Hello,
This is an article that was released today from the financial post.
Tune into The Mortgage Show on 1410am Saturdays at 1pm to hear how this will help you
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Lenders to lower mortgage rates
ALLAN ROBINSON
November 27, 2008
Some of Canada's largest financial institutions said yesterday that they will lower their residential mortgage rates today across a broad range of maturities.
The reductions on one- to five-year fixed-rate mortgages ranged from one-quarter of a percentage point to a full percentage point and varied with the financial institution.
Those lowering rates included Royal Bank of Canada, Bank of Montreal, Desjardins Group, Bank of Nova Scotia, Toronto-Dominion Bank and Laurentian Bank of Canada.
The posted rate of a three-year closed mortgage at Royal Bank, for example, was lowered one-quarter of a percentage point to 6.45 per cent.
The reduced rates could reflect the decision by the Canadian government to buy $25-billion in mortgages from the domestic banks and consideration is being given to increasing that amount, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.
More intense competition among mortgage lenders is probably a second factor, he said.
"One thing we have learned in the past year and a half is not to celebrate too early that the credit squeeze is coming to an end, but lower mortgage rates are an encouraging sign," Mr. Porter said.
"Hopefully this brings some consumer confidence back into the market,". The reduction in rates also reflects the unusually wide spread of 3.07 percentage points between the five-year discounted mortgage rates and five-year government bonds, he said. The yield on the five-year Canadian government bond yesterday was 2.47 per cent.
Thursday, November 27, 2008
Wednesday, November 26, 2008
Price Declines oversated, says TD economist
Price declines in Canada’s housing market have been overstated as a result of a steep drop in sales in the country’s most expensive neighbourhoods, says a new report from TD Economics. Statistics reported by CREA in October showed Canadian average home prices had fallen 10.9% compared to last year, but TD economists Pascal Gauthier and Grant Bishop say the figures are misleading due to recent, significant sales fluctuations. Using a 'stock-weighted' analysis of the housing market that controlled for price fluctuations, the economists found that home prices were down only 4.6% compared to the previous year. – CEP News
Monday, November 24, 2008
Housing, The Market, And YOU
Good Morning,
Here’s something I think might be of value to you. It’s an article from the Globe where they interview Adrienne Warren, Senior Economist at Scotia and then she takes reader questions. Some good questions about “when should I buy?”, “renting vs. buying?”, “suburb or city core?”, “when should I list my home?”
Tune into The Mortgage Show Saturdays at 1pm on 1410am, and please introduce me to someone you care about over a phone call 604-802-3983 or email acalla@dominionlending.ca for the best mortgage options.
Housing, the market and you
Globe and Mail Update
November 24, 2008 at 1:21 PM EST
How much is your house or condo worth?
Property values have become a topic of consuming interest over the past couple of years, first as house prices soared and, more recently, as they have started moving in the other direction.
The question for Canadians is how closely the experience here will mirror that in the United States, where an orgy of high-risk mortgage lending earlier in the decade has led to an unprecedented collapse in house prices that is the root cause of the financial and economic crisis that has spread from south of the border around the world.
Some commentators have suggested Canada could be on the brink of the same sort of tidal wave of mortgage defaults and foreclosures now sweeping through the United States.
But Adrienne Warren is not among them.
Ms. Warren is a senior economist and manager at Bank of Nova Scotia in Toronto, which she joined in 1993 after graduating with a PhD in economics from York University.
Since 2004, she has been the editor of the bank's "Real Estate Trends" report, which focuses on the economic and financial market conditions shaping the North American residential and non-residential construction outlook. She is also the editor of the widely circulated "Weekly Trends," a round-up of economic, industry and financial developments from around the world.
Last Thursday, in the latest edition of Real Estate Trends, Ms. Warren argued that while Canadian house prices are down significantly, there is little or no danger that our real estate market will be crushed like its U.S. counterpart.
“This is not a U.S.-style bust caused by overbuilding, speculative buying and imprudent lending, but rather a cyclical slowdown accompanied by a valuation adjustment in several large centres where booming demand conditions and temporary supply constraints led to an overshooting in prices,” she said.
Ms. Warren is primed to take your questions on real estate and the prognosis Monday at noon, or get a jump on the queue by submitting your question here.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Sonali Verma: Welcome to the discussion.
We have a lot of questions, so let's get right to it.
Zafar Abbas from Mississauga Canada writes: I have the same opinion that Canadian slide will not be like US. My question to Ms. Warren is how long the downwards trend will continue in the housing market, what areas will be affected most and what will the percentage decline. TI would apprecaite your response. Thank you.
Adrienne Warren:We think there are further downside risks to home prices in Canada, but the risks stem primarily from reduced affordability (typical at this point in any housing cycle) and a weakening economy, as opposed to the mortgage market problems and overbuilding that are behind the US housing correction.
As a result, the decline in prices will likely not be as deep as in the US. As the moment, we're forecasting national home prices to drop on average around 5% next year, with declines of about 10% in BC, Alberta, Saskatchewan and Ontario and relatively flat prices in the remaining provinces. This is based on the assumption of only a very mild recession in Canada, which could turn out to be overly optimistic.
Housing cycles are generally quite long, both on the upswing and downswing. My guess is that we're looking at a number of years of relatively flat home prices in Canada, which would gradually lift affordability and bring new buyers back into the market.
John Galt from Vancouver Canada writes: Two questions:
1. At what point (Measurement) would the rate of foreclosure in Canada ring an alarm?
2. Do you think the US plan to aid homeowners in foreclosure (or in its proximity), and those with impaired values - fix the economy, or perpetuate the status quo?Thank you.
