Rates to rise, Bank of Canada chief warns

OTTAWA – Bank of Canada governor Mark Carney issued a caution toCanadians and the chartered banks Wednesday: interest rates are goingup and they should take care not to get caught out.

Expanding onprevious warnings, the bank governor told a business audience inToronto that the current low interest rate environment may be luringCanadians to borrow too much, and banks to extend loans they will laterregret.

Canadians have taken on more debt even during the recession, which is unusual, Carney said.

But while Canadians may be able to afford the added debt burden nowwhen interest rates are at historic lows, they may get caught shortwhen rates return to more normal levels.

"The combination ofsustained growth of household debt relative to income and a risinginterest rate environment could increase the vulnerability ofhouseholds to an adverse shock," he said in notes on the speechreleased by the central bank in Ottawa.

The bank governor didnot say when he expects interest rates to start rising, althougheconomists believe Carney will make his first move on his lower-bound0.25 per cent policy rate in mid-2010. That would be after the bank'sconditional commitment to stand still on the rate until the end of June.

It is not the first time Carney and the central bank have voiced suchconcerns, most recently last Thursday in the central bank's semi-annualFinancial Systems Review, which cited household debt as the number onerisk factor to Canada's economic well-being.

Since, there hasbeen more evidence that Canadians have not paid heed. The Canadian RealEstate Association reported Tuesday that Canadians continued to snap uphouses at near-record levels, increasing their purchases of resalehomes by 73 per cent in November.

Carney said there are already signs that Canadians are getting in over their heads.

He notes that personal bankruptcies jumped by 41 per cent in theJuly-to-September period from a year ago and are now at the highestlevel as a proportion of the population since 1991.

As well,delinquency rates are rising and the proportion of mortgage payments inarrears by three months or more have increased by 50 per cent in thepast year.

The Canadian economy is particularly vulnerable tohousehold defaults since consumers are expected to be the key driver ofeconomic recovery, the governor said.

But Carney added that while Canadian consumers have a responsibility to avoid credit risks, so do financial institutions.

"Financial institutions should actively monitor risk stemming fromhouseholds and not take comfort from mortgage insurance and pastperformance of household credit," he said.

"As our simulationssuggest, the overall credit profile of Canadian households could wellshift if debt continues to grow at current rates."

Carney noted that he still believes the Canadian economy is coming out of the recession and will grow in the next few years.

He said he expects Canada to outperform the other G7 countries with athree per cent advance in 2010, but said growth going forward will bemore modest than previous post-recession bounce-backs.

Housing affordability breaks improving trend

In a report published November 25, 2009 RBC Economics Research revealed that the 18 month long improvement in Canadian housing affordability came to an end in the third quarter of 2009. Despite this reversal, homes are still much more affordable than they were a year ago and, nationally, affordability is in line with levels seen in 2006 when the housing market was shifting into high gear.



The deterioration in housing affordability was largely due to slight increases in key mortgage rates as well as gains in property values.



Sales reach historic high



By October 2009, the number of homes sold through the Multiple Listing Service in Canada had not only recovered the ground lost during the downturn, but had climbed an astonishing 74% since January to reach a historic high. As strong demand has outpaced the supply of homes for sale, market conditions have tightened.



In some metropolitan markets we are seeing evidence of bidding wars reappearing, however the rise in the cost of homeownership overall in Canada has been modest in the third quarter.



A sign to act?



What should this mean to Canadians? For people who have been timing their entry into the housing market, or for those looking to upgrade their homes, this reversal of trend may be a sign to act. With interest rates at near record lows, now more than ever, prospective homebuyers should speak to a Mortgage Specialist so they can feel confident about buying a home that they not only love, but one they can afford. In addition, by getting pre-approved, prospective homebuyers can shop with confidence when looking at homes that are within their budget.



RBC publishes free research information about housing, including pricing trends by province and city, in the RBC Economics Housing Trends and Affordability Report. It’s easy to stay informed. Register at www.rbc.com/economics for automatic email delivery of new reports.





Your new home doesn't come with mortgage advice. I do.
Contact me today:
Matthew Le Roy
Mobile Mortgage Specialist
RBC Royal Bank
(604) 612-9515
matthew.leroy@rbc.com
www.vancouvermortgagefinder.ca

Strong demand carries into late fall

Wednesday, December 2, 2009

VANCOUVER - Home values continued to edge upward in November as demand in the Greater Vancouver housing market remains well above seasonal norms.

Over the last 12 months, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver increased 12.4 per cent to $557,384 from $495,704 in November 2008. This price, however, remains down 1.9 per cent from the most recent high point in the market in May 2008 when the residential benchmark price sat at $568,411.

“This unseasonably high level of demand can be attributed in large part to low interest rates, but it also speaks to the diverse range of housing options available in Greater Vancouver,” Scott Russell, Real Estate Board of Greater Vancouver (REBGV) president said. “Prospective homebuyers today have more options at different price levels than ever before."

The REBGV reports that residential property sales in November were the third highest volume ever recorded in Greater Vancouver for that month. Sales in the region totalled 3,083 in November 2009, an increase of 252.7 per cent compared to November 2008 when 874 sales were recorded and a 16.8 per cent decrease compared to the 3,704 sales recorded in October 2009.

“We are experiencing a brisker than normal market for this time of year, although we have begun to see a reduction in the number of homes listed for sale, which is normal as we head into the holiday season,” Russell said.

New listings for detached, attached and apartment properties in Greater Vancouver totalled 3,653 in November 2009. This represents a 21.3 per cent increase compared to November 2008 when 3,012 new units were listed, and a 26.6 per cent decline compared to October 2009 when 4,977 properties were listed on the Multiple Listing Service® (MLS®) in Greater Vancouver.

At 11,039, the total number of property listings on the MLS® decreased 8.6 per cent in November compared to last month and declined 39 per cent from this time last year.

In contrast to this year, note that November 2008 was the lowest selling November in Greater Vancouver in 27 years.

Sales of detached properties increased 261.5 per cent to 1,164 from the 322 detached sales recorded during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties increased 13.6 per cent from November 2008 to $757,209.

Sales of apartment properties in November 2009 increased 240.5 per cent to 1,396 compared to 410 sales in November 2008. The benchmark price of an apartment property increased 11.6 per cent from November 2008 to $381,945.

Attached property sales in November 2009 are up 268.3 per cent to 523, compared with the 142 sales in November 2008. The benchmark price of an attached unit increased 10.2 per cent between Novembers 2008 and 2009 to $469,686.



The Real Estate industry is a key economic driver in British Columbia. In 2008, 24,626 homes changed hands in the Board's area generating $1.03 billion in spin-offs. The Real Estate Board of Greater Vancouver is an association representing more than 9,400 REALTORS®. The Real Estate Board provides a variety of membership services, including the Multiple Listing Service®.

Making sense of mortgage rates in today’s economy

Many prospective homebuyers are wondering what has happened to mortgage rates in 2009, and where they may go from here. RBC Economics Research recently updated its’ outlook, and here is what the group has to report.



Since hitting a low in January of 2009, longer-term interest rates have trended higher with the move accelerating in July. The prospect that the worst is over for the global economy is giving investors the confidence to venture out of low-return fixed income securities and seek higher risk investments. While we expect many bumps on the road to recovery we still see potential for a very modest decrease in long-term rates in the final quarter of this year.



Outlook for the future



Momentum in the global economy appears to be changing. Leading indicators currently point to the end of economic contraction for the industrialized world in the third quarter of 2009. Stimulus from central banks, combined with government fiscal stimulus packages, is expected to support a fledgling recovery that is forecast to build momentum in 2010.



Until this recovery is well underway, no changes to policy rates are likely. The Bank of Canada is expected to maintain the status quo until mid-2010. Once the recovery is well established, central banks will normalize their policy rates, and interest rates are likely to increase.



Fixed vs. variable rate mortgages



One of the biggest decisions homebuyers face is choosing between a fixed or variable rate mortgage. This is not a simple decision, which is why many people are looking for advice to help them decide which mortgage interest type is best for them, based on their personal circumstances. I can help homebuyers and homeowners decide which option best fits their situation and risk tolerance.



Mortgage rates continue to trend at historic lows, despite the fact that fixed rates have edged up recently. In this environment, people who are comfortable without a guaranteed rate are opting for a variable rate mortgage. Such a strategy could result in considerable interest savings.



What homebuyers choose should depend on how they feel about rate fluctuations and their cash flow. For example, a first time homebuyer may want assurance that the rate, payment and repayment schedule will not change, and may be wise to opt for a fixed term. A homebuyer who is not concerned about rate fluctuations may want to take advantage of today’s low variable rates in a bid to save more on mortgage interest over the long term.



