Paul Vieira Financial Post March 7, 2011
OTTAWA — The improving economic backdrop has strengthened some economists’ view that the Bank of Canada will begin raising its benchmark rate in the – either in April or May – or at the very least in July, once the U.S. Federal Reserve is scheduled to end its US$600-billion asset purchase plan.
Not so the Bank of Nova Scotia. It is among the few research houses on Bay Street that believe the Bank of Canada, led by governor Mark Carney, will wait much longer – to October to be more precise. (Meanwhile, analysts at Capital Economics have reiterated their view the central bank remains on hold for all of 2010.) The main culprit: A weak U.S. dollar which could drive the loonie to US$1.08 by the end of the year.
Scotiabank economists Derek Holt and Gorica Djeric offered a detailed explanation of its view in a note to clients. Here is a summary of Scotiabank’s arguments:
• THE GREENBACK WILL KEEP SLIDING
Scotiabank is just plain bearish on the U.S. currency, as the Federal Reserve continues to pump cash into the system and keep its benchmark rate near zero. But the bank also believes there is a chance the White House further extends stimulus measures agreed upon late last year as opposed to allowing them expire – likely earning a rebuke from bond raters and fixed-income investors as Washington’s fiscal status would deteriorate further. That, in turn, would make the U.S. dollar even less favourable and likely adds to the loonie’s strength.
That could drive the loonie to as high as US1.08¢ by the end of 2011 — a full 12 cents above the most dovish view on the loonie, Scotia admits.
“This type of CAD strength imposes net tightening on the Canadian economy that we believe will do the Bank of Canada’s tightening for them. It is difficult to envision further Bank of Canada tightening when our expectation is that Canadian dollar will be lit up apart from what the Bank of Canada does.”
• GLOBAL UNCERTAINTY WILL CONTINUE
Turmoil in North Africa and the Middle East, and the impact that is having on energy prices, justifies the central bank keeping its powder dry for now. “No one has a clue as to how various geopolitical developments … will fully unfold,” Scotiabank said.
Also lurking in the background is Europe’s sovereign debt worries, and what policy makers will eventually agree to at a summit late this month.
• ECONOMIC SLACK REMAINS WIDE
Despite the better-than-expected fourth-quarter growth data, it likely didn’t have much of an impact on the country’s output gap that according to the last Bank of Canada estimate stood at 1.9% of the economy, Scotiabank said. It added it foresees risks to demand growth from government spending cuts, high commodity prices and new mortgage rules.
Furthermore, recent historical evidence would suggest there is a weak link between a narrowing output gap and inflationary pressure, especially since the Bank of Canada adopted an inflation-targeting regime about 20 years ago.
• TIGHTENING ALREADY UNDERWAY
There are developments underway which have the same impact as a rate hike, from a higher Canadian dollar; tougher mortgage financing rules which begin to take effect this month; the withdrawal of government stimulus; and, eventually, higher bond yields which will translate into higher rates on consumer loans.
• DOVISH FED
Fed chairman Ben Bernanke continues to signal a cautious, dovish approach, with expectations rate hikes begin sometime next year. Raising rates in Canada now would just push an already strong loonie higher.
• INFLATION TARGETING REGIME
It is still not clear what the Bank of Canada’s inflation-targeting regime will look like once it is renewed at the end of the year. “Therefore, it’s not clear to us if the Bank of Canada hikes the minute its operational core target gets to 2% in this cycle or is expected to do so,” Scotiabank said.
• FEDERAL & PROVINCIAL ELECTIONS
It remains unclear about whether the federal parties go on an election campaign this year once the federal budget is tabled on March 22. Still, Scotiabank said the central bank has raised rates only once during an election campaign in the last 20 years – in 2006, when the strong economy justified a hike – and will likely show caution again. Compounding matters are a series of provincial elections due in 2011, including Ontario where incumbent Premier Dalton McGuinty has repeatedly voiced concern about rate hikes and the upward push it provides to the Canadian dollar.
http://business.financialpost.com/2011/03/07/why-the-boc-wont-raise-rates-until-october/
Friday, March 11, 2011
Central bank may still hike rates before summer
Andrew Pyle, On Friday March 4, 2011,
The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.
Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.
Had this week's policy meeting taken place a few weeks ago, it's likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.
That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.
Crude awakening
After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.
A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.
In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That's not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.
One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that's old school.
These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.
Not so fast
How much of a slowdown we experience in consumer spending (and let's throw in housing expenditures too), depends greatly on that above-mentioned phrase "all other things being equal."
If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.
To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.
There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.
Now, I'm not suggesting that we're going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.
How long can they sit on the fence?
What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada's economy disappears and inflation returns to target (using the core inflation measure).
It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.
Coming back to the Bank's decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can't and won't pull the trigger on rates before the summer.
There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.
And if energy price shocks don't intensify and the Bank fails to deliver such guidance, don't be surprised if the bond market creates the guidance for them.
http://ca.finance.yahoo.com/news/Central-bank-still-hike-rates-yahoofinanceca-1276928971.html
The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.
Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.
Had this week's policy meeting taken place a few weeks ago, it's likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.
That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.
Crude awakening
After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.
A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.
In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That's not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.
One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that's old school.
These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.
Not so fast
How much of a slowdown we experience in consumer spending (and let's throw in housing expenditures too), depends greatly on that above-mentioned phrase "all other things being equal."
If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.
To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.
There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.
Now, I'm not suggesting that we're going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.
How long can they sit on the fence?
What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada's economy disappears and inflation returns to target (using the core inflation measure).
It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.
Coming back to the Bank's decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can't and won't pull the trigger on rates before the summer.
There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.
And if energy price shocks don't intensify and the Bank fails to deliver such guidance, don't be surprised if the bond market creates the guidance for them.
http://ca.finance.yahoo.com/news/Central-bank-still-hike-rates-yahoofinanceca-1276928971.html
Tuesday, March 8, 2011
Reno coach keeps projects in the ballpark
Planning her first major home renovation in the summer of 2009, Tina Davies felt like she was awaiting her first baby: excited, nervous and not sure what to expect.
The project would plunge the Toronto makeup artist’s household into chaos for five months, but once it was done, her family of three would have a new kitchen and bathrooms, updated plumbing and electrical systems and upgrades to the entire interior, from new floors to freshly plastered ceilings.
With $350,000 on the line, however, Ms. Davies wasn’t impressed by the vague quotes and sparse details being offered by the first three contractors she approached, whose contracts were so unprofessional, they looked as though they’d been drawn up “on paper napkins.”
Was this normal? She wasn’t sure. She’d never done this before.
“As a homeowner, you’re just really at the mercy of these contractors and you don’t know their language or what is the proper way to have something done,” Ms. Davies said. “You’re so overwhelmed and confused and you want to make sure you don’t do the wrong thing.”
She figured she needed help from someone knowledgeable and impartial, who understood how the industry worked. Then she heard about reno coaching, a relatively new service where, for $75-$100 an hour, a project manager would come to her house and help her draw up a budget and advise her whether her project was practical and affordable – think Mike Holmes meets Gail Vaz-Oxlade, but with the aim of preventing expensive mistakes.
The reno adviser she hired, Jay Charendoff of House Calls Project Management, “was really good about advising us about what to do before you get into it,” said Ms. Davies, adding that once she found a reputable contractor, he went through the contract line by line and highlighted problem areas.
“It’s just nice to know that there’s somebody on your side,” she said.
Mr. Charendoff, who has a degree in architecture and is a LEED-affiliated professional, launched his business four years ago and is among a handful of professionals offering reno advice in Canada.
It’s a service that is starting to catch on due to a new consumer awareness about the financial risks of renovating, says Carl Mascarenhas, president of eRenovate Inc. With the housing market cooling, he says, it’s no longer a given that property values will rise and homeowners will recoup their costs; they are more cautious now.
As with any new industry, Mr. Mascarenhas says it’s buyer beware when hiring a renovation adviser. As demand for the service increases, opportunists will emerge, he says. “There’s still a bit of caution for consumers to really weigh out the role the professional is playing and that they have the right credentials or experience to do so.”