Adrienne Warren:The share of Canadian mortgages that are currently at least 90 days in arrears is still less than 0.3% of all outstanding mortgages. This is historically a very low level. I'm not sure if there is a hard and fast rule of what level would cause alarm bells, but for comparison purposes, the rate of arrears was about double this level in the 1991-1992 recession, and even then we didn't see widespread foreclosures. Keep in mind, any significant increase in foreclosures in Canada would likely be related to job losses and a weaker economy, and not affordability issues related to mortgage resets, etc as in the US. I'm keeping a closer eye on the job market here in Canada, which will likely lead any significant rise in foreclosures.
Propping up an overheated, overbuilt and overleveraged US housing market through various homeowner aid instruments will likely prolong the inevitable correction in the US housing market. As with various bailout packages being considered, however, the cost for the economy as a whole of doing nothing could be even greater. My personal preference would be to see some targeted initiatives with appropriate incentives and repayments build in.
Josephine Ochej from Toronto Canada writes: Given the current downturn and time of year, what are your thoughts on listing a house now vs waiting until Spring, when things may or may not have improved, but perhaps more buyers will be looking? Thank you.
Adrienne Warren:The latest sales figures from the Canadian Real Estate Association were indeed startling, as Canadian buyers moved to the sidelines en masse in October. This created a huge supply imbalance, and put further downward pressure on prices as sellers outnumbered buyers. I think buyers are understandably spooked by concerns over the economy and jobs, and plunging stock market values. I also expect many will wait out the market until the spring, for general economic and financial market conditions to (hopefully) stabilize. Unlike in the U.S., the majority of sellers in Canada are not in a situation where they are forced to sell, and may wish to wait for consumer confidence to return.
Former 2 Time CIBC Staffer from North Vancouver Canada writes: Does Ms. Warren buy into David Wolf (from ML) and Doug Porter (from BMO NB) that Canadian real estate prices are tracking US trends, but with a two year lag? If this is the case, isn't the magnitude of the price decline the same, but just a different time frame?
Adrienne Warren:I believe we are tracking US house price trends to some extent, as both countries have enjoyed a long housing boom which has inevitably come to an end. We can see this in the case of numerous other developed country housing markets, including the U.K., Ireland, Australia and Spain.
But simply looking at price trends does not get to the factors behind the softening in prices. In Canada, typical cyclical developments, mainly reduced affordability, increased supply and a slowing economy, are driving the softening in the housing market. South of the border, a massive oversupply of housing caused by widespread overbuilding and record foreclosures related to mortgage lending and products that don't exist in Canada, was (and still is) the biggest factor driving down home prices. We don't see either factor as a major risk to the Canadian market. Prices are moving down, but for somewhat different reasons and likely not as far.
Rob Allen from montreal Canada writes: I am looking to go from renting to buying...should I wait another 6 months or longer, or are lower prices factored in at this point with all the news on the economy and housing?
#2-variable or fixed rate mortgage?
Adrienne Warren:We're in a period of unprecedented financial market volatility and economic uncertainty, when forecasting home prices (or any economic or financial market variable for that matter) is a mug's game. It's a solid buyers' market in most parts of the country right now, with lots of choice and few bidding wars, and likely some deals to be had. But the risk is that prices could move lower still.
In any case, I don't see housing prices moving sharply higher again for some time. With the economy and inflation slowing, there is a good chance both variable and fixed rate mortgage costs will move lower over the next six months.
Paul Carey from Canada writes: Looking at residential real estate in the Greater Toronto Area. Do you see the suburb (outside the city core) prices adjusting differently compared to city prices?
Adrienne Warren:Prices have fallen more sharply in the city of Toronto over the past year than in the suburbs. However, much of this discrepancy appears to be related to the January 1, 2008 imposition of a new Land Transfer Tax, which led to a surge in sales and prices in the city late last year as buyers moved to avoid the new tax, and inflated prices above normal. Longer-term, demographic trends, especially immigration, are positive for price trends in both the city and the suburbs, with the latter remaining a more affordable option.
JOHN WELSMAN from Thamesville Canada writes: Ms. Warren....Do you think recreational property is more or less vulnerable to the current downturn than the general housing market? Thanks for your comments.
Adrienne Warren:Recreational property is generally more vulnerable during a downturn than primary homes, given that they are a luxury or discretionary purchase.
J. Kenneth Yurchuk from Canada writes:Good day Ms. Warren, and thanks for taking our questions. I am a home owner in an older neighbourhood of East End Toronto. (Realtors call it 'Upper Beaches' but in reality it's just South of the Danforth.) I purchased in the mid-nineties towards the end of the last period of depressed housing market in Toronto, and feel I got a pretty good deal.
My question is in regards to demographics, and changing trends. There appears to be a growing trend of people moving back into the city core from suburbia. Is this borne out by your observations, and what do you feel are the underlying causes. (Certainly 2 hour commutes on traffic jammed roads is one!) What effect do you feel this will have on housing demand in neighbourhoods like mine? And finally, is this a Toronto phenomena, or more widely spread across the country?
Adrienne Warren:There has been a general trend across the country of people moving back to city cores, which in many cases have been revitalized with more employment and shopping options, and a booming condo market. While I would expect this trend to continue, affordability issues mean that the suburbs will also remain a viable and popular housing option.
Imants Gaikis from Toronto Canada writes: I read that in the US a mortgagee can walk away and take a hit on their credit rating, but they are not forced to declare bankruptcy. Somewhere I heard that in Canada the mortgage is the personal responsibility of the mortgagee and that bancruptcy must be declared if the mortgage cannot be paid. Is my understanding of the Canadian situation true? Is this true in all provinces?
Adrienne Warren:There are important differences in bankruptcy laws between Canada and the US, as well as some differences between provinces. I can get back to you on the details.