Today’s flexible mortgage products let you bridge the gap between these strategies. For example, the RBC Homeline Plan lets homebuyers split their mortgages and enjoy the advantages of both variable and fixed rates within a credit limit of up to 80% of the value of the home. The variable portion offers potential long-term savings, while the fixed rate portion offers rate protection. The dividing line is entirely up to the homeowner.



RBC has many resources available:



· Fixed or variable rate – know your options

· Consider the security of a fixed rate mortgage

· The advantages of a variable rate mortgage



Get more information

RBC publishes free research information. It’s easy to stay informed. Register at www.rbc.com/economics for automatic email delivery of new reports.



Your new home doesn't come with mortgage advice. I do.
Contact me today:
Matthew Le Roy
Mobile Mortgage Specialist
RBC Royal Bank
(604) 612-9515
matthew.leroy@rbc.com
www.vancouvermortgagefinder.com

Special rate on RBC Homeline Plan® lines of credit

On October 21st, 2009, RBC Royal Bank® announced a special rate on new RBC Homeline Plan lines of credit.



2.75 per cent RBC Prime + .50% (decrease of 0.40 per cent)



With the economic changes over the past year, this is a perfect time for Canadians to reassess their home financing arrangements and get advice that can help save them money.



Now more than ever, Canadians can use a break when it comes to financing what is often their largest purchase – their home. That’s why we are happy to be able to offer a reduced rate on the RBC Homeline Plan line of credit, giving Canadians access to the best priced credit line in the market today.



The RBC Homeline Plan lending product provides homeowners the flexibility to split their home financing into various mortgage segments to include both fixed and variable rate mortgages, coupled with one or more lines of credit. Homeowners can use the plan to help diversify their interest rates and lower their overall borrowing costs.

http://services.rbc.com/advice/video.html



Special Offer http://www.rbcroyalbank.com/products/mortgages/newsletter/RBC_MOR_9636C.pdf


Your new home doesn't come with mortgage advice. I do.
Contact me today:
Matthew Le Roy
Mobile Mortgage Specialist
RBC Royal Bank
(604) 612-9515
matthew.leroy@rbc.com
www.vancouvermortgagefinder.com

Housing Sales Rocket In July

Canada’s housing market boomed in July as low interest rates and improving economic confidence sent sales of existing homes to a record for the month, despite generally weak economic conditions.

The remarkable turnaround from an almost frozen market at the start of the year has economists stunned, and while they predict activity will level out soon, the risk is continued low interest rates will begin to stoke a house price bubble.

“We can’t rule it out,” Douglas Porter, the deputy chief economist at BMO Capital Markets, said of the possibility of a bubble. However, he said the scenario was hard to fathom given the underlying weakness in the economy. Even so, that weakness to date has not prevented a strong rebound in the existing housing market, which declined steadily throughout 2008 and hit a decade low in January.

Home resales increased by 18.2% in July compared with a year earlier, to reach 50,270 units -- the highest July sales result on record, Canadian Real Estate Association figures showed yesterday. At this pace, the housing market is on track to be even hotter than it was in 2007, which was a record year. Seasonally adjusted sales have risen for six straight months to be up 61.2% since January and are now just 1.4% below the peak in May 2007.

But despite the spectacular gain, the level of activity in the first seven months of this year remains 6% lower than in 2008 when activity had already begun to decline. Mr. Porter said some of the rise in the month was a result of sales that had been held back from the start of the year because of the weak market conditions.

However, homebuyers have swarmed back into the market because of low interest rates and more affordable house prices.

“Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher,” said Dale Ripplinger, the president of CREA.

A five-year fixed rate mortgage, the most popular product among consumers, is still available for under 4% at some financial institutions. Variable rate mortgages, tied to prime, remain in the 3% range and are not expected to rise until June. The Bank of Canada has promised to keep the benchmark interest rate at a record low 0.25% until mid-2010, provided inflation does not begin to rise.

The strength in the market has been felt right across the country. Vancouver sales last were up 90% from a year ago, while sales climbed 28% in Toronto and 28% in Edmonton. The strong demand in the country’s highest-priced markets has to some degree skewed the average price higher. The average price of a home sold on the Multiple Listing Service last month rose 7.6% from a year earlier to $326,832.

The strength in the resales market has not been echoed in the price of new homes, which fell 3.3% in June compared to a year earlier, Statistics Canada figures showed Wednesday.

Part of the pressure on prices has come from a decline in supply, which has fallen for seven straight months. New listings in July were down 13% from a year earlier to 73,444.

Economists are skeptical the housing market will be able to continue to post such strong growth.

“After improving markedly, affordability will deteriorate in coming quarters, and unemployment will continue to rise,” said Pascal Gauthier, an economist at TD Bank Financial Group. “New listings might well start rising again too. Combined, a larger supply and a softening in demand should cool prices in a delayed fashion.”

Get off the home owning fence

I’ve had the same rent-versus-own discussion with a close friend of mine for years. Every now and then she’ll see a new statistic from the Canadian Real Estate Association about where prices are headed and rethink the decision she made just months before.

My advice to her today is: it’s time to get off the fence. Although mortgage rates rose last week, money is still cheap right now. Given the slowdown in the housing market, which is also showing signs of picking up, there is a greater selection in housing stock and more time to make a decision and put an offer on a home, without the intense competition.

A combination of other factors means it is the perfect time for property virgins to make their move. The federal government’s 2009 operating budget has contributed two important ingredients to the mix: the option to withdraw as much as $25,000 from your RRSP (compared to $20,000 in 2008) and a First-Time Home Buyers’ Tax Credit that provides up to $750 in tax relief when buying a starter home.

If thinking about becoming a home owner for the first time makes you nauseous, don’t worry - that's natural. Getting into the market is a good idea, as long as you do your research, view it at a long-term investment and have the money to do so.

Let’s start with the most important element – getting the green stuff. The first step in the home-buying process is getting pre-approved by a mortgage broker.

Once you get the green light you may be compelled to open-house hop down the ritziest street in your hood. While test-driving your dreams is OK, touring too many homes beyond your budget is a waste of time. If you’re serious, search only in your approved price range and know that starting small and building equity will give you a chance to upgrade in the future.

If you’re trying to estimate how much you can reasonably afford, take this as a general rule: according to the Canada Mortgage and Housing Corporation your monthly housing costs – including mortgage principal and interest, taxes and heating expenses – shouldn't be more than 32 per cent of your gross household monthly income (for the math-weary: that’s your annual gross salary multiplied by 0.32 and divided by 12).

Equally – if not more – important is your credit score. Ranging from 300 to 900, it determines how much interest you’ll likely pay when you apply for a loan. The higher your score, the lower the risk creditors will consider you – and the less interest you'll pay. A low interest rate could translate into thousands in savings over the life of a loan.

According to myfico.com, a score of 720 or higher is ideal. You can review your score – which is calculated by a credit bureau based on personal financial information – at www.transunion.ca or www.equifax.ca for about $20.

It’s possible to buy a home for as little as 5 per cent down, but anything less than 20 per cent means you’ll need to have your mortgage insured by a third party. Insurance costs can be paid in a lump sum at the time of purchase or worked into the principal balance.

When you broach the subject of buying property with your broker or banker he or she will tell you what you can afford. Immediately aim to spend less. The last thing you need as a first-time buyer is to be house-poor. Remember, you’ll need money to pay closing fees (which can be 1.5 per cent to 4 per cent of a home’s value), as well as any unexpected costs that crop up (one leak in the roof could mean a flood of new expenses).

In terms of doing your research, don’t get wrapped up watching national housing averages or analyzing what the six o’clock news has to say about the market. The only market you should pick apart is the neighbourhood you want to move to. Using national stats to determine trends in your area is like comparing condos to townhouses. Real estate changes from district to district, sometimes from street to street.

A qualified realtor will help you with research and connect you to the right team (lawyer, inspector, mortgage broker). Always work with a realtor as a first-time buyer. There’s too much you don’t know to go it alone, plus you don’t pay commissions – the seller does. This doesn’t mean you should work with the first guy to flash his pearly whites and hand you a business card at an open house – the best place to start is with a referral. Check out www.howrealtorshelp.ca for more realtor realities.

Still hanging out on that fence? Click over to www.myhomeplanner.ca for a rent-versus-own calculator.

Emotion has no place in purchasing property, especially as a novice buyer. You’ll feel more confident in your decision if you simply stick to working the numbers, doing your research, gathering a good team.

Then you can do all the sitting around you want – as a home owner on your very own fence.

Angela Self will be writing for Globeinvestor.com weekly. She is one of the founders of the Smart Cookies, a group of five women who specialize in personal finance. They are hosts of a self-titled show on the W Network and the authors of The Smart Cookies' Guide to Making More Dough. Find out more about them at Smartcookies.com

Is it time to lock in your mortgage?

