter Toronto Star
Peter Gilgan, one of Canada's most prolific homebuilders, is crying foul over municipal plans to stiffly increase development charges he must pay to build in north Oakville, an area poised for explosive growth.
In some places, he might have garnered a sympathetic response, especially after writing to prospective homeowners encouraging them to complain to the people they elected. But this is one showdown he's unlikely to win.
Politicians in Oakville and Halton Region are digging in their heels, saying it's time the development industry paid its fair share of the cost of services such as roads, water pipes, new libraries and recreation centres.
"It's our feeling that (developers) made a lot of money during the good times, and they should be using some of that money to pay for the services and stop using the argument that the economy is bad," says Halton regional chair Gary Carr.
"The cost is the cost," Carr says. "If they decide not to proceed, then it is their decision not to go forward, not ours."
Carr and Oakville Mayor Rob Burton were among a group of politicians who made the idea that growth should pay for itself a major plank in their platforms in the 2006 municipal elections. They believe existing residents shouldn't have to pay for infrastructure needed because of pressures brought on by new residents.
Halton Region already has some of the highest development fees in the GTA. A proposal to be debated in July would add a further $7,888 in infrastructure costs on to the current charge of $29,074 per home. The final amount paid per house would be about $63,813, when combined with a proposed 65 per cent increase in Oakville's development charges – which will be voted on a few days before the regional vote – as well as additional charges to cover education and transit.
Gilgan, president and CEO of Mattamy Homes Ltd., says that is "indefensible" and "intolerable." The cost, he says, will inevitably be passed on to new homebuyers, affect the affordability of new homes, slow down their construction and further hurt an already battered economy.
The proposed charges are based on "glaring errors" that assume construction costs will continue to go up, not down, he insists.
Regional staff and politicians dismiss those claims, saying that only the actual tendered costs are ever charged.
"The lack of accountability and transparency is appalling," says Gilgan, who wrote a letter to potential buyers urging them to complain about how the increase will hike the cost of a new home.
But in Halton, where green-leaning politicians considered freezing growth altogether last year in an effort to push the province and the industry toward coughing up more infrastructure funding, such complaints fall on deaf ears.
Emboldened by major victories against developers at the Ontario Municipal Board over the amount of green space that must be preserved in north Oakville when the homebuilders move in, they say they will not give in to complaints like Gilgan's.
The Halton debate has huge implications because south Milton and north Oakville, still nearly entirely rural, are poised for major growth, with more than 75,000 residents expected to move in by 2021.
Oakville councillors Allan Elgar and Tom Adams say they won't apologize for high development charges because that's simply the cost of doing business in the town.
"We don't want to subsidize the development industry any more than we have to," says Elgar.
Such blunt talk reflects pent-up anger over decisions made more than a decade ago.
In 1997, the Mike Harris Conservatives changed the law, reducing to 90 per cent the share developers were required to pay toward services such as parks, recreation centres and libraries in new communities.
Developers were also exempted from contributing to the community portion of new hospitals, which property taxes help cover today. (They are still expected to pay 100 per cent of the cost of new roads, water and waste-water pipes and plants.)
Municipal officials contend that since that change was made, property-tax payers have increasingly been saddled with costs that should rightly be borne by developers and new homebuyers.
What's rankling the industry today is Halton politicians' willingness to use every available tool in their belt, including a clause in the region's Official Plan that allows water and sewer connections to new homes to be withheld until an acceptable financing plan for new infrastructure is in place.
Other GTA regions – York Region, notably – have built infrastructure at the front end, hoping to recover costs from developers later. Halton requires them to pay up front.
All of this has led the Building, Industry and Land Development Association, the industry lobbying group, to complain that such charges "will have far-reaching effects across the Greater Toronto Area."
Monday, May 25, 2009
Rate Alert
5-year bond yields have jumped to 2.27%--up 40 basis points in the last 30 days. As a result, mortgage funding costs are spiking (fixed mortgage rates are generally linked to bond yields).
A few smaller lenders have already raised, or plan to raise, their 5-year fixed rates. As reported a few weeks ago, this may be a precursor to further, more wide-scale, rate increases.