Ger A from Oshawa Canada writes: Hello, I have three questions:
1. Which areas will be hit harder, downtown cores or outlying areas, for decline.
2. If the property is a rental property, do you think that will do better?
3. Do you think the condo market will take the worst of the downturn due to the sheer number of condos in Toronto?
Adrienne Warren:In general, there is probably a bit more downside price risk to the condo market, given that it appears a bit more oversupplied/overbuilt. I would also guess that downtown cores could have a bit more near-term downside risk given that they have generally seen the biggest price increases in recent years. Generalizations are hard to make, however, as housing markets are very localized. Talking to a few real estate agents in your market(s) of interest is probably the best bet on local trends.
D Chris from Calgary Canada writes: Ms. Warren: Economic forecasting and modeling is certainly an art, and not a science. In such volatile times, I would say this means that there is that much more uncertainty or margin of error in these exercises. With that in mind, and recognizing that your own expectations are not for dramatic real estate price declines in Canada, can you comment on what would have to happen in order for your expectations to turn out quite wrong -- that is, which sensitivities in your analysis could lead to quite dramatic real estate price declines? (Or put another way, what do you see as the major downside-risks?) Thank you.
Adrienne Warren:I completely agree that forecasting is an art, and incorporates a lot of subjective assumptions. There is a wider degree of uncertainty around our forecasts than usual right now, and the risks lie more on the downside than upside. In my view, the biggest risk for the housing market in Canada right now is a more substantial slowing in the economy and significant rise in unemployment.
Rebecca leung from Canada writes: When would be a good time for a first-time buyer to enter the market?
Adrienne Warren:It's a buyer's market right now, meaning more choice and less competition, but there is inherent price risk. My suggestion for potential first-time buyers is to speak to a mortgage advisor or broker with respect to your own financial situation. And of course, do plenty of research in the housing market you're interested in.
Rod Smelser from Maple Ridge, B.C. Canada writes: To what degree does it make any real sense to speak of the Canadian housing market, as opposed to several regional and metropolitan markets? Is there any economically meaningful way of separating investment and consumption demands in the housing market? Do rent to price ratios in that market have the same significance as earnings to price ratios do for liquid assets, and would an analysis of rent to price ratios indicate that any of the major metropolitan markets in Canada are out of equilibrium?
Adrienne Warren:I agree. For example, while news headlines widely reported on the 10% year-over-year decline in national average prices in Canada for October, average prices were actually only below year-ago levels in BC, Alberta and Ontario. Local differences are even wider. For a buyer and/or investor, local conditions are key, and maybe all that matters. From a macroeconomic perspective, however, aggregate figures can give us some insight into broader risks for the market and economy.
Wherearewe Going from Toronto Canada writes: When do you anticipate housing prices will stop dropping (when is the low point) and how long after that do you anticipate housing prices will remain flat? Could you speak to the US and the Canadian differences in timing. Thanks.
Adrienne Warren:I could see home prices in both Canada and the U.S. dropping a further 5% or so next year, though the magnitude of the peak to trough price correction would remain significantly larger in the US. Beyond that, price developments really depend on the economic outlook further out. I wish I had a crystal ball. Saying that, housing cycles are long on both the upswing and downswing, and I would expect home prices to remain relatively flat for a number of years until affordability is returned to the market.
sam slick from Canada writes: Out here in the west, if each government (provincial, municipal or transit levy) raises their taxes, does this impact the ability of the household to maintain their payments? If the economy gets worse and deflation is in the horizon, does this cause more stress to the household?
Adrienne Warren:On their own, higher taxes would generally reduce disposable income, and could reduce the ability of a household to maintain their payments. In the current environment of slowing economic growth, however, I think significant tax increases are unlikely. A weakening economy and the prospect of deflation does cause more stress to households, as it leads to weaker job gains and slowing wage growth.
M T from Toronto Canada writes: Has your price forecast for Canada ... and specifically the Toronto and Vancouver markets ... considered the impact of how the large number of unbuilt Condo units held by 'speculators' ; investors impact prices going forward ?
Adrienne Warren:The rising stock of unbuilt condo units poses a risk to prices in Toronto and Vancouver, particularly given the current severe stains in credit market globally, and the fact that much of the investment into this segment comes from overseas investors. However, because we're not close enough to the ground to consider all local variables, I couldn't make a city specific price forecast with any degree of confidence.
Sonali Verma: Thank you very much for all your time. We really appreciate your participating in this discussion.
Here’s something I think might be of value to you. It’s an article from the Globe where they interview Adrienne Warren, Senior Economist at Scotia and then she takes reader questions. Some good questions about “when should I buy?”, “renting vs. buying?”, “suburb or city core?”, “when should I list my home?”
Tune into The Mortgage Show Saturdays at 1pm on 1410am, and please introduce me to someone you care about over a phone call 604-802-3983 or email acalla@dominionlending.ca for the best mortgage options.
Housing, the market and you
Globe and Mail Update
November 24, 2008 at 1:21 PM EST
How much is your house or condo worth?
Property values have become a topic of consuming interest over the past couple of years, first as house prices soared and, more recently, as they have started moving in the other direction.
The question for Canadians is how closely the experience here will mirror that in the United States, where an orgy of high-risk mortgage lending earlier in the decade has led to an unprecedented collapse in house prices that is the root cause of the financial and economic crisis that has spread from south of the border around the world.
Some commentators have suggested Canada could be on the brink of the same sort of tidal wave of mortgage defaults and foreclosures now sweeping through the United States.
But Adrienne Warren is not among them.
Ms. Warren is a senior economist and manager at Bank of Nova Scotia in Toronto, which she joined in 1993 after graduating with a PhD in economics from York University.
Since 2004, she has been the editor of the bank's "Real Estate Trends" report, which focuses on the economic and financial market conditions shaping the North American residential and non-residential construction outlook. She is also the editor of the widely circulated "Weekly Trends," a round-up of economic, industry and financial developments from around the world.
