Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.
After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa's disposal aimed at removing some of the speculative froth in the housing market.
Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt. (Fred Chartrand/Canadian Press)
"There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one," he said at a news conference in Ottawa. "If some lenders aren't willing to act themselves, we will act."
Broadly speaking, the plan unveiled has three components.
First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
"This will guard against higher rates in the future," Flaherty said.
Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.
And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.
The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.
"We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said.
Minimum down payment unchanged
There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home's value, or reduce the maximum amortization period from 35 years to 30 years.
Those measures were not part of Flaherty's announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.
The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, current policies at some large Canadian lenders are similar to the first peg of Flaherty's plan.
After Tuesday's announcement, the Bank of Montreal noted that it already requires its high-ratio borrowers to be able to qualify using the five-year rate. And all banks currently test all mortgage applicants on a three-year fixed-rate mortgage rule, Toronto-Dominion bank says.
People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday.People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday. (Nathan Denette/Canadian Press)
"While we do not believe that Canada faces a housing bubble, we fully support the minister's actions," Bank of Montreal said in a release. "Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent."
"This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage," Royal Bank chief economist Patricia Croft said in reaction to Flaherty's announcement.
Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.
"If you wanted to buy a house, wouldn't you now do it before April?" Croft asked. "It's even more evidence that house prices are going to cool down later this year."
For its part, the Canadian Association of Accredited Mortgage Professionals says it supports the amendments, calling them preventative measures against possible future risk.
Read more: http://www.cbc.ca/politics/story/2010/02/16/mortgage-flaherty.html#ixzz0fjTBVjlb
www.vancouvermortgagefinder.ca
Tuesday, February 16, 2010
Monday, February 8, 2010
CREA forecasts record home sales in 2010
The Canadian Real Estate Association now says 2010 will be a record year for home sales.
The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.
"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.
Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.
However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.
"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.
Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.
"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."
www.vancouvermortgagefinder.ca
The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.
"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.
Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.
However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.
"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.
Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.
"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."
www.vancouvermortgagefinder.ca
Monday, February 1, 2010
Consumer debt loads are the new concern
The optimism that consumers felt heading into this year was short-lived, and has been overcome by nagging concerns over their debt loads.
The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rates to buy homes and other big-ticket items.
But the tables are set to turn. Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise.
It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.
And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.
New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.
The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.
And, as they evaluate their household finances, the majority of Canadians are worried.
Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.
“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada.
“We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”
Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month.
Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.
“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.
To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.
With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.
But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”
The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.
“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.”
In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.
In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rates to buy homes and other big-ticket items.
But the tables are set to turn. Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise.
It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.
And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.
New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.
The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.
And, as they evaluate their household finances, the majority of Canadians are worried.
Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.
“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada.
“We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”
Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month.
Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.
“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.
To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.
With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.
But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”
The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.
“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.”
In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.
In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
Thursday, January 28, 2010
World Housing Report Pegs Vancouver As Least Affordable
http://www.demographia.com/dhi.pdf
http://ca.news.yahoo.com/s/capress/100125/national/affordable_housing
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
http://ca.news.yahoo.com/s/capress/100125/national/affordable_housing
Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca
Sunday, January 24, 2010
Don’t bite off more mortgage than you can chew
How much money do you really need to buy a house?
Based on the average sale price of $320,333 last year, the federal government says you must come up with about $16,000 before you can consider getting a mortgage to buy the rest of that home.
Current rules require mortgage insurance for anyone borrowing more than 80% of the value of their home from financial institutions covered by the Bank Act. Under the rules, consumers must have at least 5% down and cannot amortize their payments over a period of more than 35 years.
Those stipulations came after Ottawa’s supposed crackdown on the housing sector which had allowed zero down mortgages and 40-year amortizations.
Now, with the housing market red-hot again, there is talk about increasing the down payment requirement and shortening the amortization length back to 25 years. Jim Flaherty, the Finance Minister, has said he is keeping a close eye on the sector, which has been boosted by interest rates that have new mortgages being offered as low as 2.25%.