If you’re a homeowner considering refinancing into a fixed rate, now may be the time to act.
If you’re a broker floating a fixed rate for a client, you may want to consider locking it in.
The Mandatory Disclaimer: Accurately and consistently forecasting interest rates long-term is virtually impossible. This is not a prediction or recommendation. Market conditions can change at any time. Contact a mortgage planner for recommendations suitable to your particular circumstances.
A few smaller lenders have already raised, or plan to raise, their 5-year fixed rates. As reported a few weeks ago, this may be a precursor to further, more wide-scale, rate increases.
If you’re a homeowner considering refinancing into a fixed rate, now may be the time to act.
If you’re a broker floating a fixed rate for a client, you may want to consider locking it in.
The Mandatory Disclaimer: Accurately and consistently forecasting interest rates long-term is virtually impossible. This is not a prediction or recommendation. Market conditions can change at any time. Contact a mortgage planner for recommendations suitable to your particular circumstances.
Tuesday, May 19, 2009
Preserve your capital in Ontario Canada
Economy:
The Economy of Ontario is a rich and diversified economy. Ontario is the largest economy in Canada, its GDP being nearly twice that of neighbouring Quebec, the second largest economy. Ontarian economy is highly influenced, and run by the service sector, though manufacturing also plays an important role.
It is Canada's leading manufacturing province accounting for 52% of the national manufacturing shipments in 2004.
Ontario's main exports are motor vehicles parts and accessories (40.4%), Machinery and mechanical appliances (10.8%), electrical machinery & equipment (5.6%) and plastic (4.1%).
Ontario's main imports are motor vehicles parts and accessories (22.3%), machinery and mechanical appliances (17.7%), electrical machinery and equipment (10.8%), plastic (4.2%) and scientific, professional and photo equipment (3.6%).
Check http://www.fin.gov.on.ca/english/economy/ecaccts/ for summary of Ontario’s economy 4th quarter 2008.
Population:
Ontario’s is the most populous province of Canada its population reached 12,986,857 on January 1, 2009, with growth of 9,798 people in the fourth quarter. This compares with growth of 12,172 in the same quarter of the previous year. Immigration to Ontario was 23,777 in the quarter, a decrease of 9.3 per cent from the level of 26,221 in the same quarter of the previous year. Ontario received 44.4 per cent of all immigrants to Canada in the quarter, down from 47.2 per cent in the same quarter of 2007.
Ontario Real estate cycle:
1) What was the area like 10 years ago?
2) What is the area like now, and
3) What will the area be like 10 years from now?
The best areas are those where the residents/Businesses who occupy the Properties can afford to live/work there. That means that the wealthy areas are likely to be well-maintained for longer periods of time, than the poorer areas, which as time goes by can fall into disrepair.
The key is demand. Canada doesn’t build on expectation, only to suddenly find a massive surplus of housing stock on its hands. Even in the world’s second largest country, no one builds without having a market, which makes perfect business sense. Contrast that approach – and the state of the market – with Britain, where the property boom has run its course and recent forecasts have predicted a fall in price during the next year in some areas. In Ireland, too, where property prices tripled between 2000 and 2006, the bubble has burst.
Canada’s strong property market is not just a one hit wonder, it’s vibrant, diversified profitable and here to stay. All evidence suggests there are years of growth to come, and where better to get in than, Ontario!
Transportation improvements:
In the summer of 2008, the Government of Canada and the Province of Ontario signed the Canada–Ontario Building Canada Plan Framework Agreement. Under this agreement, $6 billion is available for investment in the province's infrastructure. The federal government will be providing up to $3.09 billion and the provincial government will be providing up to $2.91 billion.
Further, under the Plan, the Government of Canada will provide $25 million in base funding annually, for a total of $175 million through to 2014 for core infrastructure priorities in Ontario. A further $2.98 billion will flow to Ontario municipalities through the extension of the federal Gas Tax Fund agreement from 2010 to 2014.
Ontario is planning for a new river crossing, access road and inspection plaza at the Windsor-Detroit border. In the meantime, we are working together with our partners to implement several projects that address traffic flow, congestion and efficiency in the Windsor-Detroit Gateway.