Here is a great article summarizing the latest debate as to whether it's time to lock-in or remain in a variable rate mortgage.

http://www.theglobeandmail.com/globe-investor/it-is-time-to-lock-in-your-mortgage/article1182905/

Buyer activity brings greater stability to the housing market

Monday, May 4, 2009

VANCOUVER, BC – With more buyers and fewer homes for sale in recent months, the Greater Vancouver housing market has entered a more moderate and balanced state.

For the sixth consecutive month, new listings for detached, attached and apartment properties declined in Greater Vancouver, down 33.7 per cent to 4,649 in April 2009 compared to April 2008, when 7,010 new units were listed. The total number of property listings on the Multiple Listing Service® (MLS®), while slightly down compared to last month, remains unchanged compared to the same period in 2008.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver totalled 2,963 in April 2009, a decline of eight per cent from the 3,218 sales recorded in April 2008, and an increase of 31 per cent compared to last month.

“We’re seeing greater balance in the housing market, as evidenced by a strong sales to active listings ratio of over 19 per cent,” Scott Russell, REBGV president said. “The result is a relatively stable market in which homes are being realistically priced.

“The bridge between buyer demand and housing supply is continuing to narrow, which, as we see, helps bring stability to home prices,” he said. “The trends in our housing market over the last couple of months offer a much more comfortable, historically normal set of conditions.”

Sales of detached properties declined eight per cent to 1,190 from the 1,293 detached sales recorded during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties declined 12.2 per cent from April 2008 to $675,268.

Sales of apartment properties in April 2009 declined 10.5 per cent to 1,179, compared to 1,317 sales in April 2008. The benchmark price of an apartment property declined 12.6 per cent from April 2008 to $340,203.

Attached property sales in April 2009 are down 2.3 per cent to 594, compared with the 608 sales in April 2008. The benchmark price of an attached unit decreased 9.7 per cent between April 2008 and 2009 to $431,759.

Bright spots in Greater Vancouver in April 2009 compared to April 2008:

Detached:	Vancouver West	- up 59.5 per cent (193 units sold from 121)
Attached:	Port Coquitlam	- up 69.6 per cent (39 units sold from 23)
	Richmond	- up 17.9 per cent (132 units sold from 112)
	Vancouver West	- up 46.3 per cent (98 units sold from 67)
Apartments:	North Vancouver	- up 29.2 per cent (84 units sold from 65)

Housing Trends and Affordability

Here is the latest summary of the Canadian Housing Trends with the outlook for Canada as a whole and then broken down by Province and major city.

http://www.rbc.com/economics/market/pdf/house.pdf

Time is right for 1st-time homebuyers: experts

TORONTO - Low mortgage rates and more affordable homes in many markets are pushing first-time home buyers to enter the market in droves, Canadian real-estate experts say.

Phil Soper, president and chief executive of Brookfield Real Estate Services (TSX:BRE.UN), said that when the Canadian housing market was hot, bidding wars forced many buyers to put in offers without conditions to increase their chances of being accepted.

This, combined with unprecedented increases in home prices in many parts of the country, scared many first-time buyers out of the market, he said.

"When first-time buyers stop entering the market it's like sand in the gears of the housing market," said Soper, speaking Tuesday at a BMO conference on the current and future state of Canada's housing market.

But he said the economic downturn changed all that. As housing prices fell across the country and lenders lowered their mortgage rates to attract borrowers, the market became much more attractive to people looking to buy their first homes.

"The uptick in first-time home buyer purchases across the country is quite astonishing," Soper said. "Affordability in places like Vancouver has improved for the first time in a very long time."

BMO senior economist Sal Guatieri said the average mortgage payment has fallen by one-third or $600 a month from its peak, while average resale home prices have fallen 14 per cent from highs seen in mid-2007.

Guatieri said he expects resale prices to fall "moderately further" this year for a cumulative decline in prices of approximately 20 per cent, but he said the slump in prices is slowing as buyers respond to renewed affordability in the market.

"We look for the housing market to correct further this year but not crash," Guatieri said.

Brad Lamb of Toronto-based Brad J. Lamb Realty Inc. said sales in March through the industry's Multiple Listing Service fell by only seven per cent year-over-year, compared to drops of 45 to 55 per cent in previous months.

And the average time it took to sell a home in Toronto dropped from 45 days in February to 39 days in March, he added.

"There's a fair amount of evidence out there that the market has bottomed and is starting to come back," Lamb said, adding that while prices may not fall any further, they probably won't rise in the near-term either.

Donald Lawby, president and chief operating officer of Century 21 Canada, agreed that now is a good time to buy a first home, but said prospective buyers should make sure they understand their local market before they dive in.

Soper said that while "we're well through this correction," the U.S. housing slump is far from over and will continue to affect Canadian home prices.

He added that a shortage of buyers in most parts of the country means that this is a bad time to be a speculator trying to make money off rising home prices.

"I don't see a sharp recovery in home prices over the next 24 months," Soper said. "I think home prices will rise at a snail-like pace."

Home ownership affordable

First-time buyers boosting resale housing market

First-time buyers are helping kick-start a sputtering resale real estate market, thanks to some contributing factors, say those in the know.

The low interest rates and other government incentives have helped first-time buyers get into home ownership, says Lai Sing Louie, senior market analyst with Canada Mortgage and Housing Corp.

"There are incentives for them to buy now. The first-time buyers can, for instance, take out $25,000 in RSP money (up from the previously $20,000 limit) without consequences, and if they bought after January 27, they are able to qualify for $750 in tax relief next year," says Lai Sing Louie.

"And mortgage rates are at a very good rate right now."

In fact, they're at record lows, so homeowners can get in and have payments that are much less than they were even a year ago, he says.

"People can get a five-year fixed rate for four per cent, whereas it was 6.6 per cent last year at this time," says Louie.

Combine that with the lower prices for condos in the market, and housing affordability is much improved, he says.

The average price of resale condominiums that sold through the Calgary Real Estate Board last month was $284,056 --down nine per cent from the same month last year when the average price was $312,620, but up from the average of $268,971 posted in February.

A total of 446 condos sold in March, compared to 565 in March 2008 and just 343 last month.

Taking the average March 2008 condo price ($312,620) with 10 per cent down, the mortgage amount would be $281,358. "At last year's interest rate of 6.6 per cent and amortization of 25 years, monthly payments would be around $1,917," says Louie.

Last month, that same condo would sell for an average of $284,056. "With interest rates at four per cent, the same 10 per cent down and 25-year amortization would mean monthly payments of $1,349. That's down $568 a month--much more affordable," says Louie.

"And that gives people a degree of certainty knowing what the mortgage will cost for the next five years."

The numbers are "encouraging," says Bonnie Wegerich, president of CREB and a realtor with Century 21 Castlewood Agencies. "Two years ago, young people couldn't afford to buy. Our statistics show that our most active sales by price category in condos was the $200,000 to $299,999 range."

In fact, of the 446 condo sales last month (compared to 565 in March 2008 and 343 in February), 263 units, or 59 per cent of sales, were in that range.

Listings are coming down as well, with fewer condos for sale compared to a year ago.

As of the end of March, 2,052 condos were in the inventory, compared to 2,781 last year for the same month. It now takes an average of 56 days to sell a condo, compared to 43 days in the same month the year before.

Property sales strengthen in current market cycle

The Metro Vancouver housing market experienced a movement away from volatility and toward stability to start the spring season.

Home sales in March 2009 returned to levels witnessed at the beginning of the decade, with 2,265 sales recorded across Metro Vancouver for the month, a 53 per cent increase over February but a 24.4 per cent decrease over March 2008, when 2,997 sales were recorded.

Since 1999, March sales have increased 31 per cent, on average, over the month of February. March 2009 marks the second consecutive month that sales have outperformed the ten-year average for this month-over-month comparison.

“There’s more confidence in the housing market today than we were seeing late last year. Sales activity is rising to more typical levels given the season, and the number of homes being listed for sale is levelling off,” said Scott Russell, president of the Real Estate Board of Greater Vancouver.

New residential listings on the MLS® declined 22 per cent in March 2009 to 4,385 compared to March 2008. This is the fifth month in a row that new listings have decreased year-over-year and the third consecutive month where those declines exceeded 20 per cent.

Despite these trends, total active listings at the end of March 2009 had still reached 14,579, a 19 per cent increase compared to the end of March 2008.

“REALTORS® are seeing an increasing level of interest from first-time buyers who are attracted to low interest rates, good supply of housing, greater affordability, and a considerably lower overall cost of servicing a mortgage compared to recent years,” Russell said.

Sales of detached properties in March 2009 declined 19.6 per cent to 897 from the 1,116 units sold during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties declined 15.1 per cent from March 2008 to $649,342.

Sales of apartment properties declined 28.8 per cent last month to 976, compared to the 1,370 sales in March 2008. The benchmark price of an apartment property declined 13.5 per cent from March 2008 to $337,099.