Last Thursday, in the latest edition of Real Estate Trends, Ms. Warren argued that while Canadian house prices are down significantly, there is little or no danger that our real estate market will be crushed like its U.S. counterpart.
“This is not a U.S.-style bust caused by overbuilding, speculative buying and imprudent lending, but rather a cyclical slowdown accompanied by a valuation adjustment in several large centres where booming demand conditions and temporary supply constraints led to an overshooting in prices,” she said.
Ms. Warren is primed to take your questions on real estate and the prognosis Monday at noon, or get a jump on the queue by submitting your question here.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Sonali Verma: Welcome to the discussion.
We have a lot of questions, so let's get right to it.
Zafar Abbas from Mississauga Canada writes: I have the same opinion that Canadian slide will not be like US. My question to Ms. Warren is how long the downwards trend will continue in the housing market, what areas will be affected most and what will the percentage decline. TI would apprecaite your response. Thank you.
Adrienne Warren:We think there are further downside risks to home prices in Canada, but the risks stem primarily from reduced affordability (typical at this point in any housing cycle) and a weakening economy, as opposed to the mortgage market problems and overbuilding that are behind the US housing correction.
As a result, the decline in prices will likely not be as deep as in the US. As the moment, we're forecasting national home prices to drop on average around 5% next year, with declines of about 10% in BC, Alberta, Saskatchewan and Ontario and relatively flat prices in the remaining provinces. This is based on the assumption of only a very mild recession in Canada, which could turn out to be overly optimistic.
Housing cycles are generally quite long, both on the upswing and downswing. My guess is that we're looking at a number of years of relatively flat home prices in Canada, which would gradually lift affordability and bring new buyers back into the market.
John Galt from Vancouver Canada writes: Two questions:
1. At what point (Measurement) would the rate of foreclosure in Canada ring an alarm?
2. Do you think the US plan to aid homeowners in foreclosure (or in its proximity), and those with impaired values - fix the economy, or perpetuate the status quo?Thank you.
Adrienne Warren:The share of Canadian mortgages that are currently at least 90 days in arrears is still less than 0.3% of all outstanding mortgages. This is historically a very low level. I'm not sure if there is a hard and fast rule of what level would cause alarm bells, but for comparison purposes, the rate of arrears was about double this level in the 1991-1992 recession, and even then we didn't see widespread foreclosures. Keep in mind, any significant increase in foreclosures in Canada would likely be related to job losses and a weaker economy, and not affordability issues related to mortgage resets, etc as in the US. I'm keeping a closer eye on the job market here in Canada, which will likely lead any significant rise in foreclosures.
Propping up an overheated, overbuilt and overleveraged US housing market through various homeowner aid instruments will likely prolong the inevitable correction in the US housing market. As with various bailout packages being considered, however, the cost for the economy as a whole of doing nothing could be even greater. My personal preference would be to see some targeted initiatives with appropriate incentives and repayments build in.
Josephine Ochej from Toronto Canada writes: Given the current downturn and time of year, what are your thoughts on listing a house now vs waiting until Spring, when things may or may not have improved, but perhaps more buyers will be looking? Thank you.
Adrienne Warren:The latest sales figures from the Canadian Real Estate Association were indeed startling, as Canadian buyers moved to the sidelines en masse in October. This created a huge supply imbalance, and put further downward pressure on prices as sellers outnumbered buyers. I think buyers are understandably spooked by concerns over the economy and jobs, and plunging stock market values. I also expect many will wait out the market until the spring, for general economic and financial market conditions to (hopefully) stabilize. Unlike in the U.S., the majority of sellers in Canada are not in a situation where they are forced to sell, and may wish to wait for consumer confidence to return.
Former 2 Time CIBC Staffer from North Vancouver Canada writes: Does Ms. Warren buy into David Wolf (from ML) and Doug Porter (from BMO NB) that Canadian real estate prices are tracking US trends, but with a two year lag? If this is the case, isn't the magnitude of the price decline the same, but just a different time frame?
Adrienne Warren:I believe we are tracking US house price trends to some extent, as both countries have enjoyed a long housing boom which has inevitably come to an end. We can see this in the case of numerous other developed country housing markets, including the U.K., Ireland, Australia and Spain.
But simply looking at price trends does not get to the factors behind the softening in prices. In Canada, typical cyclical developments, mainly reduced affordability, increased supply and a slowing economy, are driving the softening in the housing market. South of the border, a massive oversupply of housing caused by widespread overbuilding and record foreclosures related to mortgage lending and products that don't exist in Canada, was (and still is) the biggest factor driving down home prices. We don't see either factor as a major risk to the Canadian market. Prices are moving down, but for somewhat different reasons and likely not as far.
Rob Allen from montreal Canada writes: I am looking to go from renting to buying...should I wait another 6 months or longer, or are lower prices factored in at this point with all the news on the economy and housing?
#2-variable or fixed rate mortgage?
Adrienne Warren:We're in a period of unprecedented financial market volatility and economic uncertainty, when forecasting home prices (or any economic or financial market variable for that matter) is a mug's game. It's a solid buyers' market in most parts of the country right now, with lots of choice and few bidding wars, and likely some deals to be had. But the risk is that prices could move lower still.
In any case, I don't see housing prices moving sharply higher again for some time. With the economy and inflation slowing, there is a good chance both variable and fixed rate mortgage costs will move lower over the next six months.
Paul Carey from Canada writes: Looking at residential real estate in the Greater Toronto Area. Do you see the suburb (outside the city core) prices adjusting differently compared to city prices?
