15 May

Flaherty dismisses fears over Canada’s housing market

General

Posted by: Tony Passalacqua

Finance Minister Jim Flaherty is dismissing fears about Canada’s housing market, saying the current slowdown is welcome news and that there is no need for further government intervention.

While some observers are expressing fears that a steep correction is underway that will bring down housing values and possibly affect bank credit ratings, Flaherty said Tuesday that he believes government mortgage tightening last July actually helped avert what could have turned into a housing bubble.

“I’m comfortable about where we are,” he said in a telephone interview from France where he announced new government financing for the construction of a visitor’s centre at the Vimy Ridge war memorial.

“I’m pleased in particular that the condo market in big cities has fallen back. I’m also pleased with some other moderation in new house construction and in demand for mortgages. I think these are healthy developments because I think we were beginning to see some indications of the beginning of a bubble.”

He called the recent slowdown “healthy” and at least in part a consequence of his decision to tighten mortgage rules last July.

A new Teranet house price report released Tuesday showed home price increases slipped to two per cent in April from 2.6 per cent in March. Analysts noted that was the weakest performance since the recession for April, traditionally a good month for sales and prices.

While home sales have fallen nationally, and starts are now in the 180,000 a year range, well down from over 200,000 last year, home prices have stubbornly resisted that trend in most markets.

However, analysts note that prices are often the last indicator to kick in when a residential market falls, and some have speculated that prices could plunge by as much as 25 per cent, even further in the overheated Vancouver market.

The Office of Superintendent of Financial Institutions has told banks it is looking at their holdings of non-insured mortgages — those with at least 20 per cent equity — to determine the systemic risk should values plunge.

But Flaherty said he has no plans to further tighten government-backed mortgages for homebuyers with as little as a five per cent down payment. After tightening rules four times in the past four years, Flaherty said he has done enough.

“I’m not going to intervene in the mortgage market, I don’t need to,” he said.

23 Nov

Canada’s tame inflation cuts chances of rate hike soon

General

Posted by: Tony Passalacqua

OTTAWA — Tame inflation, combined with weak economic growth in this country and continuing global uncertainty, will likely keep interest rates at rock-bottom levels for some time to come.

Canada’s rate of inflation remained steady again in October, although slightly stronger than expected, with higher food and transportation prices offsetting a slower rise in energy costs.

Consumer prices rose 1.2% last month from the same time a year earlier, Statistics Canada said Friday. Core inflation — stripping out volatile items such as some food and energy products — was up 1.3% on an annual basis in October.

Both readings matched September’s price rises, but were less tame than economists had forecast. The consensus had been for overall inflation of 1.1% in October and a core increase of 1.2%.

That compares to an overall price rise of 1.2% in September and a core inflation pace of 1.3%.

The central bank’s monetary policy focuses on guiding inflation to a target of 2%, the midway point of its target range between 1% and 3%.

Overall inflation has not reached 2% since April. The highest level this year was 2.6% in February.

Bank governor Mark Carney and his policy team have left their trendsetting interest rate — the main monetary tool —at a near-record low 1% since September 2010. Most economists do not expect that rate to begin rising until at least mid-2013.

“Inflation continues to be a non-issue for the Canadian economy. Economic growth has slowed considerably this year, with data for the third quarter likely to decelerate from the first half of the year. This has translated into the slowing trend pace of inflation we have seen this year,” said Francis Fong, at TD Economics.

Friday’s report “is unlikely to give any impetus for the Bank of Canada to materially change its current lower-for-longer stance on monetary policy, which we expect to persist over the medium term.”

Robert Kavcic, an economist at BMO Capital Markets, said “a strong loonie and heightened retail competition have [also] worked to keep a firm lid on Canadian prices, leaving the Bank of Canada little to worry about on this front.”

In its Friday report, Statistics Canada said energy prices rose 1.7% in October from a year earlier, led lower by weaker gains for electricity and gasoline. That compares to a 2.9% annual increases in the previous month.

Electricity costs rose 1.7% last month, compared to an advance of 6% in September. “This smaller increase in the electricity index was the result of price declines recorded in Alberta,” the federal agency said. Prices in that province tend to be swing widely in line with market fluctuations.

Gas prices were up 4% year-over-year, down from a pace of 4.7% in September. Natural gas prices rose 11.6% in October from a year earlier, down from the 14.1% increase seen in the previous month.