Ontario Now:
Besides a more conservative monetary policy (including higher interest rates than the US), Canada is rich in energy and resources such as natural gas, copper, zinc, nickel and significantly oil. Second only to Saudi Arabia oil reserves, Time Magazine said they were “Canada’s greatest buried treasure” and “could satisfy the world’s demand for petroleum for the next century”. The emergence of China as a major world player on the economic stage has boosted Canada’s coffers and status – the communist state will buy all the minerals she can lay her hands on from Canada. Canada is not a country to stand on its laurels, however, and other booming, hi-tech businesses such as BlackBerry (developed by Research in Motion – RIM), CAE flight simulators and Bombardier regional jets have become world-leading brands.
Winston Hemmings can help in bringing Real Property Investment opportunities in Ontario to a market of smart investors.
Call me for you chance to invest in a slice of North America’s most beautiful country.
416-723-6526
The Economy of Ontario is a rich and diversified economy. Ontario is the largest economy in Canada, its GDP being nearly twice that of neighbouring Quebec, the second largest economy. Ontarian economy is highly influenced, and run by the service sector, though manufacturing also plays an important role.
It is Canada's leading manufacturing province accounting for 52% of the national manufacturing shipments in 2004.
Ontario's main exports are motor vehicles parts and accessories (40.4%), Machinery and mechanical appliances (10.8%), electrical machinery & equipment (5.6%) and plastic (4.1%).
Ontario's main imports are motor vehicles parts and accessories (22.3%), machinery and mechanical appliances (17.7%), electrical machinery and equipment (10.8%), plastic (4.2%) and scientific, professional and photo equipment (3.6%).
Check http://www.fin.gov.on.ca/english/economy/ecaccts/ for summary of Ontario’s economy 4th quarter 2008.
Population:
Ontario’s is the most populous province of Canada its population reached 12,986,857 on January 1, 2009, with growth of 9,798 people in the fourth quarter. This compares with growth of 12,172 in the same quarter of the previous year. Immigration to Ontario was 23,777 in the quarter, a decrease of 9.3 per cent from the level of 26,221 in the same quarter of the previous year. Ontario received 44.4 per cent of all immigrants to Canada in the quarter, down from 47.2 per cent in the same quarter of 2007.
Ontario Real estate cycle:
1) What was the area like 10 years ago?
2) What is the area like now, and
3) What will the area be like 10 years from now?
The best areas are those where the residents/Businesses who occupy the Properties can afford to live/work there. That means that the wealthy areas are likely to be well-maintained for longer periods of time, than the poorer areas, which as time goes by can fall into disrepair.
The key is demand. Canada doesn’t build on expectation, only to suddenly find a massive surplus of housing stock on its hands. Even in the world’s second largest country, no one builds without having a market, which makes perfect business sense. Contrast that approach – and the state of the market – with Britain, where the property boom has run its course and recent forecasts have predicted a fall in price during the next year in some areas. In Ireland, too, where property prices tripled between 2000 and 2006, the bubble has burst.
Canada’s strong property market is not just a one hit wonder, it’s vibrant, diversified profitable and here to stay. All evidence suggests there are years of growth to come, and where better to get in than, Ontario!
Transportation improvements:
In the summer of 2008, the Government of Canada and the Province of Ontario signed the Canada–Ontario Building Canada Plan Framework Agreement. Under this agreement, $6 billion is available for investment in the province's infrastructure. The federal government will be providing up to $3.09 billion and the provincial government will be providing up to $2.91 billion.
Further, under the Plan, the Government of Canada will provide $25 million in base funding annually, for a total of $175 million through to 2014 for core infrastructure priorities in Ontario. A further $2.98 billion will flow to Ontario municipalities through the extension of the federal Gas Tax Fund agreement from 2010 to 2014.
Ontario is planning for a new river crossing, access road and inspection plaza at the Windsor-Detroit border. In the meantime, we are working together with our partners to implement several projects that address traffic flow, congestion and efficiency in the Windsor-Detroit Gateway.