Home renovations are big business in Canada. According to a survey by the Canada Mortgage and Housing Corp., Canadians spent $25.8-billion on home renovations in 2009, with the average project costing about $12,100. Of those 2.1 million households, 35 per cent said they went over budget.
“People don’t really know how much things are going to cost,” Mr. Charendoff says. “People sometimes have a general idea of what they want to do, but in this business, it’s really about the details.”
In addition to budgeting advice, Mr. Charendoff also looks at housing market conditions and gives homeowners straight talk if he thinks they are not making a good investment.
Such was the case for Karen Weinthall, who asked for advice while planning a major kitchen renovation on her 1920s Toronto home. After inspecting the property, Mr. Charendoff told Ms. Weinthall that her house, which was built on top of a steep hill, was slowly sinking into the ground.
He looked at the kitchen and looked at the floor and said you really are not going to be able to do that without a huge structural job. So I moved,” Ms. Weinthall said with a laugh.
“If we had just gone ahead and hired a contractor to do the kitchen, at what point in that proceeding would we have found out what a big problem it was?”
Mr. Charendoff says a reno adviser acts as a middleman between the homeowner and the contractor, whose main objective is sales. “The hat that I wear is really a different hat – it’s what advice and guidance can I offer to this owner that’s going to be a wise financial decision.”
Lisa Rapoport, a partner at Plant Architect Inc. in Toronto, is skeptical of the reno coaching trend and says any good designer or contractor will offer the same advice, and will be able to help clients find savings to match their budgets. “Just providing that kind of middleman service sounds like an extra cost, and I guess if you’re going to pay the extra cost, I’d rather put it into a good contractor,” she said.
Finding a good contractor requires a bit of homework, says Mr. Mascarenhas. He recommends consumers begin by doing some research on the CHMC and Better Business Bureau websites, and read consumer reviews on sites like HomeStars.com and casaGURU.com.
For Ron Singer, hiring a reno adviser was certainly a wise financial decision. In the midst of constructing a $30,000 art studio for his wife, he began to have some doubts about whether the contractor was putting in adequate insulation. The adviser confirmed his doubts, and he was able to have the contractor fix the problem on the spot.
“As far as I’m concerned, hiring someone for a couple of hundred in order to ultimately save down the road in terms of either repairs or things that go wrong, is certainly worth it,” Mr. Singer said. “We now have without a doubt the best constructed, best insulated studio one can have.”
The pre-reno checklist
1. Know the rules. Building codes and local by-laws may limit what and how you renovate. There’s nothing worse than discovering the project you’ve painstakingly planned is not allowed. Talk to your municipal building department and find out about zoning and permits.
2. Know what’s possible. Your home’s heating, plumbing and electrical systems will also affect how you can renovate. For big projects, it’s wise to check with an architect, home inspector or contractor before you begin.
3. Create a budget. Doing a detailed financial analysis of your project in advance of the physical design allows you to evaluate your situation and study a variety of options well before you get to the construction stage. It’s a low-cost exercise that allows you to clarify your needs versus your wants.
4. Do the math. Get quotes from at least two reputable local renovators, architectural firms or material suppliers. Take the most reasonable quote and add 10 to 15 per cent for unexpected costs.
5. Spend wisely. If you need financing, you may be able to renegotiate your mortgage or apply for a personal loan to cover the cost of the reno. You may even be eligible for assistance, as some utilities and governments offer incentive programs for energy-efficiency upgrades.
Sources: Dianne Nice, CMHC, House Calls Project Management
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/reno-coach-keeps-projects-in-the-ballpark/article1924599/
The project would plunge the Toronto makeup artist’s household into chaos for five months, but once it was done, her family of three would have a new kitchen and bathrooms, updated plumbing and electrical systems and upgrades to the entire interior, from new floors to freshly plastered ceilings.
With $350,000 on the line, however, Ms. Davies wasn’t impressed by the vague quotes and sparse details being offered by the first three contractors she approached, whose contracts were so unprofessional, they looked as though they’d been drawn up “on paper napkins.”
