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®.