Attached property sales in March 2009 decreased 23.3 per cent to 392, compared with the 511 sales during the same month in 2008. The benchmark price of an attached unit declined 11.2 per cent between March 2008 and 2009 to $420,563.

Home buyers ignoring savings associated with mortgage rate guarantees: survey

Many only use a quarter of the time available, limiting chance to secure the best rates

Close to half of Canadian home buyers wait less than 30 days before their home’s closing date to secure a mortgage rate, according to a recent Angus Reid poll.

The poll, commissioned by ING Direct, found that 40% of Canadian mortgage holders waited only 30 days or less in advance of the home’s closing, while another 27% waited nearly two months.

According to ING Direct, this last minute behaviour indicates that many Canadians are not taking advantage of the savings inherent in securing rate guarantees which are available as early as 90 to 120 days before a home closes. Analysis shows that those who used the full rate guarantee period of 120 days, saved 0.18% on average or about a $1,800 over five years. These savings are based on a $200,000 mortgage with a 25 year amortization, five year fixed term at 6.96% (average posted five year fixed rate over last 10 years) and paid monthly.

According to Martin Beaudry, vice president of lending at ING Direct, not taking advantage of the full period available, is a missed opportunity. “Securing a rate guarantee, even before you start looking for a new home or your existing mortgage comes up for renewal, is a quick and simple way to save your money on mortgage interest payments over the long term. In fact, it’s the reason we’ve made guaranteeing an early rate at ING Direct that much easier via the rate hold, which essentially allows someone to hold a great rate without having to provide the information required during a more traditional pre-approval process.”

The rate hold, introduced by ING Direct this month, allows home buyers to quickly and simply hold a great rate for up to 120 days. For fixed rates this means protecting a low rate today against any increases that may occur over that time. For variable rates, it holds the best spread from ING Direct Prime, so if the spread changes and the rate increases as a result, Canadians are still protected. The service is the first of its kind in Canada, ING Direct says.

Taking full advantage of a rate guarantee period makes financial sense for both new home buyers and those with existing mortgages. In fact, those with existing mortgages are the ones who could benefit most from a rate hold.

The survey found that of the 64% of Canadians whose mortgages have come up for renewal, over one quarter (27%) indicated they let their mortgage automatically renew. Not negotiating a better rate than what is offered in a renewal letter by the current lender, or looking to alternate lenders for the best rate available in the market, means Canadians could be missing out on the opportunity to get a better rate

The survey found that Quebeckers were the worst offenders, being most likely to let their mortgages auto renew (36%) and apply for a mortgage 30 days or less before their home’s closing date (52%).

Insurance

June Jell will never forget the time she and her husband John sat down with their agent and turned mortgage insurance down flat. Six months later, he died suddenly of a heart attack at the age of 59, leaving her struggling to keep up with house payments.
While she got back on her feet eventually, it wasn't without sacrifices along the way --including the family home.
Now she tells everyone she knows, "If you can get it, take it. We thought mortgage insurance was expensive at the time, and because of our age we believed we could handle everything."
In retrospect, she realizes, "It really wouldn't have been that expensive after all. It would have been a blessing."
Insurance of any kind is one of those things people like to put on the back burner or do without. "A lot of homeowners don't want to add the cost of insurance to their mortgage payment," says Feisal Panjwani, a senior mortgage consultant with Invis Inc. in Surrey, B. C. "One of the biggest mistakes they make when they sign their mortgage is declining insurance, thinking they will research it on their own. Nine times out of 10, they don't get around to it. Then, when something goes wrong, it's too late."
It's not surprising that some homeowners balk at mortgage insurance, especially when they feel they are already stretching their monthly payments to the maximum.
Especially in these economic hard times, however, you can't afford to be without it, says Jennifer Hines, vice-president of creditor insurance for RBC Insurance in Mississauga, Ont. "Clients at all stages need to make sure their mortgage is protected. Some have life and disability insurance, but the family still could be left holding a debt on what tends to be a person's largest individual debt obligation."
The ideal time to look at options is when you do your mortgage application. The most common are insurance tied to the mortgage itself, or to the lender. Tying insurance to a mortgage balance is usually preferred since you can switch lenders and keep the same policy. This reduces the risk of facing higher premiums or finding out you are uninsurable when you reapply at another bank, Lorne D. Greenwood, a real estate lawyer based in Milton, Ont., advises.
"Getting insurance through an independent broker to cover the same amount means you won't have to re-qualify with each mortgage," Mr. Greenwood says. This is also a good choice when your mortgage balance decreases and you want to reduce your premiums. Mr. Panjwani notes that it's especially important for firsttime or younger buyers to get coverage because the mortgage balance is high, insurance premiums tend to be in their favour, and medicals are not generally required.
For those who think their disability and life insurance policies are enough if things go wrong, that may not be the case, Ms. Hines warns. "Typically, disability policies will only pay 60% to 70% of your monthly income, so there is still a gap. You still need coverage for other expenses. We tell people it doesn't have to be an either/or situation. We also suggest they consider whether they need to top up what they have, so they don't have to be concerned about mortgage payments in the event of a death or disability."
There are additional considerations homebuyers should be aware of regarding mortgage-related insurance. When it comes to high-ratio mortgages, according to the Bank Act anyone borrowing more than 80% of the value of the property must insure the mortgage to protect the lender against defaults.
The premium for this default insurance -- not to be confused with conventional mortgage/life insurance coverage -- is paid once at the time of the closing, at a rate that varies between 0.5% and 3.75% of the mortgage amount. Title insurance is also an increasingly important option for protection against title problems and fraud. "Just about every lawyer is recommending it," Mr. Greenwood says. "The premiums can range in price depending on the value of the home you are insuring."
Mr. Panjwani notes that buying mortgage insurance doesn't have to break the bank. "If you can't manage it all, cover what you can afford. For example, you can insure a percentage of a portion of the outstanding balance, or the life of one of the borrowers through a term life policy.
"There is no real right or wrong answer on what type of insurance you should take. Regardless of the choice, some coverage is better than none at all."

Tune up your credit score for more chance at a good mortgage

If you’re thinking of getting your first mortgage or you have to renew one, you may be looking forward to the all-time-low mortgage rates now available. But beware, those mortgages — and any mortgage — may be hard to get.

One thing you can do to avoid being left out in the mortgage-less cold is to check your credit score, and make it the best it can be.

Lenders have tightened up their requirements and the government has made it more difficult to get mortgage insurance, said Brian Peterson, president of the Mortgage Brokers Association of British Columbia.

Last summer, the federal government set new guidelines for which mortgages can receive government-backed insurance.

Under the new rules, set out in a Department of Finance backgrounder, the government will no longer insure 40-year mortgages. Also, while zero-down mortgages are still available, the government will only insure 95 per cent of those loans.

The government also set a credit score floor of 620 for potential borrowers, with a limited number of exceptions allowed. (Canada’s major credit-rating agencies use a scale from 300 to 900; the higher the number, the better your credit rating is.)

Peterson said the credit score floor has been reset at 600.

All mortgages in which the loan is more than 80 per cent of the property value require insurance. And lenders now sometimes choose to insure other mortgages at their own expense so they can sell them as part of an asset-backed security, Peterson said.

So while a borrower’s credit score is not the only criterion — lenders also want stable employment and a low debt load — it is an important one.

It’s a score people can improve.

There are two providers of credit scores in Canada, Equifax Canada and TransUnion.

Tom Reid, director of consumer solutions for TransUnion, has heard about cases where consumers who thought they had a good credit score are being declined for mortgages.

Reid recommends people aim to get their credit scores up to 750, and 47 per cent of Canadians are in that range.

Credit scores are based on reports lenders provide regarding loans they have made and their repayment. Lenders include credit card companies, retailers that have their own credit cards, and banks reporting lines of credit and auto loans.

For a good credit report, payments should be made on time, even if the payment required is small and almost not worth bothering, Reid said. And balances on credit cards should be kept below 50 per cent of the cards’ limit.

Keep applications for credit down to a minimum, except if you are shopping around for the best deal on a big purchase, Reid said. Potential lenders may think you are desperate for credit if you have a number of different companies checking your score at the same time.

Also have a mix of loans and credit cards to show you can manage debt, Reid said.

“It may be easier to manage [one loan] but it doesn’t show lenders that you have the ability to manage other types of credit with potentially higher payment obligations,” he said.

Also, before cancelling a credit card, think about whether keeping it could positively affect your score. If you’ve made the payments on time and have had the card for a while, you may be better off hanging on to it, and not using it. Once you’ve cancelled the card, you’ve also cancelled its positive credit history.

What hasn’t traditionally been included in credit reports is mortgages. But that’s changing with more financial institutions choosing to provide mortgage information, Reid said.