It shouldn’t come as any surprise that the real estate community is fighting against changes that would make it harder to buy a home. This month, the Canadian Association of Accredited Mortgage Professionals (CAAMP) produced a study it says shows an overwhelming percentage of Canadians are shielded from potential interest rate hikes because they opted for fixed-rate products.
But that study also showed a huge portion of those consumers would be in big trouble if they had to come up with a larger down payment. Will Dunning, chief economist for CAAMP, said 65% had down payments that were worth 10% or less of the value of the home being bought.
“Absolutely,” says Mr. Dunning, about whether a change would take some consumers out of the market. “The change in the 40-year amortization just worsened the downturn in the market. In a fragile housing market you don’t want to impose too many restraints.”
Ben Myers, executive vice-president of Urbanation Inc., which tracks Toronto’s condominium market, has little doubt about what would happen if consumers were forced to come up with more cash up front.
“A large percentage of the market is investors and first-time buyers and they are very sensitive to the down payment they need and the amortization because it affects their monthly payment,” says Mr. Myers.
From an industry standpoint, the status quo is easy to defend. The delinquency rate — defined as loans more than 90 days behind — is only 0.45% of the market. That’s well below the 0.70% high reached in the last recession.
Derek Holt, an economist with Bank of Nova Scotia, wonders whether the industry is borrowing customers from tomorrow to fuel today’s market.
“We are overheating at the expense of bringing forward future buyers. The risk here is you wind up a year or two down the round with a demand vacuum,” says Mr. Holt. “Sure, if you tighten the rules you cool demand, but you distribute demand more evenly.”
Basically, people would save a little longer or perhaps buy a little less house.
Taking a more conservative approach to buying is not the worst thing that can happen, says Julie Jaggernath, director of education at the Vancouver-based Credit Counselling Society. More than one person has walked into her agency with credit problems caused by taking on too much house.
“They might buy a home with a smallish down payment but then they furnish it on their credit card,” said Ms. Jaggernath. “It is not unusual to see people spending 60% of their net income on housing costs.”
She suggests looking at your current housing and then doing the math on what your housing costs would be for what you want to buy. “Set the difference aside for six months and see if you can make that budget,” says Ms. Jaggernath.
Her group is anticipating a larger client base when interest rates rise because many consumers are now biting off more mortgage than they can chew.
“Some people want to travel to Mexico three times a year but they can’t. Some people should never buy a home,” says Ms. Jaggernath.
It’s too bad we can’t go on vacation with 5% down and pay for it over the next 35 years. There would be a lot of Canadians lying on a Mexican beach right now.
Dusty wallet Watch those credit card statements closely. DW paid his Visa on time last month with an online transaction. The due date was Jan. 2, but the bank didn’t put it through until Jan. 5. Guess what? The three-day delay by Visa resulted in almost $60 in interest charges — since reversed by the financial institution in question.
www.vancouvermortgagefinder.ca
Based on the average sale price of $320,333 last year, the federal government says you must come up with about $16,000 before you can consider getting a mortgage to buy the rest of that home.
Current rules require mortgage insurance for anyone borrowing more than 80% of the value of their home from financial institutions covered by the Bank Act. Under the rules, consumers must have at least 5% down and cannot amortize their payments over a period of more than 35 years.
Those stipulations came after Ottawa’s supposed crackdown on the housing sector which had allowed zero down mortgages and 40-year amortizations.
Now, with the housing market red-hot again, there is talk about increasing the down payment requirement and shortening the amortization length back to 25 years. Jim Flaherty, the Finance Minister, has said he is keeping a close eye on the sector, which has been boosted by interest rates that have new mortgages being offered as low as 2.25%.
It shouldn’t come as any surprise that the real estate community is fighting against changes that would make it harder to buy a home. This month, the Canadian Association of Accredited Mortgage Professionals (CAAMP) produced a study it says shows an overwhelming percentage of Canadians are shielded from potential interest rate hikes because they opted for fixed-rate products.