Ontario Now:
Besides a more conservative monetary policy (including higher interest rates than the US), Canada is rich in energy and resources such as natural gas, copper, zinc, nickel and significantly oil. Second only to Saudi Arabia oil reserves, Time Magazine said they were “Canada’s greatest buried treasure” and “could satisfy the world’s demand for petroleum for the next century”. The emergence of China as a major world player on the economic stage has boosted Canada’s coffers and status – the communist state will buy all the minerals she can lay her hands on from Canada. Canada is not a country to stand on its laurels, however, and other booming, hi-tech businesses such as BlackBerry (developed by Research in Motion – RIM), CAE flight simulators and Bombardier regional jets have become world-leading brands.
Winston Hemmings can help in bringing Real Property Investment opportunities in Ontario to a market of smart investors.
Call me for you chance to invest in a slice of North America’s most beautiful country.
416-723-6526
Friday, March 27, 2009
Rate Drops After Approval
Rate Drops After Approval
When you’re approved for a mortgage your lender agrees to hold your interest rate for a set period of time.
Rate holds are usually either: 120-days, 90-days, 60-days, 45-days, or 30-days.
When you have a long rate hold, much can change before you close. Odds are, rates on your closing date will be different from the rate you received when applying.
If rates go up, you’re laughing because your rate hold protects you.
If rates drop, you’ll want to make sure your bank or broker is watching out for you and secures you the lowest rate possible.
Different lenders have different policies on rate adjustments. Here are a few examples:
Rate Fixed Before Closing: Some lenders will adjust your rate lower (if applicable) at a set number of days before closing--like 5 or 7 days. This means you have to wait until that date to make any adjustments. If rates drop and then go back up before this date, you don’t benefit from those previously lower rates.
Broker-Instructed Rate Locks: Some lenders give brokers a chance to re-lock their client’s rates at any time between approval and closing. The broker usually gets one shot in this case, so timing is everything.
Rate Lookbacks: Hindsight is 20/20, and this is one of the few cases where you benefit financially from it. Rate lookbacks are the best of all rate drop policies because they require no timing. The lender simply offers you the lowest rate they’ve had between your approval and closing dates. ING and MCAP are two examples of lenders offering this policy.
Other things being equal, choosing a lender that offers rate lookbacks will save you money over the long-run, especially if you have a 90 or 120-day rate hold.
Remember as well that some lenders require broker intervention to arrange for a rate drop. Other lenders simply drop your rate automatically at their specified rate adjustment date. Always ask your mortgage planner how the lender you’ve chosen works in this respect.
When you’re approved for a mortgage your lender agrees to hold your interest rate for a set period of time.
Rate holds are usually either: 120-days, 90-days, 60-days, 45-days, or 30-days.
When you have a long rate hold, much can change before you close. Odds are, rates on your closing date will be different from the rate you received when applying.
If rates go up, you’re laughing because your rate hold protects you.
If rates drop, you’ll want to make sure your bank or broker is watching out for you and secures you the lowest rate possible.
Different lenders have different policies on rate adjustments. Here are a few examples:
Rate Fixed Before Closing: Some lenders will adjust your rate lower (if applicable) at a set number of days before closing--like 5 or 7 days. This means you have to wait until that date to make any adjustments. If rates drop and then go back up before this date, you don’t benefit from those previously lower rates.
Broker-Instructed Rate Locks: Some lenders give brokers a chance to re-lock their client’s rates at any time between approval and closing. The broker usually gets one shot in this case, so timing is everything.
Rate Lookbacks: Hindsight is 20/20, and this is one of the few cases where you benefit financially from it. Rate lookbacks are the best of all rate drop policies because they require no timing. The lender simply offers you the lowest rate they’ve had between your approval and closing dates. ING and MCAP are two examples of lenders offering this policy.
Other things being equal, choosing a lender that offers rate lookbacks will save you money over the long-run, especially if you have a 90 or 120-day rate hold.
Remember as well that some lenders require broker intervention to arrange for a rate drop. Other lenders simply drop your rate automatically at their specified rate adjustment date. Always ask your mortgage planner how the lender you’ve chosen works in this respect.