One problem some would-be borrowers may face is a lack of credit history. For them, Reid suggests starting with a credit card from a retailer as they are generally easier to get. Then make sure the payments are made on time.

The longer credit history you have, the better your score, so start early, Reid said.

The Financial Consumer Agency of Canada has helpful information about credit scores — how to read the reports and how to improve them — on its website here. Check out “For Consumers.”

Refinancing to save money

Now that the Canadian Lenders have followed the Bank of Canada’s lead and dropped their prime rate by .50% to 2.50% not only is the variable rate coming down but so are the fixed rates. Every day it makes more sense to take a look at your mortgage and see what re-financing would save you. I will do my best to break down the components to try and simplify this for you.

First of all, let’s take a few things for granted:

1) you are currently maintaining a good credit record

2) your job/income is stable and reliable

3) the value of your property is such that you currently owe less than the property is worth.

On a simple re-finance to get a better rate and save money on interest, you first need to determine what your pre-payment penalty is.

In just about every mortgage, the lender has the right to charge the greater of “Interest Rate Differential” or “three months interest”. “Interest Rate Differential” or IRD is calculated usually determined by most lenders by the difference between the posted rate at the time you took your mortgage and the current posted rate. You may have gotten a discount at that time. It doesn’t matter, they will probably use the posted rate.

So, for example, say in March, 2007 the posted rate at your lender was 6.79% and the posted rate today is 5.79%. The difference is 1.0%. If you took a 5-year mortgage, you would then have 3 years left. If your current balance is $200,000 then multiply that by 1.0% by the remaining 3 years of the term = approximately $6,000. Depending on the amortization chosen at that time will determine the decreasing balance and actual amount of the penalty.

For the sake of this exercise, let’s say it is $5,500. Now, the same mortgage, three months interest would be based on the rate you actually have on your mortgage. Let’s say it is 5.35%. Therefore, 3 months interest would be $200,000 multiplied by 5.35% (one year’s interest) = $10,700 divided by 4 = $2,675 (3 months interest). Again allowing for a decreasing balance and your penalty may be in the range of $2,550. That means the lender would have the right to charge the $5,500. I say “the right to charge” because you may be able to negotiate this penalty down with what you would offer in return for a re-financing package. And that may consist of the increase in mortgage dollars you are going to be borrowing.

Once you have determined your penalty, then you need to know what your current balance is, add any discharge fee (usually $75 – $150) and legal fees to register the new mortgage (&750-$1000). Now you know what your new mortgage will need to be.

Using an amortization table you can determine what your balance will be as you pay your new mortgage down. Now if you want to truly compare the savings, use the payment you have been making on your original mortgage. Same payment, lower interest not only means you are paying less interest but the amount being paid on the principal is more so you are ultimately paying your mortgage off much faster. Compare the amortization schedule from your original mortgage to the new mortgage to determine your savings.

You can also calculate in savings against future increases. Remember, your original mortgage term will have to be renewed in two or three years and the rates will be higher again. These lower rates won’t last forever. So your new mortgage at the lower rate will carry on for two or three years longer and the savings will be all the more.

Now, if you really want to save money and still pay for your home quicker, consider your personal debt. Any loans and credit cards you may be paying 12 – 18% or more on. Remember, thinking that you are safer by having less debt on your home only works if you don’t owe any personal debt. And if you owe money, you will have to pay it all back. The key is to pay less interest. Transferring $25,000 of personal debt at a rate of 15% to your mortgage can easily save you as much as $5,000 in only three years (11% difference on an average balance of $15,000). If you are paying $750/month on that debt you can simply add that to your mortgage and your personal debt will be paid off just as quickly as if you kept the personal debt separate from your mortgage. Using the examples I have suggested here savings can add up to as much as $15,000.

Now, these ideas above are for the individual who has equity in their property and has the cash flow to make their current payments. But what if you have had a cut in income or are concerned about a future cut in income and are just looking to cut down on your payments?

If you are like many who started out with a 25-year mortgage, say $150,000 @ 6.0%, your payments are probably at about $960/month plus property taxes. You may also have the same personal debt of approximately $25,000 @ 12 – 18% with payments of about $750/month. So you are obligated to pay about $1710/month on an income that isn’t so reliable. If you were to re-finance now with a $175,000 mortgage over 35-years @ 3.89% (5-year term) your payments are now $760/month. You free up cash of $950/month that you don’t have.

If your income improves you increase your payments &/or make lump sum payments of 15 – 20% (depending upon the lender) to the tune of at least the $950/month you have been saving. You are back to paying off your mortgage in even less than the 25 years you originally signed up for. Even if you don’t make the extra payments you still save the $5,000 on your personal debt. And it’s a win-win situation. The bank is glad to help you with a mortgage that fits your income better. They will have the confidence you can afford it.

The main point I am trying to make is that you have an opportunity to use the value of your home to manage your debt in a way that puts money where it belongs, in your hands.

How monetary policy influences mortgage decisions

Variable or fixed? It's the question homeowners and homebuyers ask most often and inevitably elicits an unsatisfying answer.

Whether it's worth paying the penalty to terminate a fixed-rate mortgage to obtain the lower rates available on variable-rate mortgages is a calculation that forces assumptions about future monetary policy even the Bank of Canada is hedging its bets on.

Over the past few years, the focus of monetary policy has been inflation control. What this has to do with mortgages is that the principal tool for controlling inflation is the interest rate lever. The bank has set an inflation target of two per cent and interest rates are raised or lowered to increase or reduce borrowing, which in turn stimulates or depresses demand. In this way, the bank ensures demand doesn't overwhelm the economy's capacity to satisfy it and inflation is held in check.

Since December 2007, as the economy has slid into recession, the central bank, in concert with other industrialized nations, has cut its overnight lending rate by 400 basis points to 0.5 per cent in an effort to bolster demand. Clearly, it can't go much lower.

The bank has also been trying to encourage lending by injecting liquidity into the financial system. There has been concern that this infusion of money will be inflationary, raising the threat of stagflation -- inflation with no economic growth.

However, the bank is not "printing money" to carry out this task. Rather, it is purchasing assets, such as commercial paper and bankers' acceptances, from financial institutions that have been unable to trade them because of tight credit markets and replacing them with cash or more liquid government securities.

These purchase and resale agreements are temporary and unwound after 28 days so they are, in effect, simply exchanges of assets with no increase in the monetary base.

Similarly, the federal government's infrastructure spending program should have no significant impact on inflation since government demand is replacing private sector demand. In other words, there is no increase in aggregate demand.

For inflation watchers, this should be good news. And it gets even better. In January, the bank said it expected inflation to return to the two-per-cent target in the first half of 2011 as the economy returns to its potential. It has since hinted that it might be later, sometime after mid-2011.

Variable rate mortgage rates are derived from the prime rate, which financial institutions usually, but not always, set in accordance with Bank of Canada interest rate adjustments. But negotiations on mortgage rates are getting tougher. Lenders are beginning to set variable rates at a premium over prime instead of the past practice of a discount to prime.

Fixed-rate mortgages are based on bond yields, which are market driven and largely independent of central bank moves. Higher yields increase funding costs for financial institutions which raise fixed mortgage rates in response.

As it happens, bond yields have been bumping record lows in a slumping economy, making fixed rate mortgages a better deal than they've been for decades.

So, variable or fixed? It's up to you.

Breaking up with your mortgage Variable rates look pretty attractive

Anybody who bought their first house in the 1980s must marvel at mortgage rates today. Or perhaps fume.

Another rate cut this past week from the Bank of Canada led all of the major banks to lower their prime lending rate to a new low of 2.5%.

Consumers who locked into variable-rate mortgages tied to prime before credit markets tanked are getting as much as 90 basis points below prime and borrowing as low as 1.6%. It's the deal of the century.

In October, the banks suddenly changed the rules on borrowing and demanded consumers pay a 100-basis premium over prime if they wanted to go variable. The banks have eased up since and the premium on a variable-rate product is 80 basis points above prime for a 3.3% rate.

It poses an obvious question for anyone who has locked into rates as high as 5.75% on a five-year fixed-rate mortgage: Should they break that mortgage?

"It probably does make sense to break it now," says Vince Gaetano, vice-president of Monster Mortgage.

He gives the example of one client who came into his office this past week with a $205,000 mortgage and a 5.24% interest rate. The customer had 3½ years left on a five-year mortgage. The penalty to break his mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

In that client's case, his interest rate penalty is calculated based on the current four-year rate at his bank, now 4.14% on a discounted basis. The lost interest to the bank is about $7,800, which is what the customer will have to pay.

It's a big penalty but Mr. Gaetano argues that if that same customer breaks his mortgage and goes with the variable-rate mortgage at 3.3%, the savings would be in the $13,000 to $14,000 range over 3½ years -- more than offsetting the penalty.