Was this normal? She wasn’t sure. She’d never done this before.
“As a homeowner, you’re just really at the mercy of these contractors and you don’t know their language or what is the proper way to have something done,” Ms. Davies said. “You’re so overwhelmed and confused and you want to make sure you don’t do the wrong thing.”
She figured she needed help from someone knowledgeable and impartial, who understood how the industry worked. Then she heard about reno coaching, a relatively new service where, for $75-$100 an hour, a project manager would come to her house and help her draw up a budget and advise her whether her project was practical and affordable – think Mike Holmes meets Gail Vaz-Oxlade, but with the aim of preventing expensive mistakes.
The reno adviser she hired, Jay Charendoff of House Calls Project Management, “was really good about advising us about what to do before you get into it,” said Ms. Davies, adding that once she found a reputable contractor, he went through the contract line by line and highlighted problem areas.
“It’s just nice to know that there’s somebody on your side,” she said.
Mr. Charendoff, who has a degree in architecture and is a LEED-affiliated professional, launched his business four years ago and is among a handful of professionals offering reno advice in Canada.
It’s a service that is starting to catch on due to a new consumer awareness about the financial risks of renovating, says Carl Mascarenhas, president of eRenovate Inc. With the housing market cooling, he says, it’s no longer a given that property values will rise and homeowners will recoup their costs; they are more cautious now.
As with any new industry, Mr. Mascarenhas says it’s buyer beware when hiring a renovation adviser. As demand for the service increases, opportunists will emerge, he says. “There’s still a bit of caution for consumers to really weigh out the role the professional is playing and that they have the right credentials or experience to do so.”
Home renovations are big business in Canada. According to a survey by the Canada Mortgage and Housing Corp., Canadians spent $25.8-billion on home renovations in 2009, with the average project costing about $12,100. Of those 2.1 million households, 35 per cent said they went over budget.
“People don’t really know how much things are going to cost,” Mr. Charendoff says. “People sometimes have a general idea of what they want to do, but in this business, it’s really about the details.”
In addition to budgeting advice, Mr. Charendoff also looks at housing market conditions and gives homeowners straight talk if he thinks they are not making a good investment.
Such was the case for Karen Weinthall, who asked for advice while planning a major kitchen renovation on her 1920s Toronto home. After inspecting the property, Mr. Charendoff told Ms. Weinthall that her house, which was built on top of a steep hill, was slowly sinking into the ground.
He looked at the kitchen and looked at the floor and said you really are not going to be able to do that without a huge structural job. So I moved,” Ms. Weinthall said with a laugh.
“If we had just gone ahead and hired a contractor to do the kitchen, at what point in that proceeding would we have found out what a big problem it was?”
Mr. Charendoff says a reno adviser acts as a middleman between the homeowner and the contractor, whose main objective is sales. “The hat that I wear is really a different hat – it’s what advice and guidance can I offer to this owner that’s going to be a wise financial decision.”
Lisa Rapoport, a partner at Plant Architect Inc. in Toronto, is skeptical of the reno coaching trend and says any good designer or contractor will offer the same advice, and will be able to help clients find savings to match their budgets. “Just providing that kind of middleman service sounds like an extra cost, and I guess if you’re going to pay the extra cost, I’d rather put it into a good contractor,” she said.
Finding a good contractor requires a bit of homework, says Mr. Mascarenhas. He recommends consumers begin by doing some research on the CHMC and Better Business Bureau websites, and read consumer reviews on sites like HomeStars.com and casaGURU.com.
For Ron Singer, hiring a reno adviser was certainly a wise financial decision. In the midst of constructing a $30,000 art studio for his wife, he began to have some doubts about whether the contractor was putting in adequate insulation. The adviser confirmed his doubts, and he was able to have the contractor fix the problem on the spot.
“As far as I’m concerned, hiring someone for a couple of hundred in order to ultimately save down the road in terms of either repairs or things that go wrong, is certainly worth it,” Mr. Singer said. “We now have without a doubt the best constructed, best insulated studio one can have.”