Thursday, March 19, 2009
Massive Decline in Bond Yields
Canada’s 5-year bond yield had a huge drop today—it’s largest 1-day fall since September.
The yield on the 5-year Canada now stands at 1.70%, a 2-month low.
The unusual move came after the U.S. Fed announced it would buy over $1 trillion of fixed-income securities in the open market. Analysts say that is tantamount to the Fed admitting there is no bottom in sight for the American economy. (More on this at CEP)
Bond traders--who put their money where their mouth is when predicting rates--never saw this coming.
Many were caught short and had to cover in panic fashion. Yields dropped like a rock as a result.
This, of course, is great news for people on the hunt for a good fixed mortgage rate. (Bond yields generally lead fixed rates.) So far we’ve heard of two lenders talk of lowering their rates. We’ll have to wait and see what happens over the next 3-4 days.
The yield on the 5-year Canada now stands at 1.70%, a 2-month low.
The unusual move came after the U.S. Fed announced it would buy over $1 trillion of fixed-income securities in the open market. Analysts say that is tantamount to the Fed admitting there is no bottom in sight for the American economy. (More on this at CEP)
Bond traders--who put their money where their mouth is when predicting rates--never saw this coming.
Many were caught short and had to cover in panic fashion. Yields dropped like a rock as a result.
This, of course, is great news for people on the hunt for a good fixed mortgage rate. (Bond yields generally lead fixed rates.) So far we’ve heard of two lenders talk of lowering their rates. We’ll have to wait and see what happens over the next 3-4 days.
Friday, March 6, 2009
How Canadian mortgage rates are set
There seems to be a some confusion about how mortgage rates are set in Canada. Every time the Bank of Canada announces a change to its target for the overnight rate (formerly the bank rate), I get calls about the latest changes to mortgage rates. I try to explain to them that there is no correlation between changes in the overnight rate and changes in mortgage rates.
Fixed residential mortgage rates are determined by changes in the bond market and the competitiveness of the chartered banks in Canada. The Bank of Canada has very little, if any, influence on them.
A great example of this was the rate change by the Bank of Canada on April 13, 2004. The Bank announced it was lowering the overnight rate by one quarter of 1%. The average consumer thought that this would mean that mortgage rates were going down when in fact mortgage rates were rising. (The 5-year fixed rate jumped by more than one half of 1% around this same time and it continued to rise in May.) If you compare changes to the overnight rate with mortgage rate trends, you will notice that sometimes mortgage rates went up, sometimes they went down and sometimes they stayed the same, regardless of which way the overnight rate was adjusted.
The chartered banks set their mortgage rates based on yields in the bond market.
A Government of Canada bond represents a risk free investment to the banks. If the banks choose to invest in a mortgage, they are taking on added risk and incurring costs to set up and service it. The banks will set their mortgage rates high enough above the equivalent bond yield to cover their costs and provide some sort of profit margin for the added risk they are taking on. Over the past decade the spread above the equivalent bond yield has narrowed as the competition for mortgage business has intensified between the big banks.
As an example, a 5-year Government of Canada bond is yielding about 4.00% today and most 5-year discounted mortgage rates are set at about 5.20%. This means that the chartered banks are only earning a risk premium of 1.20% before expenses.
So now you might be asking, how are bond yields determined? By investors' expectations for interest rates in the future. These expectations are arrived at by assessing the state of the Canadian economy and predicting where it is headed relative to other world economies. There is no science to such predictions (although some economists spend a lot of time trying to make it into a science). At best the markets make their best guess and keep updating their guess every day.
My suggestion to anyone who wants to predict when mortgage rates will rise and fall is to track Government of Canada bond yields daily. Most financial papers list the bond yields for various terms each day. It is normal for yields to change slightly from day to day, but if you start to see consistent increases or decreases then you can expect that the banks will be adjusting their mortgage rates accordingly. If you are interested in a 5-year mortgage rate then track the equivalent 5-year Government of Canada bond; if you are interested in a 1-year mortgage rate then track the equivalent 1-year Government of Canada bond, and so on.