Meanwhile, the increase in food prices accelerated in October, rising 2% from an annual pace of 1.6% in September. Gains last month were led by higher prices for meat and food purchased at restaurants.

Transportation costs were up 1.7% last month.

18 Jul

Five reasons why falling house prices aren’t so bad

General

Posted by: Tony Passalacqua

Five reasons why falling house prices aren’t so bad

ROB CARRICK

The Globe and Mail

Published Wednesday, Jul. 11 2012, 7:35 PM EDT

Last updated Thursday, Jul. 12 2012, 12:35 PM EDT

Before we start getting all torqued about a falling housing market, let’s remember a few things.

Early indications in June of a slowing market in some cities do not necessarily presage a U.S.-style plunge in housing prices. Forecasters have talked about declines of 10 to 15 per cent being possible, or just a period of drifting sideways. Without a surge in unemployment, it’s hard to see a real crash.

Also, there are some good reasons why a decline in houses prices won’t be so bad. Let’s take a look at five of them:

1. First-time buyers get a break

First-time buyers have it rough. As of this week, the maximum amortization for people with less than a 20-per-cent down payment has fallen to 25 years from 35. Net result: Mortgages are harder to carry for new buyers.

And then there are high prices. Even with historically low interest rates, homes are expensive enough in many places that young adults are either priced out of the market or buying houses they can’t really afford to carry with all their other financial obligations (such as retirement saving and putting money away for their kids’ education). Some young buyers are also heading to the distant suburbs, where homes are cheaper but the commute leaves them juggling two car payments.

Lower prices put more young people in houses they can afford. This gives us a stock of homeowners who can move up years from now to buy houses being sold by downsizing baby boomers. Remember, first-time buyers account for up to half the housing market.

2. Established home owners can still book good gains

Don’t torture yourself by measuring your house price gains from purchase to the high-water-mark price, which in some cities may have been already been reached. This happens with stocks all the time – people buy for $10 and the stock goes to $15 before settling back to $12. Result: The investor agonizes over an imagined loss of $3.

The national average resale house price 10 years ago was $205,333 and the most recent tally was $375,605. That’s an annualized increase of 6.2 per cent. If house prices fall 10 per cent to $338,044, then that drags the 10-year gain down to 5.1 per cent. You’re still doing well here when you consider that the average inflation rate for the past 10 years has been 2.1 per cent.

If you only bought your home in the past few years, why do you care what housing prices do? Sensible buyers plan to stay in a home at least seven to 10 years before moving – otherwise, they blow too much equity on moving costs.

3. Maybe the foreign buyers will go away

Let’s not overstate the impact of condo and home buying by wealthy investors outside Canada, because definitive statistics are lacking. But there’s no doubt that in cities such as Vancouver and Toronto, money from offshore has helped bid up prices. A classic example is the drab three-bedroom bungalow in Toronto’s Willowdale neighbourhood that in March went for $1.2-million – $421,800 over the asking price. CBC reported that the buyer was a university student whose parents live in China. We welcome foreign investment here in Canada, but in the case of the housing market that money has fed a pre-existing over-exuberance. It’s healthy for the market if that $1.2-million bungalow falls in price and makes other investors pause.

4. The return of rationality

Too many people are in the housing market today because they fear that if they don’t buy now, rising prices will keep them out of the market forever. And so they push themselves to do things that aren’t sensible or comfortable, like upping their offer to win a bidding war or borrowing close to the limit of what the bank will offer.

An overheated housing market produces an auction mentality, where people almost think they’re in a competition to buy homes. Falling house prices take the adrenalin out of housing decisions. Buyers have a chance to reflect, and that means more rational buying.

5. Show time for patient real estate investors

Anyone remember what could easily be the No. 1 tip in successful investing? It’s buy low. The smart money doesn’t follow the herd into an asset class that is soaring in price – it waits however long is necessary to buy at cut-rate prices.

If you’re looking to buy an income property, show time begins when people are worried about the real estate market.

3 May

CMHC could be pulled out of mortgage insurance business, Flaherty says

General

Posted by: Tony Passalacqua

CMHC could be pulled out of mortgage insurance business, Flaherty says

Garry Marr  Apr 27, 2012 – 6:33 PM ET | Last Updated: Apr 27, 2012 7:33 PM ET

Finance Minister Jim Flaherty would consider taking Canada Mortgage Housing Corp. out of the mortgage default insurance business he told the National Post’s editorial board.