The pre-reno checklist
1. Know the rules. Building codes and local by-laws may limit what and how you renovate. There’s nothing worse than discovering the project you’ve painstakingly planned is not allowed. Talk to your municipal building department and find out about zoning and permits.
2. Know what’s possible. Your home’s heating, plumbing and electrical systems will also affect how you can renovate. For big projects, it’s wise to check with an architect, home inspector or contractor before you begin.
3. Create a budget. Doing a detailed financial analysis of your project in advance of the physical design allows you to evaluate your situation and study a variety of options well before you get to the construction stage. It’s a low-cost exercise that allows you to clarify your needs versus your wants.
4. Do the math. Get quotes from at least two reputable local renovators, architectural firms or material suppliers. Take the most reasonable quote and add 10 to 15 per cent for unexpected costs.
5. Spend wisely. If you need financing, you may be able to renegotiate your mortgage or apply for a personal loan to cover the cost of the reno. You may even be eligible for assistance, as some utilities and governments offer incentive programs for energy-efficiency upgrades.
Sources: Dianne Nice, CMHC, House Calls Project Management
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/reno-coach-keeps-projects-in-the-ballpark/article1924599/
Saturday, February 19, 2011
The rise and fall of mortgage rates
Research released by the Bank of Canada Thursday, not surprisingly suggests that Canada’s largest banks are slow to pass on cuts in the Bank of Canada’s policy interest rate.
“Canadian lenders appear to be extremely slow to pass on changes in the Bank Rate to their customers,” author Jason Allen wrote in the report entitled “Competition in the Canadian Mortgage Market.”
Researchers found that “in the short run, five of the six largest Canadian banks adjust their rates upward more quickly when there are upward cost pressures than downward when costs fall,” he said.
Having market power in Canada, “there is scope for banks to coordinate implicitly or explicitly,” Allen wrote.
If costs rise they all want to increase their prices, but if costs fall they wait before reducing rates “because all the banks can earn higher profits.”
Vince Gaetano, vice-president and principal broker with MonsterMortgage.ca is not surprised by the report, calling the banks’ practice of holding off discounting for longer periods “common practice.”
He said banks usually lenders hold off until after the end of the month before passing on lower rates because this is when renewal notices for maturing mortgages are printed and issued in advance of the maturity date.
“Renewal notices with a higher rate printed on them provide the illusion of a potentially bigger discount that can be offered to the client – a client who most times does not want to put in the effort in the mortgage transfer process.”
Dave Larock, a broker with Integrate Mortgage Planners-TMG in Toronto said there is another group affected – borrowers who are just about to close their mortgage transaction. “Since most rate drop policies are in effect until seven days prior to closing, it is this group that misses the savings if rate drops are delayed,” he said. “From a lender’s perspective, this group is not very rate sensitive because they are so close to their funding date that switching lenders is usually not feasible, while mortgage applicants who are earlier in the process will eventually receive the lower rate through any standard rate-drop policy, provided that the rate decrease is sustained.”
The research also indicated that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly. This average discount is about an additional 19 basis points.
“The conclusions of the report are very reasonable,” said Jim Murphy, president and CEO of CAAMP. “They coincide with our own research at CAAMP on discounts. Mortgage brokers play a key role in offering choice to borrowers when making their most important financial decision.”
Larock said he agrees with the paper’s overall premise that more lending competition leads to better rates and choice for consumers and that in today’s market banks can coordinate implicitly or explicitly. “That’s just the nature of an oligopoly,” he said. “If Canada’s big banks were allowed to merge they would increase their market muscle at the customer’s expense. We need more lenders, not fewer.”
The report stated that Canada’s mortgage market represents “almost 40 per cent of total outstanding private sector credit, BOC researchers said in the quarterly Financial System Review.” It is dominated by the nation’s six major national banks plus a large credit union, the Desjardins Movement, and the Alberta province-owned ATB Financial.
The “Big Eight” controls 90 per cent of the assets in the banking industry. All offer the same types of mortgage assets, the great bulk of these being guaranteed by the federal government’s Canada Mortgage and Housing Corporation.