There is also a nifty little trick you can pull off if you have a prepayment option on your mortgage. Mr. Gaetano's customer has a 25% prepayment privilege, so he can knock $57,000 off his mortgage and lower his penalty by about $2,800.

"You can access [that 25%] from an unsecured line of credit or some credit cards for a few days and reduce your penalty because the penalty is based on the balance outstanding," says Mr. Gaetano.

While not encouraging people to break their mortgages, the banks are acknowledging that some consumers who locked into higher rates can save money if they refinance at the new lower rates.

"I think it does make sense as an option for some people trying to lower their rate," says Joan Dal Bianco, vice-president of real estate-secured lending at TD Canada Trust.

She says if you are refinancing your mortgage, you can take the interest rate differential penalty and tack it on to your new mortgage. If you have credit card debt, you can add that on too, and the refinancing makes even more sense.

The office of consumer affairs for the federal government has a great site to help you make the decision: www.ic.gc.ca/eic/site/oca-bc.nsf/ eng/ca01817.html. Moshe Milevsky, a professor at York University's Schulich School of Business, who created the calculator used on the government site, says it ultimately comes down to how much money you will save on your mortgage if you break the contract.

"To me, it's pure mathematics. There is nothing speculative or probabilistic about the decision to break a mortgage. It is the classic example of undergraduate finance time-value-of-money calculations. If the homeowner can refinance into a mortgage with an identical term that reduces monthly payments above and beyond any penalty costs, then go for it. Plain and simple," says Mr. Milevsky.

Breaking your mortgage based on a decision to go into a variable-rate mortgage is an entirely different decision.

"This decision shouldn't be confused or muddled with the classic long or short decision, or whether real estate prices or interest rates are headed up or down from here," he says.

So, it comes down to two choices: The first is to break your locked-in mortgage and renew for another fixed term. If it saves you cash, that is a no-brainer.

The second choice is whether to switch products and go with a variable-rate mortgage. Historically, consumers have saved money 88% of the time going variable, according to Mr. Milevsky's own studies.

I'm still in the camp that favours a variable rate.

Dusty Wallet This will not save you any money, but if you are strapped for cash because one of the breadwinners in your home has lost a job, the banks will let you lengthen your amortization period. If you have a 25-year amortization you can lengthen it to 35 years without any service charges -- other than the huge jump in interest charges!

Canada Prepared to Accelerate Asset Purchases to Help Economy

Canadian officials indicated they may broaden asset purchases to help lower borrowing costs and battle the effects a deepening global slump.

Bank of Canada Governor Mark Carney yesterday said purchases of non-government assets may be an option as the bank looks at policies beyond interest rate moves. In a separate interview, Finance Minister Jim Flaherty said he’s studying more efforts to shore up the commercial paper market.

“We have lots of options to look at,” Flaherty said in Horsham, England, on the sidelines of a meeting of finance ministers and central bankers from the Group of 20 “The key here is we’ll do what is necessary in order to make the markets function well in Canada.”

Canada’s economy shrank at a 3.4 percent annual pace in the fourth quarter, the most since 1991. Reports have also shown record job losses and trade deficits in recent months.

Carney signaled he’ll likely revise down his outlook for the world’s eighth-largest economy next month. The Bank of Canada’s forecast for 3.8 percent growth in 2010 is more than twice the pace predicted by the IMF.

“When we laid out the projections in the update in January, we also laid out some upside and downside risks,” Carney said in the interview. “It’s safe to say the downside risks, particularly around the outturn in the global economy, have materialized.”

Beyond Rates

Carney said purchasing non-government assets is an option the central bank may consider. Earlier this month the Bank of Canada cut its benchmark lending rate to a record low 0.5 percent, and said it is preparing to use policies beyond interest rate moves, if needed, to revive an economy hit by a recession and tight credit markets.

“As we bring out the framework, it will be consistent that the bank is managing credit easing or has a framework for managing credit easing and we’ll decide when and if to use it,” he said.

Credit conditions for corporations have tightened, with companies facing the worst prospects for obtaining loans or making new sales in a decade, according to a survey of executives by the Bank of Canada released Jan. 12.

Purchases of securities may help drive down longer-term interest rates, stimulating borrowing and economic growth.

Extraordinary Measures

Canadian policy makers left the door open for extraordinary measures earlier this month. The Bank of Canada said at its March 3 interest rate announcement that it will outline how it would implement such measures on April 23.

Fed Chairman Ben S. Bernanke has increased the central bank’s total assets by $1 trillion over the past year to revive the economy and stem the risk of deflation. In December, the Fed switched to using emergency credit programs as the main tool of monetary policy. The Bank of England this month began to acquire government bonds with newly created money.

So-called quantitative easing is designed to leave banks with so much cash that they stop hoarding and expand lending. It can involve a central bank buying securities and creating money to pay for them. A central bank can also try buying up securities to drive down longer-term interest rates, extending efforts to keep short-term rates low with benchmark rates.

Buying Assets

In Canada, the federal government has taken the lead in purchasing assets from the financial system in a bid to revive lending, including facilities to acquire as much as C$125 billion in mortgages from banks and C$12 billion in car loans and leases.

Carney said it’s logical for the government to purchase the mortgages through the state-owned Canada Mortgage and Housing Corp., rather than the central bank, because the agency already insured the assets. Still, the central bank has “providence” over “credit easing,” he said.

“It makes sense to run that through CMHC,” Carney said. “In terms of other potential measures, we’ll work with the government to decide how to design them.”

Flaherty said the finance department and the central bank are coordinating efforts.

“We both have a role. The key here is that the framework is a framework that matches what the bank can do with what the government can do,” Flaherty said. “I have regular discussions with the governor of the bank to make sure we don’t go off course, that what he proposes to do meshes with what the government is doing.”

Should you break your mortgage to save big bucks?

With interest rates plunging to their lowest levels in decades, many Canadian homeowners are eyeing the prospect of breaking their mortgages to negotiate new ones with more favourable rates.

Experts say that even with the financial penalties that come with breaking a fixed-rate mortgage, many homeowners may be in a position to save money by breaking with their monthly status quo.

Anthony De Almeida, president and CEO of CanEquity Mortgage, says interest rates have fallen so low in such a short period of time that last year's fixed-rate mortgages now seem "ridiculously high," even though they would be considered quite low historically.

Such dramatic changes in the market, these experts say, have sent homeowners marching to mortgage brokers to see if breaking their mortgage would be in their best interests.

To break or not to break?

Jim Tourloukis, president of Verico Advent Mortgage Services in Unionville, Ont., says the decision of whether or not to break one's mortgage can be made through simple mathematics.

"At the end of the day if the balance on their mortgage is less by breaking it, then it makes sense to do it," Tourloukis told CTV.ca in a phone interview.

Moshe Milevsky, a professor at York University's Schulich School of Business, said the key factor for homeowners is being in a position to absorb the financial penalty that comes with breaking a mortgage, but still coming out on top.

"It has to be someone that took out a mortgage at a relatively higher rate, maybe three years ago; it's got to be a relatively long amortization period so the interest clock is ticking at quite a high rate," he told CTV.ca in a recent phone interview. "For them this simple formula will work out."

"If it's only a couple of bucks a month, it may not be worth the hassle of going to the bank," he added. "But I would say if you can save $20 or $30 a month on the mortgage, why not spend an hour in the bank and go through the paperwork?"

The penalties

In general, the penalty for breaking a mortgage is either a payment of three months interest, or something called the interest rate differential (IRD) -- a non-standard calculation which seeks to compensate the bank for the money it loses when a homeowner breaks their mortgage.

"In theory what it represents is the interest cost, or the interest income, that the bank forgoes by you breaking the mortgage," said Tourloukis, of the IRD.

De Almeida describes the IRD as "the difference between the rate today and the rate that you have currently."

In any case, the bank charges homeowners the larger of the two penalties, which has tended to be the IRD as interest rates have plummeted.

Then there are legal fees, paid to lawyers who handle the cancellation of the old mortgage and the creation of the new one. De Almeida said these fees typically range between $500 and $1,000.

Once the combined penalties are calculated, they can be added to one's new mortgage balance or paid off directly depending on the homeowner's preference and financial means.

More security, less debt

Because interest rates are so very low right now, it may also be attractive for homeowners to negotiate new mortgages where they are locked-in at a fixed rate for the long term.

"The rates haven't been this low in 50 years or more, so anybody that's gotten a mortgage in the last three, four, five years is very interested in locking in," De Almeida said.

De Almeida said he has had many clients looking to lock in to seven or 10-year mortgages, even if it means paying more than they would for a shorter-term mortgage.

"Why not pay a little bit more and have 10 years of security, especially in this market?" he said.

In a similar way, homeowners can decrease their liabilities by opting to take other debt they may have -- say credit card or car loan payments -- and tack it on to their newly negotiated mortgage, in order to pay it off at better rates.