 

‘I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada’

“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance inCanada. I think what’s key is that mortgage insurance is available at a reasonable cost inCanada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

He offered no timetable on when the government could get out of mortgage default insurance business, just offering it up as a possibility. “We have a list of Crowns, Crown agencies that are being reviewed,” said Mr. Flaherty.

In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.

“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing inCanada. It’s become much more that.”

30 Mar

Mortgage rules will not change, for now…….

General

Posted by: Tony Passalacqua

Flaherty budget answers mortgage broker pleas

 

PHEW! Brokers are breathing a sigh of relief after the Finance Minister rejected calls to tinker with mortgage insurance rules, offering a budget that leaves the maximum amortization cap at 30 years and the minimum down payment at 5 per cent.

While moving to cut 19,200 bureaucratic jobs over the next three years with an eye to slashing $5 billion from the federal budget, Jim Flaherty left the current regime of mortgage rules in place.

The reprieve, at least for now, was anticipated by mortgage industry leaders from one end of the country to the next, and comes on the heels of broker lobbying efforts, spearheaded by CAAMP.

CEO Jim Murphy was in Ottawa for Wednesday`s budget focused on eradicating deficits by as early as 2015. He argued that the government listened to broker concerns about the importance of letting rule changes introduced over the last two years take effect, outside of the current extraordinary period of low interest rates.

“CAAMP’s overall message of not instituting changes that cause a housing downfall or that adversely affect job creation are being well received,” said Murphy. “In terms of mortgage insurance rule changes, given his announcement last week, I believe the Minister will continue to monitor … this does not prevent the government from acting in the future if they feel tightening is required.”

With the budget announcement, Flaherty effectively rejected a chorus of banker calls for a 25-year amortization cap, down from the 30 years the government now allows. Some economists also wanted the government to increase down payment requires to a minimum 7- or 10-per cent.

Both suggestions were billed as a way of cutting record levels of household debt and slow down the consumer rush to buy homes.

Exactly a week prior to Thursday’s communiqué, Flaherty used a media scrum to suggest he would resist calls for stricter rules.

“I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business,” Jim Flaherty told reporters just outside Ottawa Thursday. “They decide what they want to charge in interest rates.

“The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed.”

Still, Murphy is anticipating the minister will eventually introduce some new rules to clamp down on mortgage growth.

“I’m expecting there to be legislation on covered bonds,” he told MortgageBrokerNews.ca. “This is a relatively new funding source in Canada and the question will be whether these products can be insured.

13 Oct

Flaherty rules out mortgage rule tightening

General

Posted by: Tony Passalacqua

Finance Minister Jim Flaherty dismissed speculation about a Canadian housing bubble, telling reporters in New York on Wednesday that he sees no need to tighten the country’s mortgage rules further.

“We have seen in the past year some softening in the Canadian housing market, in part due to the tightening of the insured mortgage market rules that we did earlier this year … That’s an appropriate result from that tightening,” Flaherty said during a news conference. “It will take clear evidence of a bubble in the housing market in Canada, which we have not seen.”

Flaherty made those comments despite Royal LePage’s finding in its quarterly housing survey released on Wednesday that the average detached home price in Vancouver in the third quarter rose 17% on a year-over-year basis to more than $1 million. That’s three times the national average.

The soaring prices in Vancouver have largely been influenced by a flood of foreign money being invested into wealthy neighbourhoods like Richmond, Phil Soper, president and CEO of Royal LePage, said.

Asian investors, who are surrounded by some of the most inflated real estate markets in the world – especially in Hong Kong and Australia – typically see Vancouver’s prices as a bargain.

Soper said he believes the Vancouver market will likely soften next year because of slowing domestic demand, but the steady flow of foreign money into the city will likely reduce the amount of overall moderation.

“Vancouver is being influenced at the margin by foreign investment. I believe that that is a sustainable scenario,” he told CRE Online.

Foreign investors tend to purchase homes in Vancouver with cash. That means they are in no way influenced by the Bank of Canada’s interest rate policy. “So that investment will cushion the downside to the Vancouver market because most of those foreign buyers are purchasing with cash,” he said.