Adrienne Warren:Prices have fallen more sharply in the city of Toronto over the past year than in the suburbs. However, much of this discrepancy appears to be related to the January 1, 2008 imposition of a new Land Transfer Tax, which led to a surge in sales and prices in the city late last year as buyers moved to avoid the new tax, and inflated prices above normal. Longer-term, demographic trends, especially immigration, are positive for price trends in both the city and the suburbs, with the latter remaining a more affordable option.
JOHN WELSMAN from Thamesville Canada writes: Ms. Warren....Do you think recreational property is more or less vulnerable to the current downturn than the general housing market? Thanks for your comments.
Adrienne Warren:Recreational property is generally more vulnerable during a downturn than primary homes, given that they are a luxury or discretionary purchase.
J. Kenneth Yurchuk from Canada writes:Good day Ms. Warren, and thanks for taking our questions. I am a home owner in an older neighbourhood of East End Toronto. (Realtors call it 'Upper Beaches' but in reality it's just South of the Danforth.) I purchased in the mid-nineties towards the end of the last period of depressed housing market in Toronto, and feel I got a pretty good deal.
My question is in regards to demographics, and changing trends. There appears to be a growing trend of people moving back into the city core from suburbia. Is this borne out by your observations, and what do you feel are the underlying causes. (Certainly 2 hour commutes on traffic jammed roads is one!) What effect do you feel this will have on housing demand in neighbourhoods like mine? And finally, is this a Toronto phenomena, or more widely spread across the country?
Adrienne Warren:There has been a general trend across the country of people moving back to city cores, which in many cases have been revitalized with more employment and shopping options, and a booming condo market. While I would expect this trend to continue, affordability issues mean that the suburbs will also remain a viable and popular housing option.
Imants Gaikis from Toronto Canada writes: I read that in the US a mortgagee can walk away and take a hit on their credit rating, but they are not forced to declare bankruptcy. Somewhere I heard that in Canada the mortgage is the personal responsibility of the mortgagee and that bancruptcy must be declared if the mortgage cannot be paid. Is my understanding of the Canadian situation true? Is this true in all provinces?
Adrienne Warren:There are important differences in bankruptcy laws between Canada and the US, as well as some differences between provinces. I can get back to you on the details.
Ger A from Oshawa Canada writes: Hello, I have three questions:
1. Which areas will be hit harder, downtown cores or outlying areas, for decline.
2. If the property is a rental property, do you think that will do better?
3. Do you think the condo market will take the worst of the downturn due to the sheer number of condos in Toronto?
Adrienne Warren:In general, there is probably a bit more downside price risk to the condo market, given that it appears a bit more oversupplied/overbuilt. I would also guess that downtown cores could have a bit more near-term downside risk given that they have generally seen the biggest price increases in recent years. Generalizations are hard to make, however, as housing markets are very localized. Talking to a few real estate agents in your market(s) of interest is probably the best bet on local trends.
D Chris from Calgary Canada writes: Ms. Warren: Economic forecasting and modeling is certainly an art, and not a science. In such volatile times, I would say this means that there is that much more uncertainty or margin of error in these exercises. With that in mind, and recognizing that your own expectations are not for dramatic real estate price declines in Canada, can you comment on what would have to happen in order for your expectations to turn out quite wrong -- that is, which sensitivities in your analysis could lead to quite dramatic real estate price declines? (Or put another way, what do you see as the major downside-risks?) Thank you.
Adrienne Warren:I completely agree that forecasting is an art, and incorporates a lot of subjective assumptions. There is a wider degree of uncertainty around our forecasts than usual right now, and the risks lie more on the downside than upside. In my view, the biggest risk for the housing market in Canada right now is a more substantial slowing in the economy and significant rise in unemployment.
Rebecca leung from Canada writes: When would be a good time for a first-time buyer to enter the market?
Adrienne Warren:It's a buyer's market right now, meaning more choice and less competition, but there is inherent price risk. My suggestion for potential first-time buyers is to speak to a mortgage advisor or broker with respect to your own financial situation. And of course, do plenty of research in the housing market you're interested in.
Rod Smelser from Maple Ridge, B.C. Canada writes: To what degree does it make any real sense to speak of the Canadian housing market, as opposed to several regional and metropolitan markets? Is there any economically meaningful way of separating investment and consumption demands in the housing market? Do rent to price ratios in that market have the same significance as earnings to price ratios do for liquid assets, and would an analysis of rent to price ratios indicate that any of the major metropolitan markets in Canada are out of equilibrium?
Adrienne Warren:I agree. For example, while news headlines widely reported on the 10% year-over-year decline in national average prices in Canada for October, average prices were actually only below year-ago levels in BC, Alberta and Ontario. Local differences are even wider. For a buyer and/or investor, local conditions are key, and maybe all that matters. From a macroeconomic perspective, however, aggregate figures can give us some insight into broader risks for the market and economy.
Wherearewe Going from Toronto Canada writes: When do you anticipate housing prices will stop dropping (when is the low point) and how long after that do you anticipate housing prices will remain flat? Could you speak to the US and the Canadian differences in timing. Thanks.
Adrienne Warren:I could see home prices in both Canada and the U.S. dropping a further 5% or so next year, though the magnitude of the peak to trough price correction would remain significantly larger in the US. Beyond that, price developments really depend on the economic outlook further out. I wish I had a crystal ball. Saying that, housing cycles are long on both the upswing and downswing, and I would expect home prices to remain relatively flat for a number of years until affordability is returned to the market.
sam slick from Canada writes: Out here in the west, if each government (provincial, municipal or transit levy) raises their taxes, does this impact the ability of the household to maintain their payments? If the economy gets worse and deflation is in the horizon, does this cause more stress to the household?
Adrienne Warren:On their own, higher taxes would generally reduce disposable income, and could reduce the ability of a household to maintain their payments. In the current environment of slowing economic growth, however, I think significant tax increases are unlikely. A weakening economy and the prospect of deflation does cause more stress to households, as it leads to weaker job gains and slowing wage growth.