But that study also showed a huge portion of those consumers would be in big trouble if they had to come up with a larger down payment. Will Dunning, chief economist for CAAMP, said 65% had down payments that were worth 10% or less of the value of the home being bought.
“Absolutely,” says Mr. Dunning, about whether a change would take some consumers out of the market. “The change in the 40-year amortization just worsened the downturn in the market. In a fragile housing market you don’t want to impose too many restraints.”
Ben Myers, executive vice-president of Urbanation Inc., which tracks Toronto’s condominium market, has little doubt about what would happen if consumers were forced to come up with more cash up front.
“A large percentage of the market is investors and first-time buyers and they are very sensitive to the down payment they need and the amortization because it affects their monthly payment,” says Mr. Myers.
From an industry standpoint, the status quo is easy to defend. The delinquency rate — defined as loans more than 90 days behind — is only 0.45% of the market. That’s well below the 0.70% high reached in the last recession.
Derek Holt, an economist with Bank of Nova Scotia, wonders whether the industry is borrowing customers from tomorrow to fuel today’s market.
“We are overheating at the expense of bringing forward future buyers. The risk here is you wind up a year or two down the round with a demand vacuum,” says Mr. Holt. “Sure, if you tighten the rules you cool demand, but you distribute demand more evenly.”
Basically, people would save a little longer or perhaps buy a little less house.
Taking a more conservative approach to buying is not the worst thing that can happen, says Julie Jaggernath, director of education at the Vancouver-based Credit Counselling Society. More than one person has walked into her agency with credit problems caused by taking on too much house.
“They might buy a home with a smallish down payment but then they furnish it on their credit card,” said Ms. Jaggernath. “It is not unusual to see people spending 60% of their net income on housing costs.”
She suggests looking at your current housing and then doing the math on what your housing costs would be for what you want to buy. “Set the difference aside for six months and see if you can make that budget,” says Ms. Jaggernath.
Her group is anticipating a larger client base when interest rates rise because many consumers are now biting off more mortgage than they can chew.
“Some people want to travel to Mexico three times a year but they can’t. Some people should never buy a home,” says Ms. Jaggernath.
It’s too bad we can’t go on vacation with 5% down and pay for it over the next 35 years. There would be a lot of Canadians lying on a Mexican beach right now.
Dusty wallet Watch those credit card statements closely. DW paid his Visa on time last month with an online transaction. The due date was Jan. 2, but the bank didn’t put it through until Jan. 5. Guess what? The three-day delay by Visa resulted in almost $60 in interest charges — since reversed by the financial institution in question.
www.vancouvermortgagefinder.ca
Debt threats
Credit-loving Canadians are finding themselves increasingly in hock. It's not a crisis yet, but warning signs are plentiful
MONTREAL – Guylaine Houle looks at a big screen television differently than many.
She's a bankruptcy trustee.
She's seen too many of those televisions - bought on credit - go from being hours of joy to months of anguish.
The owner had to have the latest thing, complete with all the bells and whistles, and jumped at one of those deals where you buy now and pay later - maybe 14 months down the road. But they didn't save toward paying off the set when the bill came due. So 14 months later "it's no longer a magical TV, it's a payment."
Houle and David Solomon, another local bankruptcy trustee, said misuse of credit, buying things on time when you really don't have the money to pay for them, is a key culprit behind the increasing number of miserable people showing up at their doors.
Emily Reid, a personal financial counsellor, wishes they would do away with the word credit. "Credit is a positive word for something that is really a liability," she explained. You are not getting credit, she said, you are renting somebody else's money, and it's going to cost you.
It is true Canadians are going steadily deeper in debt. Statistics Canada's debt-to-income ratio, which measures the average debt-load as a percentage of disposable income, has risen steadily in recent years to 145.01 per cent in the third quarter of 2009. That figure includes all debts, including mortgages.
It is also true that most Canadians are in better shape than their neighbours in the U.S., where the rate is 151.7 per cent, and, for the most part, Canadians are managing their debts.