 

13 Oct

Latest on the Canadian economy

General

Posted by: Tony Passalacqua

Article by Benjamin Tal, Deputy Chief Economist, CIBC World Markets 

Accidents can happen to any economy. Temporary troubles in energy and autos hit exports hard during the second quarter, which was enough to push Canada’s Gross Domestic Product (the size of our economy with inflation factored in) into a decline—even though demand was healthy at home. This made the quarter look worse than it really was, and a rebound is therefore likely in the third quarter. Indeed, June’s monthly data showed a decent 0.2% gain as a signpost of an upward trend. Aside from January’s strong growth, Canada’s GDP has been essentially flat for five months. Flat economies don’t inevitably signal a recession—both Canada and the US have gone through many

The Bank of Canada is no longer as worried about inflation

Until the global economy is on a more solid track, the Bank of Canada is being very patient in raising rates. It hinted at rate hikes for July and September, neither of which materialized. Now the Bank is no longer as worried that low interest rates will trigger inflation, and therefore the need to withdraw monetary stimulus has diminished.

13 Sep

Economic update

General

Posted by: Tony Passalacqua

The past several days have seen the release of more poor economic data as well as negative developments in the ongoing European debt saga.

Canada’s employment report for August (released Friday) was disappointing – a rise in the unemployment rate and a net decline in the number of jobs was worse than the market had expected. Additionally, poor jobless claims numbers out of the US on Thursday and a disappointing “jobs plan” from President Obama did little to stem concerns around the direction of the economy.

Further, there has been considerable drama unfolding in Europe as Greece has reportedly failed to fully implement austerity measures prescribed as part of its bailout and grandstanding reaches a fever pitch. European Central Bank Chief Economist Jurgen Stark resigned on Friday for “personal reasons” (widely believed to reflect his objection to the central bank buying government bonds – Europe’s quantitative easing), and politicians have openly begun to discuss a Greek default.

Despite having not yet fully implemented the agreed upon austerity measures, the Greek economy has contracted more than what had been projected by EU / IMF economists for the economy once the “all-in” level of cuts were to have been achieved. Markets are quickly realizing that austerity makes for good politics but only serves to exacerbate an already dire economic situation and is unlikely to restore sustainability.

Generally speaking, a poor economic outlook tends to drive bond yields lower as money moves out of equities and into fixed income. The ultimate impact on mortgage rates however, is also dependant on credit spreads, which tend to widen during such periods.

3 Aug

Yields Crash, Lower Fixed Mortgage Rates Coming

General

Posted by: Tony Passalacqua

19 Jul

Bank of Canada maintains overnight rate target at 1 per cent

General

Posted by: Tony Passalacqua

Ottawa

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic expansion is proceeding broadly as projected in the Bank’s April Monetary Policy Report (MPR), with modest growth in major advanced economies and robust expansions in emerging economies.  The U.S. economy has grown at a slower pace than expected and continues to be restrained by the consolidation of household balance sheets and slow growth in employment. While growth in core Europe has been stronger than expected, necessary fiscal austerity measures in a number of countries will restrain growth over the projection horizon. The Japanese economy has begun to recover from the disasters that struck in March, although the level of economic activity in that country will remain below previous expectations.  In contrast, growth in emerging-market economies, particularly China, remains very strong. As a consequence, commodity prices are expected to remain at elevated levels, following recent declines. These high prices, combined with persistent excess demand in major emerging-market economies, are contributing to broader global inflationary pressures.  Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.

In Canada, the economic expansion is proceeding largely as projected, although the expected rotation of demand is somewhat slower than had been anticipated. Household spending remains solid and business investment robust. Net exports remain weak, reflecting modest U.S. demand and ongoing competitiveness challenges, particularly the persistent strength of the Canadian dollar. Despite increased global risk aversion, financial conditions in Canada remain very stimulative and private credit growth is strong.

Following an anticipated slowdown in growth during the second quarter due to temporary supply chain disruptions and the impact of higher energy prices on consumption, the Bank expects growth in Canada to re-accelerate in the second half of 2011. Over the projection horizon, business investment is expected to remain strong, household spending to grow more in line with disposable income, and net exports to become more supportive of growth. Relative to the April projection, growth in household spending is now projected to be slightly firmer, reflecting higher household income, and net exports to be slightly weaker, reflecting more subdued U.S. activity. Overall, the Bank projects the economy will expand by 2.8 per cent in 2011, 2.6 per cent in 2012, and 2.1 per cent in 2013, returning to capacity in the middle of 2012.

Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon.  Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.