M T from Toronto Canada writes: Has your price forecast for Canada ... and specifically the Toronto and Vancouver markets ... considered the impact of how the large number of unbuilt Condo units held by 'speculators' ; investors impact prices going forward ?
Adrienne Warren:The rising stock of unbuilt condo units poses a risk to prices in Toronto and Vancouver, particularly given the current severe stains in credit market globally, and the fact that much of the investment into this segment comes from overseas investors. However, because we're not close enough to the ground to consider all local variables, I couldn't make a city specific price forecast with any degree of confidence.
Sonali Verma: Thank you very much for all your time. We really appreciate your participating in this discussion.
Understanding How Mortgage Rates are Set and The History of Whom lent Mortgages
Take an interest in bonds to understand mortgage rates
Fred Langan, Financial Post Published: Saturday, November 22, 2008
Mortgages are the biggest loan in just about everyone's life. And they can be the hardest to understand.
Why do mortgage rates move the way they do? Why don't the rates march in lock step with other interest rates?
When the Bank of Canada lowers interest rates the big banks usually play chicken for several hours waiting to see who will drop rates first. At the last cut, the TD Bank was the first to lower prime. The others followed within the hour.
If you had a variable rate mortgage tied to prime, then your mortgage rate moved lower. But all other mortgage rates stayed put.
Why? One pat answer is mortgage rates don't move with prime because mortgages are financed in the bond market.
Not true. Interest rates in the bond market influence mortgage rates, but that isn't where the money for mortgages comes from.
Banks get their mortgage money the same way they get other money: they take in deposits from bank accounts, GICs, etc., and then loan out the money at a higher rate. The difference, or the spread, is how commercial banks make most of their money.
The banks then put thousands of those mortgages together and repackage them as "mortgage-backed securities." These are sold to other institutions as a unit.
Since Canadian first mortgages are typically backed by housing assets, mortgage-backed securities here are seen as pretty safe investments, though the subprime variety were a disaster in the United States.
Here's where bonds come in: The bond market is made up of traders sitting at terminals in the world's financial capitals. The market is much bigger than the stock market and in many ways more important since it affects day-today interest rates.
When then banks want to set mortgage rates, they look at the yield, or interest rate, the bond is paying.
"Say the interest rate yield on a five-year government of Canada bond is 3%. The banks then have to set a rate high enough to cover all their costs of origination, selling and servicing the mortgage. They still have to be competitive with other lenders, so they set the five-year mortgage rate at 7%, but then discount on a person-by-person basis to around 5.5%" says Brendan Calder, now an adjunct professor at the Rotman School of Management at the University of Toronto. Before his academic career he was president of CIBC mortgages and before that, one of the people who set up the mortgage-backed securities business in the 1980s.
"So, if you want to know where mortgage rates are heading, watch the yields on government of Canada bonds," says Mr. Calder. "That's what mortgage brokers do."
Canadians have borrowed a total of $879-billion against their houses, according to the Bank of Canada.
"That includes residential mortgages and lines of credit secured against housing," says Jeremy Harrison, a spokesman for the Bank of Canada in Ottawa.
Just about half the mortgages, or $487-billion, are held by the chartered banks. The next biggest lenders are credit unions, which have $110-billion in mortgages outstanding. But the big banks set the trend.
Banks didn't always dominate the mortgage business. Until changes to the Bank Act in 1967, banks were not allowed to lend mortgages. Back then, trust companies dominated the business.
"The market dominance of the banks in the mortgage business has continued to grow," says Mr. Calder.
-Fred Langan is host of CBC News Business.
Fred Langan, Financial Post Published: Saturday, November 22, 2008
Mortgages are the biggest loan in just about everyone's life. And they can be the hardest to understand.
Why do mortgage rates move the way they do? Why don't the rates march in lock step with other interest rates?
When the Bank of Canada lowers interest rates the big banks usually play chicken for several hours waiting to see who will drop rates first. At the last cut, the TD Bank was the first to lower prime. The others followed within the hour.
If you had a variable rate mortgage tied to prime, then your mortgage rate moved lower. But all other mortgage rates stayed put.
Why? One pat answer is mortgage rates don't move with prime because mortgages are financed in the bond market.
Not true. Interest rates in the bond market influence mortgage rates, but that isn't where the money for mortgages comes from.
Banks get their mortgage money the same way they get other money: they take in deposits from bank accounts, GICs, etc., and then loan out the money at a higher rate. The difference, or the spread, is how commercial banks make most of their money.
The banks then put thousands of those mortgages together and repackage them as "mortgage-backed securities." These are sold to other institutions as a unit.
Since Canadian first mortgages are typically backed by housing assets, mortgage-backed securities here are seen as pretty safe investments, though the subprime variety were a disaster in the United States.
Here's where bonds come in: The bond market is made up of traders sitting at terminals in the world's financial capitals. The market is much bigger than the stock market and in many ways more important since it affects day-today interest rates.
When then banks want to set mortgage rates, they look at the yield, or interest rate, the bond is paying.
"Say the interest rate yield on a five-year government of Canada bond is 3%. The banks then have to set a rate high enough to cover all their costs of origination, selling and servicing the mortgage. They still have to be competitive with other lenders, so they set the five-year mortgage rate at 7%, but then discount on a person-by-person basis to around 5.5%" says Brendan Calder, now an adjunct professor at the Rotman School of Management at the University of Toronto. Before his academic career he was president of CIBC mortgages and before that, one of the people who set up the mortgage-backed securities business in the 1980s.
"So, if you want to know where mortgage rates are heading, watch the yields on government of Canada bonds," says Mr. Calder. "That's what mortgage brokers do."