Now that I have told you that the Bank of Canada does not have an impact on mortgage rates, there is one exception to this rule. Most variable rate mortgages are affected by changes to the prime rate as set by each of the chartered banks. The prime rate will change, in the same direction and by the same amount, as any change to the overnight rate. So if the Bank of Canada announces a decrease in the overnight rate by one quarter of 1% (or "25 basis points" in financial parlance), then you can expect most variable rate mortgages to also drop by one quarter of 1%.
So unless you have a variable rate mortgage, don't pay attention to the hype surrounding interest rate announcements by the Bank of Canada. If you want to know where fixed rate mortgage rates are headed, follow changes in the bond market.
Summary:
The BoC sets Canada’s overnight target rate. This in turn influences prime rate, which directly affects variable rates.
Fixed rates are usually driven by bond yields. The Bank of Canada has no direct control over bond yields, although it can influence them in certain ways.
Fixed residential mortgage rates are determined by changes in the bond market and the competitiveness of the chartered banks in Canada. The Bank of Canada has very little, if any, influence on them.
A great example of this was the rate change by the Bank of Canada on April 13, 2004. The Bank announced it was lowering the overnight rate by one quarter of 1%. The average consumer thought that this would mean that mortgage rates were going down when in fact mortgage rates were rising. (The 5-year fixed rate jumped by more than one half of 1% around this same time and it continued to rise in May.) If you compare changes to the overnight rate with mortgage rate trends, you will notice that sometimes mortgage rates went up, sometimes they went down and sometimes they stayed the same, regardless of which way the overnight rate was adjusted.
The chartered banks set their mortgage rates based on yields in the bond market.
A Government of Canada bond represents a risk free investment to the banks. If the banks choose to invest in a mortgage, they are taking on added risk and incurring costs to set up and service it. The banks will set their mortgage rates high enough above the equivalent bond yield to cover their costs and provide some sort of profit margin for the added risk they are taking on. Over the past decade the spread above the equivalent bond yield has narrowed as the competition for mortgage business has intensified between the big banks.
As an example, a 5-year Government of Canada bond is yielding about 4.00% today and most 5-year discounted mortgage rates are set at about 5.20%. This means that the chartered banks are only earning a risk premium of 1.20% before expenses.
So now you might be asking, how are bond yields determined? By investors' expectations for interest rates in the future. These expectations are arrived at by assessing the state of the Canadian economy and predicting where it is headed relative to other world economies. There is no science to such predictions (although some economists spend a lot of time trying to make it into a science). At best the markets make their best guess and keep updating their guess every day.
My suggestion to anyone who wants to predict when mortgage rates will rise and fall is to track Government of Canada bond yields daily. Most financial papers list the bond yields for various terms each day. It is normal for yields to change slightly from day to day, but if you start to see consistent increases or decreases then you can expect that the banks will be adjusting their mortgage rates accordingly. If you are interested in a 5-year mortgage rate then track the equivalent 5-year Government of Canada bond; if you are interested in a 1-year mortgage rate then track the equivalent 1-year Government of Canada bond, and so on.
Now that I have told you that the Bank of Canada does not have an impact on mortgage rates, there is one exception to this rule. Most variable rate mortgages are affected by changes to the prime rate as set by each of the chartered banks. The prime rate will change, in the same direction and by the same amount, as any change to the overnight rate. So if the Bank of Canada announces a decrease in the overnight rate by one quarter of 1% (or "25 basis points" in financial parlance), then you can expect most variable rate mortgages to also drop by one quarter of 1%.
So unless you have a variable rate mortgage, don't pay attention to the hype surrounding interest rate announcements by the Bank of Canada. If you want to know where fixed rate mortgage rates are headed, follow changes in the bond market.
Summary:
The BoC sets Canada’s overnight target rate. This in turn influences prime rate, which directly affects variable rates.
Fixed rates are usually driven by bond yields. The Bank of Canada has no direct control over bond yields, although it can influence them in certain ways.