Still, just before Christmas, Mark Carney, governor of the Bank of Canada, issued an alert. Though healthy now, the risks to household finances are increasing, he said. "Aggregate debt level has risen sharply relative to income."
Doug Porter, deputy chief economist with BMO Capital Markets, agreed with Carney's alert.
"I don't think debt is a huge problem yet, but it's definitely on the cusp of becoming an issue, especially given the fact that interest rates are almost certainly going to go up, if not over the next year, then certainly the next two years."
Carney was cautioning "against overdoing it in the middle of what is obviously a very strong housing market," Porter said.
For a home buyer, rate increases mean hefty payment boosts. For example, if rates go to 4.5 per cent from 3.5 per cent, the National Bank says monthly payments on a $150,000 mortgage will rise $82, from $748 to $830, assuming a five-year term and a 25-year amortization.
The lion's share of the debt in Statistics Canada's debt-to-income ratio is in mortgages, Porter said, and over the past year mortgage and credit card debt have risen about seven per cent, while disposable income has risen 1.6 per cent.
With the rise in house prices and the prospect of higher interest rates increasing the cost of carrying those houses "I think we're stretching the envelope of affordability," Porter said. He suggests people planning to buy now consider avoiding the uncertainty of variable mortgage rates and look to a five-year term.
And they also shouldn't count on their house escalating in price in the near term.
He expects prices to moderate toward the middle of the year, particularly as an increase in new home building puts more properties on the market.
It would appear Canadians are being careful. A study released this month by the Canadian Association of Accredited Mortgage Professionals showed that the vast majority of the 40,000 mortgages it surveyed were fixed-rate mortgages with terms of three years or more.
While the majority are coping, there is evidence that the economic downturn has sent a minority over the edge in larger numbers.
Figures released Thursday show that for the 12 months ended Nov. 30, 2009, personal insolvencies rose 34.1 per cent in Canada compared with the same 12-month period in 2008. In Quebec, they rose 23.7 per cent.
In human terms, that means 112,535 people nationwide and 33,498 people in Quebec, found themselves in deep trouble.
An insolvency can be one of two things - a bankruptcy, where the person cannot pay their debts; or a proposal, where the person works out a deal to pay off their creditors, often not paying the full amount, or taking longer to do so, or a combination of the two.
Across Canada, bankruptcies were up by 32.4 per cent during that 12-month period, while proposals were up 40.2 per cent. In Quebec, bankruptcies were up 23.3 per cent and proposals rose 25.6 per cent.
There was a very significant jump in September, because the government made bankruptcy rules tougher on people, Solomon said, so folks rushed to get in before the changes came into effect. And it's not surprising to see the numbers climb during periods of rising unemployment, he added.
"A lot of young people are going bankrupt as a result of not finding work in their field after they graduated from school. Some have student loans and the banks are harassing them," he said.
"They have no income or little income and are using their credit cards to cover their cost of living, hoping to get a position some day that will enable them to pay."
They end up with half a dozen credit cards and run up to the limits.
Solomon said every person who walks through his door is a different story. Occasionally he encounters people who can not carry their home because they have lost their jobs. But mostly he sees people who are spending more money than they have.
Houle agreed that unemployment is often the trigger behind a bankruptcy; so is divorce. But the person might have been heading toward the brink for sometime, she said.
It's a societal thing, she said.
"People want to be rewarded now, and the credit society has allowed us to do that," she said, even though many can't afford those rewards.
Reid agreed. The under-40s have grown up in a world where everybody uses credit cards, she said, and people have come to think that because they are working, they buy what everybody else buys.
But they are acting like employees, not managers, she said. A manager has a plan. He knows how much money he has and what he can afford.
Houle said that if she had her way, the education system would introduce consumer courses at an early age.
A budget is so important, she said, but 75 per cent of the people who come before her have never done one. Those that did were following an example set by their parents. So getting in the habit will not only help you, but your offspring as well.
People also have to understand what terms like compound interest mean and how it can push your debt load higher, she said. Compound interest is the interest that is charged on interest. If you do not pay your bill in full one month, the next month you will be charged interest on the unpaid principal plus the accumulated interest.