“The Canadian mortgage market is relatively simple and conservative, particularly when compared with its U.S. counterpart,” the report stated. “Many Canadians sign five-year, fixed-rate contracts for the life of the mortgage -- typically 25 years.”
Bruno Valko, director, national sales for Resmor Trust said there is an advantage because the mortgage broker marketplace is not dominated by a few big players.
“In the broker/wholesale channel, there’s more competition and lenders will move quicker to lower rates and attract business when the opportunity presents itself,” he said. “Furthermore, the scale of product offerings is greater, so in the event a person doesn’t qualify at the Big Eight, a broker can potentially offer solutions.
“And if we agree that the broker/wholesale channel moves quicker to lower rates when the opportunity presents itself, that's another advantage for consumers to choose mortgage brokers.”
“Canadian lenders appear to be extremely slow to pass on changes in the Bank Rate to their customers,” author Jason Allen wrote in the report entitled “Competition in the Canadian Mortgage Market.”
Researchers found that “in the short run, five of the six largest Canadian banks adjust their rates upward more quickly when there are upward cost pressures than downward when costs fall,” he said.
Having market power in Canada, “there is scope for banks to coordinate implicitly or explicitly,” Allen wrote.
If costs rise they all want to increase their prices, but if costs fall they wait before reducing rates “because all the banks can earn higher profits.”
Vince Gaetano, vice-president and principal broker with MonsterMortgage.ca is not surprised by the report, calling the banks’ practice of holding off discounting for longer periods “common practice.”
He said banks usually lenders hold off until after the end of the month before passing on lower rates because this is when renewal notices for maturing mortgages are printed and issued in advance of the maturity date.
“Renewal notices with a higher rate printed on them provide the illusion of a potentially bigger discount that can be offered to the client – a client who most times does not want to put in the effort in the mortgage transfer process.”
Dave Larock, a broker with Integrate Mortgage Planners-TMG in Toronto said there is another group affected – borrowers who are just about to close their mortgage transaction. “Since most rate drop policies are in effect until seven days prior to closing, it is this group that misses the savings if rate drops are delayed,” he said. “From a lender’s perspective, this group is not very rate sensitive because they are so close to their funding date that switching lenders is usually not feasible, while mortgage applicants who are earlier in the process will eventually receive the lower rate through any standard rate-drop policy, provided that the rate decrease is sustained.”
The research also indicated that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly. This average discount is about an additional 19 basis points.
“The conclusions of the report are very reasonable,” said Jim Murphy, president and CEO of CAAMP. “They coincide with our own research at CAAMP on discounts. Mortgage brokers play a key role in offering choice to borrowers when making their most important financial decision.”
Larock said he agrees with the paper’s overall premise that more lending competition leads to better rates and choice for consumers and that in today’s market banks can coordinate implicitly or explicitly. “That’s just the nature of an oligopoly,” he said. “If Canada’s big banks were allowed to merge they would increase their market muscle at the customer’s expense. We need more lenders, not fewer.”
The report stated that Canada’s mortgage market represents “almost 40 per cent of total outstanding private sector credit, BOC researchers said in the quarterly Financial System Review.” It is dominated by the nation’s six major national banks plus a large credit union, the Desjardins Movement, and the Alberta province-owned ATB Financial.
The “Big Eight” controls 90 per cent of the assets in the banking industry. All offer the same types of mortgage assets, the great bulk of these being guaranteed by the federal government’s Canada Mortgage and Housing Corporation.
“The Canadian mortgage market is relatively simple and conservative, particularly when compared with its U.S. counterpart,” the report stated. “Many Canadians sign five-year, fixed-rate contracts for the life of the mortgage -- typically 25 years.”
Bruno Valko, director, national sales for Resmor Trust said there is an advantage because the mortgage broker marketplace is not dominated by a few big players.
“In the broker/wholesale channel, there’s more competition and lenders will move quicker to lower rates and attract business when the opportunity presents itself,” he said. “Furthermore, the scale of product offerings is greater, so in the event a person doesn’t qualify at the Big Eight, a broker can potentially offer solutions.