Tuesday, February 24, 2009
FSCO Suspends the Licences of 79 Mortgage Brokerages
The Financial Services Commission of Ontario (FSCO) regulates the mortgage brokering industry in Ontario. FSCO recently issued Interim Orders to suspend the licences of 79 mortgage brokerages for not having errors and omissions insurance coverage.
Along with the Interim Orders, these mortgage brokerages were served with Notices of Proposal to revoke their licences and impose an administrative monetary penalty of $1000 for not meeting this requirement. When a mortgage brokerage's licence is suspended, neither the brokerage nor its brokers and agents can conduct mortgage business in Ontario.
A list of the suspended mortgage brokerages is available on FSCO's website.
Along with the Interim Orders, these mortgage brokerages were served with Notices of Proposal to revoke their licences and impose an administrative monetary penalty of $1000 for not meeting this requirement. When a mortgage brokerage's licence is suspended, neither the brokerage nor its brokers and agents can conduct mortgage business in Ontario.
A list of the suspended mortgage brokerages is available on FSCO's website.
Thursday, February 5, 2009
Federal Buget 2009 and Home buyers
Homebuyers’ Plan
• The federal budget proposes to increase the withdrawal limit for first-time homebuyers using the Homebuyers Plan from $20,000 to $25,000 (per individual).
• Under this program, first-time homebuyers are allowed to withdraw funds from their RRSP, tax-free, to put towards the down payment on a home. Amounts withdrawn under the HBP must be repaid over a 15-year period, starting the second year following the year of the withdrawal.
• Since 1992, an estimated 2 million Canadians have used the Home Buyers’ Plan to purchase approximately 900,000 homes, making this program a huge success. Unfortunately, as time has passed, the usefulness of this program eroded because withdrawal limits were not adjusted. For this reason, REALTORS® lobbied the federal government to increase the Home Buyers’ Plan withdrawal limit to $25,000.
First-Time Home Buyers’ Tax Credit
• The Budget proposes a 15 per cent credit that would be applied to a $5,000 amount, and would provide up to $750 in tax relief to reduce costs associated with first home purchases.
• To assist first-time home buyers with the costs related to the purchase of a home such as legal fees, land transfer taxes, etc.
Home Renovation Tax Credit
• The Budget proposes a 15 per cent credit to be claimed on the portion of eligible home renovation expenditures exceeding $1,000, but not more than $10,000, meaning that the maximum tax credit that can be received is $1,350.
• Will apply to eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant to agreements entered into after January 27, 2009.
• Credit can be claimed on eligible expenditures incurred on one or more of an individual’s eligible dwellings, including houses, cottages, and condominium units owned for personal use.
• Additional information available here
• The federal budget proposes to increase the withdrawal limit for first-time homebuyers using the Homebuyers Plan from $20,000 to $25,000 (per individual).
• Under this program, first-time homebuyers are allowed to withdraw funds from their RRSP, tax-free, to put towards the down payment on a home. Amounts withdrawn under the HBP must be repaid over a 15-year period, starting the second year following the year of the withdrawal.
• Since 1992, an estimated 2 million Canadians have used the Home Buyers’ Plan to purchase approximately 900,000 homes, making this program a huge success. Unfortunately, as time has passed, the usefulness of this program eroded because withdrawal limits were not adjusted. For this reason, REALTORS® lobbied the federal government to increase the Home Buyers’ Plan withdrawal limit to $25,000.
First-Time Home Buyers’ Tax Credit
• The Budget proposes a 15 per cent credit that would be applied to a $5,000 amount, and would provide up to $750 in tax relief to reduce costs associated with first home purchases.
• To assist first-time home buyers with the costs related to the purchase of a home such as legal fees, land transfer taxes, etc.
Home Renovation Tax Credit
• The Budget proposes a 15 per cent credit to be claimed on the portion of eligible home renovation expenditures exceeding $1,000, but not more than $10,000, meaning that the maximum tax credit that can be received is $1,350.
• Will apply to eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant to agreements entered into after January 27, 2009.
• Credit can be claimed on eligible expenditures incurred on one or more of an individual’s eligible dwellings, including houses, cottages, and condominium units owned for personal use.
• Additional information available here
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