Reid said understanding interest is key. Clients often tell her they have been making the minimum payment on their credit card bills, she said, but they don't realize that at that rate, paying off those debts will take years. After you subtract the interest, very little of that minimum payment went on the principal, she said.
Reid said the best advice she can give is: "If you find yourself in a hole, stop digging." Then spend only on what is absolutely necessary, and don't rent other people's money to do it.
- - -
Debt-to-income ratio in Canada
Canadians are going deeper into the red. Their debts exceed their disposable income.
3rd Quarter
2004 120.49 %
2005 125.35 %
2006 128.52 %
2007 133.73 %
2008 138.55 %
2009 * 145.01 %
* Last quarter for which 2009 figures are available
Source: Statistics Canada
smcgovern@thegazette.canwest.com
MONTREAL – Guylaine Houle looks at a big screen television differently than many.
She's a bankruptcy trustee.
She's seen too many of those televisions - bought on credit - go from being hours of joy to months of anguish.
The owner had to have the latest thing, complete with all the bells and whistles, and jumped at one of those deals where you buy now and pay later - maybe 14 months down the road. But they didn't save toward paying off the set when the bill came due. So 14 months later "it's no longer a magical TV, it's a payment."
Houle and David Solomon, another local bankruptcy trustee, said misuse of credit, buying things on time when you really don't have the money to pay for them, is a key culprit behind the increasing number of miserable people showing up at their doors.
Emily Reid, a personal financial counsellor, wishes they would do away with the word credit. "Credit is a positive word for something that is really a liability," she explained. You are not getting credit, she said, you are renting somebody else's money, and it's going to cost you.
It is true Canadians are going steadily deeper in debt. Statistics Canada's debt-to-income ratio, which measures the average debt-load as a percentage of disposable income, has risen steadily in recent years to 145.01 per cent in the third quarter of 2009. That figure includes all debts, including mortgages.
It is also true that most Canadians are in better shape than their neighbours in the U.S., where the rate is 151.7 per cent, and, for the most part, Canadians are managing their debts.
Still, just before Christmas, Mark Carney, governor of the Bank of Canada, issued an alert. Though healthy now, the risks to household finances are increasing, he said. "Aggregate debt level has risen sharply relative to income."
Doug Porter, deputy chief economist with BMO Capital Markets, agreed with Carney's alert.
"I don't think debt is a huge problem yet, but it's definitely on the cusp of becoming an issue, especially given the fact that interest rates are almost certainly going to go up, if not over the next year, then certainly the next two years."
Carney was cautioning "against overdoing it in the middle of what is obviously a very strong housing market," Porter said.
For a home buyer, rate increases mean hefty payment boosts. For example, if rates go to 4.5 per cent from 3.5 per cent, the National Bank says monthly payments on a $150,000 mortgage will rise $82, from $748 to $830, assuming a five-year term and a 25-year amortization.
The lion's share of the debt in Statistics Canada's debt-to-income ratio is in mortgages, Porter said, and over the past year mortgage and credit card debt have risen about seven per cent, while disposable income has risen 1.6 per cent.
With the rise in house prices and the prospect of higher interest rates increasing the cost of carrying those houses "I think we're stretching the envelope of affordability," Porter said. He suggests people planning to buy now consider avoiding the uncertainty of variable mortgage rates and look to a five-year term.
And they also shouldn't count on their house escalating in price in the near term.
He expects prices to moderate toward the middle of the year, particularly as an increase in new home building puts more properties on the market.
It would appear Canadians are being careful. A study released this month by the Canadian Association of Accredited Mortgage Professionals showed that the vast majority of the 40,000 mortgages it surveyed were fixed-rate mortgages with terms of three years or more.
While the majority are coping, there is evidence that the economic downturn has sent a minority over the edge in larger numbers.
Figures released Thursday show that for the 12 months ended Nov. 30, 2009, personal insolvencies rose 34.1 per cent in Canada compared with the same 12-month period in 2008. In Quebec, they rose 23.7 per cent.