Canadians have borrowed a total of $879-billion against their houses, according to the Bank of Canada.
"That includes residential mortgages and lines of credit secured against housing," says Jeremy Harrison, a spokesman for the Bank of Canada in Ottawa.
Just about half the mortgages, or $487-billion, are held by the chartered banks. The next biggest lenders are credit unions, which have $110-billion in mortgages outstanding. But the big banks set the trend.
Banks didn't always dominate the mortgage business. Until changes to the Bank Act in 1967, banks were not allowed to lend mortgages. Back then, trust companies dominated the business.
"The market dominance of the banks in the mortgage business has continued to grow," says Mr. Calder.
-Fred Langan is host of CBC News Business.
Wednesday, November 19, 2008
Canadians in the mood to Mortgage
Good Afternoon, This article gave some good statistics consistent with what we are seeing in our office, with 60% of people agree that this is a good time to buy, and people are confident our lending practices have put Canada much better position then our south of the boarder neighbours. Also our default ration has remained consistent showing that lending in Canada has always been about affordability for the borrower.
If you feel someone you care about can benefit from the best mortgage option or additional information, please introduce us via an e-mail acalla@dominionlending.ca or phone call at 604-802-3983
Don't forget to tune into The Mortgage Show Saturdays at 1pm on 1410am
Canadians are still in a mood to mortgage.
Nearly four in 10 still think that now is a good time to buy a house, even though the proportion who expect home prices to fall has soared and the proportion expecting higher housing prices has plunged, according to survey results published yesterday.
"Residential mortgage consumers remain remarkably positive as they weather the financial storm," the Canadian Association of Accredited Mortgage Professionals said in releasing the results of a mid-October survey.
Attitudes toward area conditions have shifted only slightly, with 38 per cent of Canadians believing now is a good time to purchase a house, compared to 32 per cent who believe it is a bad time.
The online survey polled 2,000 Canadians.
Meanwhile, only 0.28 per cent of mortgages are in arrears and an overwhelming 84 per cent of homeowners are satisfied with their mortgages.
But the proportion expecting home prices to fall has more than doubled from last fall to 35 per cent, while the proportion expecting prices to go up has dropped by half to 20 per cent.
"Westerners, who have endured particularly hot housing markets, are the most negative," it said, noting that's especially the case in British Columbia, where 48 per cent expect prices to fall.
Borrowers expect changes in their housing markets, yet remain confident in a stable Canadian mortgage system, said Jim Murphy, association president, noting that it anticipated mortgage growth would slow, but remain relatively strong.
The survey was conducted during a month in which home sales plunged 14 per cent to a six-year low, with prices tumbling 10 per cent from a year earlier.
Despite the sharp fall in home sales and prices, the association said the Canadian housing market has avoided the price and sales meltdown in the U.S. housing market and the Canadian mortgage market is supported by low and steady interest rates, better underwriting processes, different products and normal resale activity.
"Canada is a financially conservative country where consumers are able to meet the terms of their mortgages and buying decisions are based on affordability," said association chief economist Will Dunning. "This contributes to a solid real estate market that will not experience the same drop off we see south of the border."
The survey results were released as reports out of the U.S. continued to suggest the housing market there has not yet hit bottom with an already deeply depressed index of home-building activity hitting a record low in November, rather than stabilizing as had been expected.
Meanwhile, in Canada homeowners continued to tap the equity in their homes, with about one in five borrowers this year taking out an average $41,000 out, up 20 per cent from last year. Fifty-six per cent of those surveyed said they used the money for debt consolidation and repayment, and 30 per cent for repairs and renovation.
New home buyers, meanwhile, also took advantage of alternative mortgages, with a 13-per-cent increase to 50 per cent in the proportion of new mortgages last year that were for amortizations longer than 25 years.
© The Ottawa Citizen 2008
Friday, November 14, 2008
Crisis Tips from Canada
Good Morning,
Please enjoy this article courtesy of the globe and mail, if you have someone that you care about that is looking for the best mortgage advise, please introduce us over an email or phonecall and we are happy to help.
Don't forget to tune into The Mortgage Show Saturdays at 1pm on 1410am The Buzz
Flaherty offers crisis tips from ‘boring' Canada
Globe and Mail-Report on Business-Canadian Press
WINNIPEG — This is a guest column by Finance Minister Jim Flaherty in Thursday's Financial Times, posted on the Department of Finance's web site and titled ‘Boring' Canada's financial tips for the world:
The financial crisis that began 14 months ago in the U.S. has intensified and spread around the world, threatening to roll back economic progress that has been made over the past two decades. Governments have been responding in a co-ordinated fashion and will continue this work in the lead-up to the summit of the Group of 20 leading economies.
Few countries are as dependent on trade or as integrated into the global financial system as Canada. Yet our financial sector continues to weather the turbulence better than many other countries. This did not happen by chance. Canadians by nature are prudent and our financial system has been characterized as unexciting. Canada's regulatory regime ensures that stability and efficiency are balanced. As a result, Canadian taxpayers have not had their money put at risk in response to this crisis. If Canada's financial system is boring, perhaps the world needs to be more like Canada.
Before we examine grand designs for global regulatory regimes, we need to recognize that good regulation begins at home. Effective national regulatory regimes could have prevented this crisis and must be our first line of defence against any future one. We all need to draw lessons from those systems that worked well and apply them to our national regulatory regimes.
First, we need to regulate all pools of capital that rely on leverage. The crisis has demonstrated the devastating impact that unregulated entities can have. Transparency requirements must be the price of admission to global markets. Different financial services may have different regulatory requirements, but we need to bring them all under a regulatory umbrella.
Second, capital and liquidity buffers need to be large enough to handle big shocks. Moreover, regulators must restrain overall use of leverage. Some have criticised high Canadian capital requirements for banks as being too conservative. But the strong balance sheets of Canada's banks through this period speak for themselves.