De Almeida said the combination of low interest rates and an otherwise tight credit market makes it "a perfect time to be throwing your credit cards into a mortgage and to becoming debt-free."

First-time buyers eye house bargains

If there is an upside to a recession, it's the inevitability that stuff gets cheaper.

Falling home prices may be hard on developers, but they can spark opportunity for first-time buyers – if the price is right.

According to figures released yesterday by Statistics Canada, Canadian new home prices declined by 0.8 per cent in January from the same month a year earlier, the first year-over-year decrease since January of 1997.

"Years of frenzied construction activity had left the market overdue for a correction," said Valerie Poulin, an economist with the Conference Board of Canada, in a report yesterday. "With demand for new homes waning across Canada due to poor economic conditions, the market drop off appears to be more severe than expected."

Declining housing starts will cut builders' profits by almost 20 per cent this year, to $3.2 billion, according to a report by the board. Residential construction industry growth is also expected to fall drastically, recording the biggest decline since 1995.

"Consumers are postponing expenses such as renovations or buying a home," the Conference Board said. "Tighter credit conditions are further dampening demand."

With prices falling, buyers in the existing home market can find detached homes for what some Toronto homeowners spent on their kitchens during the boom years. Prices start as low as $75,000 in Windsor, $119,000 in Niagara Falls and $125,000 in St. Catharines – the top three cheapest cities for first-time home buyers identified by a ReMax Ontario Atlantic Canada report yesterday.

"You're not getting the Ritz at these prices, and a lot will need some elbow grease, but they will be liveable first-time properties," real estate investor Mike Sergeant said.

An ailing auto industry in devastated Windsor means average prices have dipped 10 per cent this year alone. Buyers seeking entry-level homes can find houses for $75,000 in Windsor's East and Central neighbourhoods.

"While skittish purchasers remain cautious ... there are those who are venturing into the market," ReMax said.

And the price of entry is remarkably low: There were 24 sales under $60,000 in the downtown core. One property sold for $25,000.

"Affordability has greatly improved and buyers are firmly in the driver's seat in just about every market surveyed," said ReMax executive vice-president Michael Polzler.

Though affordability is improving, it's another thing to convince first-time home buyers to commit when they think housing prices are set to fall further. The Canadian Real Estate Board is forecasting an 8 per cent drop in home prices by the end of this year.

During the last quarter of 2008, first-time buyers "largely checked out," said Royal LePage CEO Phil Soper. "They're sitting at home, or renting. They don't have to buy."

However, as affordability improves, Soper expects first-time buyers to return in increasing numbers this year. In the Toronto market, almost 50 per cent of all February sales occurred under the $300,000 price point, compared to 43 per cent a year ago.

First-time buyers who are secure in their jobs are still favouring condos priced in the $200,000-plus range, despite warnings the sector may be overbuilt.

Detached homes in the city's east end start at $350,000 and are still out of reach for many. Starter detached homes in the city's central core start at $550,000.

While supply is up across the board, with a 19 per cent increase in listings, there is more demand in the lower end of the market.

With home prices and starts falling, builders are concerned about an Ontario Chamber of Commerce initiative that calls on the province to blend the provincial sales tax and Goods and Services Tax into a single tax. The chamber said streamlining could save $100 million.

That didn't sit well with developers, who shot back yesterday in a report by housing economist Frank Clayton for the Building, Industry and Land Development Association. Clayton concludes harmonization would result in a $46,676 increase in tax on an average new home in Toronto. "The adverse consequences ... would be excessive," he said.

RBC study finds homebuying intentions still strong

Opportunity awaits— two-in-three Canadians think it's a buyer's market
TORONTO, March 4, 2009 — According to the 16th Annual RBC Homeownership Survey, 65 per cent of Canadians think it's a buyers market right now and more than a quarter of Canadians (27 per cent) say they intend to purchase a home over the next two years, up four points from 23 per cent in 2008 - the largest single year increase since 2001. Additionally, almost half (48 per cent) indicate it makes sense to buy a home now versus waiting until next year.
The RBC survey found that younger Canadians are most likely to spark an upsurge in home sales. In the under 35 group, 48 per cent said they plan to buy, which is up sharply from 36 per cent last year. Renters also appear to be saying they are tired of paying someone else's mortgage payment, with 38 per cent planning to become homeowners in the next two years.
"The current economic environment does not appear to have dampened Canadians' overall confidence in the housing market," said Karen Leggett, head, Home Equity Financing, RBC Royal Bank. "Canadians continue to have an overwhelming belief in the long-term value of a home and we're seeing this in the buying intentions of many first time homebuyers this year."
A large majority of Canadians (83 per cent) remain positive that homeownership is a good investment. While the proportion is down slightly from 85 per cent in 2008 and from the all time high of 90 per cent in 2006, it is 10 points stronger than it was a decade ago (72 per cent).
Among those who intend to buy, three-in-ten say favourable housing price is a major reason driving their decision. In a marked change from last year, 54 per cent of Canadians believe housing prices will be lower in 2009, up from 31 per cent in 2008. Similarly, the study showed 14 per cent of Canadians believe their home has lost value in the last two years. Of these, most (54 per cent) think it will take three-to-five years for their home to recover its value.
"Low mortgage rates and favourable housing prices are influencing home purchase intentions this year and may be the reason why more Canadians are poised to purchase over the next two years," added Leggett.
The primary reason stated by homeowners not planning to purchase a home is that they are content with the home they have (60 per cent). Job loss/employment factors (eight per cent) as well as general concerns about the economy (six per cent) also influenced people's decisions not to buy a home.
RBC is the largest residential mortgage lender in Canada. As the country's number one source of financial advice on homeownership, RBC conducts consumer surveys as one way to provide insight to Canadians about the marketplace in which they live.
These are some of the findings of an RBC poll conducted by Ipsos Reid between January 6 to 9, 2009. The online survey is based on a randomly selected representative sample of 2,026 adult Canadians. With a representative sample of this size, the results are considered accurate to within ±2.2 percentage points, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled. The margin of error will be larger within regions and for other sub-groupings of the survey population. These data were statistically weighted to ensure the sample's regional and age/sex composition reflects that of the actual Canadian population according to the 2006 Census data.

Central bank lowers interest rate again

There's no denying it now: Canada is in a deep recession.
The Bank of Canada cut the target interest rate to 0.50 of a percentage point, it's lowest level ever, and hinted that it might resort to measures other than interest rates to help boost the economy. The Bank of Canada also acknowledged for the first time that the economy is unlikely to recover by the end of the year. The central bank had previously made several optomistic forecasts for the fourth quarter.
The loonie fell to its lowest level in three months after the announcement to $1.2975 per US dollar.
The current rate of 0.5 per cent is about as low as the rate can go, and is essentially zero as far as economists are concerned. A zero per cent interest rate is impractical for several different technical reasons.
The key overnight interest rate, often refered to as prime, is the rate at which banks charge for overnight loans to eachother.
Mark Carney, the Bank of Canada Governor, said that it may be necessary to lower the key rate even further, although at this point other economic measures may be more effective.
"Given the low level of the target for the overnight rate, the bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing," Carney wrote in a statement.
Quantitative easing is the practice that the Bank of Canada uses to add to the money supply by selling securities to banks. If the government limits the number of securities available, the banks will find themselves with excess cash and expand lending.
"The outlook for the global economy has continued to deteriorate since the bank's January update, with weaker-than-expected activity in major economies," Carney said Tuesday.
"National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January."
Canada's economy lost another 129,000 in January, a number much larger than what was expected and something Carney was unaware of when he made his statement.
Statistics Canada also said that Canada's economy shrank 3.4 per cent in the fourth quarter, the country's largest decline since the recession in 1991.
Canada's five largest chartered banks in turn slashed their key lending rates by the same amount of 50 basis points. This is the second time that the banks have quickly followed the Bank of Canada's move to reduce rates after being harshly criticized for gouging after not adjusting their rates to coincide with the central bank in 2008.
However, it seems the banks aren't really dedicated to helping the economy. Customers of CIBC with secure personal line of credits received the following notice along with their most recent statement.
"Effective April 6, 2009, the annual variable interest rate will increase by one per cent and will apply to all amounts owing on PLCs." The notice went on to say, "This change is a result of global credit market conditions that have increased costs associated with lending products."
Toronto Dominion Bank and the Bank of Montreal have quietly made similar adjustments to interest rates attached to personal lines of credit. To say this is contradictory to the Bank of Canada's efforts is a drastic understatement, however the banks have kept the adjustments very quiet and away from media attention.
Finance Minister Jim Flaherty has not commented on the banks' action. However he did have some advice for Canadians, telling them "to have confidence. This too will pass. We will come out of this and there will be opportunities as we do so."
Flaherty also said that the government will work with Bank of Canada to further stimulate the economy.
"They're [The Bank of Canada] running out of room on strict monetary policy of course and there are other things they can do," Flaherty told reporters when he was asked about the possibility of unconventional monetary moves.
"We have to make sure that the steps, in terms of the additional steps, are well co-ordinated between the Bank of Canada and the government of Canada."