In human terms, that means 112,535 people nationwide and 33,498 people in Quebec, found themselves in deep trouble.
An insolvency can be one of two things - a bankruptcy, where the person cannot pay their debts; or a proposal, where the person works out a deal to pay off their creditors, often not paying the full amount, or taking longer to do so, or a combination of the two.
Across Canada, bankruptcies were up by 32.4 per cent during that 12-month period, while proposals were up 40.2 per cent. In Quebec, bankruptcies were up 23.3 per cent and proposals rose 25.6 per cent.
There was a very significant jump in September, because the government made bankruptcy rules tougher on people, Solomon said, so folks rushed to get in before the changes came into effect. And it's not surprising to see the numbers climb during periods of rising unemployment, he added.
"A lot of young people are going bankrupt as a result of not finding work in their field after they graduated from school. Some have student loans and the banks are harassing them," he said.
"They have no income or little income and are using their credit cards to cover their cost of living, hoping to get a position some day that will enable them to pay."
They end up with half a dozen credit cards and run up to the limits.
Solomon said every person who walks through his door is a different story. Occasionally he encounters people who can not carry their home because they have lost their jobs. But mostly he sees people who are spending more money than they have.
Houle agreed that unemployment is often the trigger behind a bankruptcy; so is divorce. But the person might have been heading toward the brink for sometime, she said.
It's a societal thing, she said.
"People want to be rewarded now, and the credit society has allowed us to do that," she said, even though many can't afford those rewards.
Reid agreed. The under-40s have grown up in a world where everybody uses credit cards, she said, and people have come to think that because they are working, they buy what everybody else buys.
But they are acting like employees, not managers, she said. A manager has a plan. He knows how much money he has and what he can afford.
Houle said that if she had her way, the education system would introduce consumer courses at an early age.
A budget is so important, she said, but 75 per cent of the people who come before her have never done one. Those that did were following an example set by their parents. So getting in the habit will not only help you, but your offspring as well.
People also have to understand what terms like compound interest mean and how it can push your debt load higher, she said. Compound interest is the interest that is charged on interest. If you do not pay your bill in full one month, the next month you will be charged interest on the unpaid principal plus the accumulated interest.
Reid said understanding interest is key. Clients often tell her they have been making the minimum payment on their credit card bills, she said, but they don't realize that at that rate, paying off those debts will take years. After you subtract the interest, very little of that minimum payment went on the principal, she said.
Reid said the best advice she can give is: "If you find yourself in a hole, stop digging." Then spend only on what is absolutely necessary, and don't rent other people's money to do it.
- - -
Debt-to-income ratio in Canada
Canadians are going deeper into the red. Their debts exceed their disposable income.
3rd Quarter
2004 120.49 %
2005 125.35 %
2006 128.52 %
2007 133.73 %
2008 138.55 %
2009 * 145.01 %
* Last quarter for which 2009 figures are available
Source: Statistics Canada
smcgovern@thegazette.canwest.com
Tuesday, January 12, 2010
Slow start, strong finish for housing market in 2009
VANCOUVER – After beginning the year at near record low sales levels, buyers’ confidence in the Greater Vancouver housing market quickly returned, allowing for significant and sustained increases in the number of residential property sales for much of 2009.
The Real Estate Board of Greater Vancouver (REBGV) reports that total unit sales of detached, attached and apartment properties in 2009 reached 35,669, a 44.8 per cent increase from the 24,626 unit sales recorded in 2008, but a 6.3 per cent decline from the 38,050 residential sales in 2007.
The number of homes listed for sale on the Multiple Listing Service® (MLS®) in Greater Vancouver declined 15.5 per cent in 2009 to 52,869 compared to the 62,561 properties listed in 2008.
“Low interest rates, an economy emerging from recession and continuing to improve, and consumer confidence led to the resurgence experienced in the Greater Vancouver housing market in 2009,” Scott Russell, REBGV president said. “Home sales neared or passed monthly records in Greater Vancouver throughout the latter half of 2009. In fact, last month’s home sales rank as the third highest selling December in the 90-year history of our organization.”