“And if we agree that the broker/wholesale channel moves quicker to lower rates when the opportunity presents itself, that's another advantage for consumers to choose mortgage brokers.”
Thursday, September 30, 2010
First-Time Home Buyers' (FTHB) Tax Credit
The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time homebuyers who must pay these costs, as well as save money for a down payment. To assist first-time homebuyers with the costs associated with the purchase of a home, the Government of Canada introduced a FTHB Tax Credit in 2009 — a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief starting in 2009.
Friday, September 3, 2010
How to lower your property taxes
Save thousands by cutting your property tax bill.
Einstein’s general theory of relativity. Lady Gaga’s popularity. Your home’s assessed value. Some things just seem utterly incomprehensible. But solving the property tax assessment mystery is worthwhile: appealing an incorrect valuation could save you thousands of dollars.
Here’s how to do it:
Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.
Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.
Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.
Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.
Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.
What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners who submitted evidence of over-assessment last year got their valuations reduced.
Einstein’s general theory of relativity. Lady Gaga’s popularity. Your home’s assessed value. Some things just seem utterly incomprehensible. But solving the property tax assessment mystery is worthwhile: appealing an incorrect valuation could save you thousands of dollars.
Here’s how to do it:
Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.
Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.
Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.
Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.
Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.
What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners who submitted evidence of over-assessment last year got their valuations reduced.
Monday, August 23, 2010
10 Reasons to use a mortgage broker
What are the benefits of using a mortgage broker?
1. Advice on your financial options.
Mortgage brokers can make recommendations and draw from available mortgage products that match your needs and help you decide what is right for you.
2. Save time with one-stop shopping.
It can sometimes take weeks to organize appointments with competing mortgage lenders — homebuyers would rather spend their time house-hunting.
Brokers work directly with lenders and can quickly narrow down a list of options that suit you best.
3. Brokers negotiate on your behalf.
Most people are uncertain about negotiating mortgages directly with their bank. Brokers negotiate mortgages every day on behalf of buyers and have a wealth market knowledge to secure competitive rates.
4. More choice means more competitive rates. We have access to a network of major lenders in Canada, so your options are extensive.
5. Ensure that you’re getting the best rates and terms. Even if you’ve already been pre-approved for a mortgage by your bank or another financial institution, you’re not obliged to stop shopping!
6. Get access to special deals and add-ons.
We do the math on which offers might be worth your attention.
7. Things move quickly.
Our job isn’t done until your closing date goes smoothly. We’ll help ensure your transaction takes place on time and to your satisfaction.
8. Get expert advice. When it comes to mortgages, rates and the housing market, we are not limited. We will explain the various mortgage terms, conditions and rates so you can decide confidently.
9. No cost to you. There is (in most cases) no charge for our services.
10. Ongoing support and consultation.
1. Advice on your financial options.
Mortgage brokers can make recommendations and draw from available mortgage products that match your needs and help you decide what is right for you.
2. Save time with one-stop shopping.
It can sometimes take weeks to organize appointments with competing mortgage lenders — homebuyers would rather spend their time house-hunting.
Brokers work directly with lenders and can quickly narrow down a list of options that suit you best.
3. Brokers negotiate on your behalf.
Most people are uncertain about negotiating mortgages directly with their bank. Brokers negotiate mortgages every day on behalf of buyers and have a wealth market knowledge to secure competitive rates.
4. More choice means more competitive rates. We have access to a network of major lenders in Canada, so your options are extensive.
5. Ensure that you’re getting the best rates and terms. Even if you’ve already been pre-approved for a mortgage by your bank or another financial institution, you’re not obliged to stop shopping!
6. Get access to special deals and add-ons.
We do the math on which offers might be worth your attention.
7. Things move quickly.
Our job isn’t done until your closing date goes smoothly. We’ll help ensure your transaction takes place on time and to your satisfaction.
8. Get expert advice. When it comes to mortgages, rates and the housing market, we are not limited. We will explain the various mortgage terms, conditions and rates so you can decide confidently.
9. No cost to you. There is (in most cases) no charge for our services.
10. Ongoing support and consultation.
Subscribe to:
Posts (Atom)