Housing Affordability

Housing downturn — Canadian-style
Canadians have watched with amazement for nearly two years now at the collapse of the housing sector in the United States, the United Kingdom and other countries that experienced overvalued housing prices with the sense that markets in this country stand on much more solid ground. After all, the sub-prime business never represented more than a marginal phenomenon here; Canadian households, while carrying heavier debt loads than in the past, were not financially overstretched; Canadian banks emerged islands of stability amid the global financial storm; incomes remained well supported by steady job creation and a strong domestic economy; and the influence of speculation — especially on new construction — was deemed to be subdued.
Then, late in 2007, red-hot Alberta markets began to slide, followed earlier this year by British Columbia’s markets. Most recently, Saskatchewan, last year’s hotspot, and areas in Ontario joined the weakening trend. All of a sudden, Canada no longer appeared immune to a generalized housing downturn. In fact, the souring of economic conditions, eroding consumer confidence and, in some instances, past excesses are creating a downdraft that the majority of Canada’s housing markets will be hard-pressed to resist.
As a sluggish economy threatens income growth and makes households much more skittish about major financial commitments, issues of affordability are coming to the fore. Much of the market correction taking place in British Columbia, Alberta and, now, parts of Saskatchewan can be traced to very poor affordability levels in those provinces.
However, high home ownership costs are not unique to western Canada. RBC’s affordability measures lie above long-run averages in all provinces and across all housing segments, which suggests that the downdraft will be felt widely.
Still, the extent of “unaffordability” varies substantially by province, with measures running as high as 48% above average in the B.C. standard townhouse segment and as low as 6% above average in the Quebec detached bungalow segment. Overall, British Columbia, Saskatchewan and Alberta remain the least affordable markets in Canada (relative to their respective historical norms).
While the Canadian housing sector is undoubtedly entering a cyclical downturn, the risk of experiencing a U.S.-style meltdown is remote. The supportive factors mentioned above are still mostly in play and should provide enough backing to prevent markets from spiraling down even as the Canadian economy slips into recession.

Property listings decrease, as February sales improve

Tuesday, March 3, 2009

VANCOUVER, B.C. – Residential housing sales in Greater Vancouver rose 94 per cent in February compared to the month before, with 1,480 sales registered in February compared to 762 sales in January, which was the slowest month for housing sales in 25 years. Over the past 10 years, February sales have typically surpassed January by an average increase of 53 per cent.

At the same time, new MLS® listings for residential properties continued to decrease for the fourth month in a row. New listings decreased 25.6 per cent in February compared to the previous year; 20 per cent in January; 8.6 per cent in December; and 10 per cent in November.

“There are terrific opportunities out there right now, but with property listings continuing to decrease, those opportunities may be available only for a brief window of time,” said Dave Watt, president of the Real Estate Board of Greater Vancouver (REBGV).

REBGV reports that year-over-year property sales in Greater Vancouver declined 44.7 per cent in February 2009 from the 2,676 sales recorded in February 2008. Year-over-year, those are the lowest sales figures for February since the mid-1980s.

“REALTORS® are reporting more activity compared to recent months as people begin to see whether their position in the housing market has strengthened as a result of falling interest rates and improved affordability,” Watt says. “It took, on average, 67 days to sell a home in Greater Vancouver in February, seven days less than last month, but behind the seller’s market of last February when the average stood at 33 days.

Sales of detached properties in February 2009 declined 41 per cent to 587 from the 995 units sold during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties declined 14.2 per cent from February 2008 to $653,452.

Sales of apartment properties declined 45.6 per cent last month to 650, compared to the 1,197 sales in February 2008. The benchmark price of an apartment property declined 13.9 per cent from February 2008 to $333,143.

Attached property sales in February 2009 decreased 49.8 per cent to 243, compared with the 484 sales during the same month in 2008. The benchmark price of an attached unit declined 9.7 per cent between Februarys 2008 and 2009 to $426,268.

New listings for detached, attached and apartment properties declined 25.6 per cent to 3,916 in February 2009 compared to February 2008, when 5,260 new units were listed.

Worthwhile Canadian Initiative

Canadian banks are typically leveraged at 18 to 1--compared with U.S. banks at 26 to 1.

Fareed Zakaria

NEWSWEEK

From the magazine issue dated Feb 16, 2009

The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours. Ah, but you've heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It's 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America's by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; "healthy life expectancy" is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America's largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal "permanent residents" in Canada—no need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company's announcement noted that it would staff the center with "highly skilled people affected by immigration issues in the U.S." So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada—where most of them will work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet—OK, sometimes boring—neighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative

Renting vs Buying a House - The Great Debate

It’s the age-old debate. Do I rent or do I buy?

Renting

Paying rent is often the first step for someone after they leave their parents’ home. Whether it’s in a university dorm or a room in a house full of friends, most of us get our feet wet in the real world by paying somebody else for a place to live.

And there’s absolutely nothing wrong with that.

In fact, renting is a good way for people to live within their means, should they find a suitable place for the right price. Although it’s true you are paying, or helping to pay, somebody else’s mortgage, too many times people see this as the sole reason to buy their own home and become house poor in the process because there’s more to home ownership than mortgage payments.

By renting within your budget you avoid the ‘hidden expenses’ that come with home ownership, like higher refinancing mortgage rates, property taxes, and on-going upgrades and repairs. In some cities in Canada, renting is about the only option for people because of high housing prices in urban areas and their ever-expanding suburbs.

But renting does have its pitfalls. The saying is 100% true – you are paying someone else’s mortgage by renting their house or apartment. You also don’t build a credit rating by renting, nor do you have any say in the actions of your landlord/property owner, who could literally sell the house out from under you, leaving you in a tight spot and possibly in search of a place to live in a housing market that has skyrocketed since you were last on the market, throwing your budget for a loop.

If you are secure financially and have a higher standard of living than your average college student, you may want to explore home ownership, because there’s a chance you’re paying the same in rent as you would for a decent home in your neighbourhood.

Buying

Many people dream of owning their own home. Some rush into home ownership before they’re financially ready, although those days have probably come to end with the implosion of the ‘zero down’ mortgage, which gave many people a false security of thinking they could afford more house and therefore a bigger home loan because nothing was coming out of their pocket before they were handed the keys.

There are a lot of positives to home ownership that are fairly obvious – a secure place to live, a personal asset, a possible source of income whether through renting or resale – but a person must be prepared for the extra expenses like property taxes, repairs, etc., that are ever-present with home ownership. If you take on too much house – a mortgage your income can barely afford to pay – you run the risk of becoming house poor, and suddenly you’re living a life of much higher stress than somebody who is paying their rent each month and sleeping soundly every night. One financial hiccup – a broken furnace or the need to buy a new car – could put you over the top and in danger of not meeting your mortgage requirements.
It is important to budget accordingly for these costs when deciding how much you can spend on a home. The financial institution you choose will be able to help you with this.

Things to think about

Do you plan to move a lot in the future? If so, renting poses less risk than buying because you have nothing tying you down once your lease is up, if you even are required to sign one

Can you pass up these microscopic interest rates? The Bank of Canada, and the major lenders in turn, have cut interest rates in an attempt to spur homebuyers to take out mortgages. This February, the interest rate in Canada is a shocking 1%, down substantially from last February’s mark of 4%. Since 9/11, interest rates have stayed below 5% to stimulate spending, and the highest mark they’ve hit in the past decade was October, 2000, at 5.75%

How stable is your employment? Times are tough these days and most people could be downsized from their job at a moment’s notice. People without mortgages have much more flexibility because they can always reduce their monthly expenses by renting a smaller apartment, while people who own homes will have the same mortgage payment whether employed or not and will likely struggle to sell their home if it comes to that, during this economic downturn

Can you take advantage of a depressed market? The Canadian Real Estate Association said the number of houses sold through MLS in January, 2009, (16,343) was down a staggering 40.9% in January, 2008. As the economy continues to sputter, the more manufacturing jobs are lost, and the price of oil stays below $50 per barrel, the better the chance of much lower housing prices. People are going to need to sell, and if you’re in the position to buy, chances are good you’ll be able to capitalize on the buyer’s market

Are you over-extending yourself by buying? There are a lot of hidden costs aside from your mortgage – taxes, condo fees (where applicable), repairs – that may leave you ‘house poor’. Not only will this affect your way of life now, it could also hamper your ability to save for retirement. Renters have only two main housing expenses - rent and utilities