Residential property sales in Greater Vancouver totalled 2,515 in December 2009, an increase of 172.2 per cent from the 924 sales recorded in December 2008, and an 18.4 per cent decline compared to November 2009 when 3,083 home sales occurred.
The residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 16.2 per cent to $562,463 between Decembers 2008 and 2009.
New listings for detached, attached and apartment properties in Greater Vancouver totalled 2,153 in December 2009. This represents a 38.9 per cent increase compared to the 1,550 new units listed in December 2008 and a 41.1 per cent decline compared to November 2009 when 3,653 properties were listed.
“The number of homes listed for sale on our MLS® has been in decline in Greater Vancouver for eight of the last nine months, which results in upward pressure on home prices and less selection for buyers to choose from,” Russell said.
Total active listings in Greater Vancouver currently sit at 8,939, a decrease of 41 per cent from December 2008, and a decrease of 19 per cent from November 2009.
Sales of detached properties in December 2009 increased 159.2 per cent to 902, compared to 348 sales in December 2008. The benchmark price for detached properties increased 18.3 per cent to $766,816 compared to December 2008.
Sales of apartment properties in December 2009 increased 176.7 per cent to 1,154, compared to 417 sales in December 2008. The benchmark price of an apartment property increased 14.8 per cent since December 2008 to $382,573.
Attached property sales in December 2009 increased 188.7 per cent to 459, compared with the 159 sales in December 2008. The benchmark price of an attached unit increased 12.9 per cent between Decembers 2008 and 2009 to $478,093.
The Real Estate Board of Greater Vancouver (REBGV) reports that total unit sales of detached, attached and apartment properties in 2009 reached 35,669, a 44.8 per cent increase from the 24,626 unit sales recorded in 2008, but a 6.3 per cent decline from the 38,050 residential sales in 2007.
The number of homes listed for sale on the Multiple Listing Service® (MLS®) in Greater Vancouver declined 15.5 per cent in 2009 to 52,869 compared to the 62,561 properties listed in 2008.
“Low interest rates, an economy emerging from recession and continuing to improve, and consumer confidence led to the resurgence experienced in the Greater Vancouver housing market in 2009,” Scott Russell, REBGV president said. “Home sales neared or passed monthly records in Greater Vancouver throughout the latter half of 2009. In fact, last month’s home sales rank as the third highest selling December in the 90-year history of our organization.”
Residential property sales in Greater Vancouver totalled 2,515 in December 2009, an increase of 172.2 per cent from the 924 sales recorded in December 2008, and an 18.4 per cent decline compared to November 2009 when 3,083 home sales occurred.
The residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 16.2 per cent to $562,463 between Decembers 2008 and 2009.
New listings for detached, attached and apartment properties in Greater Vancouver totalled 2,153 in December 2009. This represents a 38.9 per cent increase compared to the 1,550 new units listed in December 2008 and a 41.1 per cent decline compared to November 2009 when 3,653 properties were listed.
“The number of homes listed for sale on our MLS® has been in decline in Greater Vancouver for eight of the last nine months, which results in upward pressure on home prices and less selection for buyers to choose from,” Russell said.
Total active listings in Greater Vancouver currently sit at 8,939, a decrease of 41 per cent from December 2008, and a decrease of 19 per cent from November 2009.
Sales of detached properties in December 2009 increased 159.2 per cent to 902, compared to 348 sales in December 2008. The benchmark price for detached properties increased 18.3 per cent to $766,816 compared to December 2008.
Sales of apartment properties in December 2009 increased 176.7 per cent to 1,154, compared to 417 sales in December 2008. The benchmark price of an apartment property increased 14.8 per cent since December 2008 to $382,573.
Attached property sales in December 2009 increased 188.7 per cent to 459, compared with the 159 sales in December 2008. The benchmark price of an attached unit increased 12.9 per cent between Decembers 2008 and 2009 to $478,093.
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