Third, it is not enough for regulation to look at individual institutions. It needs to look at the system as a whole. Risks that may appear sensible in isolation can be unsustainable from a systemic perspective. This systemic vantage point must be used to mitigate any tendency to underestimate risk when times are good. This requires co-ordination across the government, central bank and regulatory agencies.
Fourth, we need to make market infrastructure more transparent and resilient. Non-transparent over-the-counter trades and naked short-selling reduced the stability of the system.
This crisis has demonstrated that even countries with strong financial systems can feel the effects of inadequate regulatory regimes elsewhere.
Countries may hesitate to impose new requirements on their own institutions if these measures will create a competitive disadvantage. This points to the importance of the fifth step: strengthening international co-ordination, review and surveillance to create a better second line of defence. Canada was a pioneer of the joint International Monetary Fund-World Bank financial sector assessment program. This independent review of domestic financial systems should be mandatory and public. We need to strengthen the role of international colleges of supervisors to ensure better understanding of systemic risks and to co-ordinate national actions. We need IMF surveillance with teeth. Countries must live up to their responsibilities to support global financial stability and growth. Nowhere is this more important than in correcting global imbalances through appropriate exchange rate and macroeconomic policies to support growth.
The process of how we make decisions is equally important. In two decades of unprecedented growth, we have seen the emergence of dynamic new economic players that must be full participants at the global table. Canada took one of the largest share cuts of any country in the recent IMF reform exercise to ensure that emerging economies are better represented. This broader range of voices must be heard in other venues such as the Financial Stability Forum.
Together, these reforms must ensure that incentives are aligned to support stability and that resilience is built into the financial system.
The open market system did not fail in this crisis. However, some forgot Adam Smith's maxim that the invisible hand needs to be supported by an appropriate legal and regulatory framework. We need to work together to strengthen those frameworks, and that work must begin at home.”
Angela Calla, AMPMortgage Expert
Host of "The Mortgage Show" on 1410am The Buzz every Saturday at 1pm
DLCBC Mortgage Group Ltd.
Tel: 604-802-3983Fax: 604-939-8795
Toll Free: 1-888-806-8080
Email: acalla@dominionlending.ca
Web: www.angelacalla.ca
Please enjoy this article courtesy of the globe and mail, if you have someone that you care about that is looking for the best mortgage advise, please introduce us over an email or phonecall and we are happy to help.
Don't forget to tune into The Mortgage Show Saturdays at 1pm on 1410am The Buzz
Flaherty offers crisis tips from ‘boring' Canada
Globe and Mail-Report on Business-Canadian Press
WINNIPEG — This is a guest column by Finance Minister Jim Flaherty in Thursday's Financial Times, posted on the Department of Finance's web site and titled ‘Boring' Canada's financial tips for the world:
The financial crisis that began 14 months ago in the U.S. has intensified and spread around the world, threatening to roll back economic progress that has been made over the past two decades. Governments have been responding in a co-ordinated fashion and will continue this work in the lead-up to the summit of the Group of 20 leading economies.
Few countries are as dependent on trade or as integrated into the global financial system as Canada. Yet our financial sector continues to weather the turbulence better than many other countries. This did not happen by chance. Canadians by nature are prudent and our financial system has been characterized as unexciting. Canada's regulatory regime ensures that stability and efficiency are balanced. As a result, Canadian taxpayers have not had their money put at risk in response to this crisis. If Canada's financial system is boring, perhaps the world needs to be more like Canada.
Before we examine grand designs for global regulatory regimes, we need to recognize that good regulation begins at home. Effective national regulatory regimes could have prevented this crisis and must be our first line of defence against any future one. We all need to draw lessons from those systems that worked well and apply them to our national regulatory regimes.
First, we need to regulate all pools of capital that rely on leverage. The crisis has demonstrated the devastating impact that unregulated entities can have. Transparency requirements must be the price of admission to global markets. Different financial services may have different regulatory requirements, but we need to bring them all under a regulatory umbrella.
Second, capital and liquidity buffers need to be large enough to handle big shocks. Moreover, regulators must restrain overall use of leverage. Some have criticised high Canadian capital requirements for banks as being too conservative. But the strong balance sheets of Canada's banks through this period speak for themselves.
Third, it is not enough for regulation to look at individual institutions. It needs to look at the system as a whole. Risks that may appear sensible in isolation can be unsustainable from a systemic perspective. This systemic vantage point must be used to mitigate any tendency to underestimate risk when times are good. This requires co-ordination across the government, central bank and regulatory agencies.
Fourth, we need to make market infrastructure more transparent and resilient. Non-transparent over-the-counter trades and naked short-selling reduced the stability of the system.
This crisis has demonstrated that even countries with strong financial systems can feel the effects of inadequate regulatory regimes elsewhere.
Countries may hesitate to impose new requirements on their own institutions if these measures will create a competitive disadvantage. This points to the importance of the fifth step: strengthening international co-ordination, review and surveillance to create a better second line of defence. Canada was a pioneer of the joint International Monetary Fund-World Bank financial sector assessment program. This independent review of domestic financial systems should be mandatory and public. We need to strengthen the role of international colleges of supervisors to ensure better understanding of systemic risks and to co-ordinate national actions. We need IMF surveillance with teeth. Countries must live up to their responsibilities to support global financial stability and growth. Nowhere is this more important than in correcting global imbalances through appropriate exchange rate and macroeconomic policies to support growth.
The process of how we make decisions is equally important. In two decades of unprecedented growth, we have seen the emergence of dynamic new economic players that must be full participants at the global table. Canada took one of the largest share cuts of any country in the recent IMF reform exercise to ensure that emerging economies are better represented. This broader range of voices must be heard in other venues such as the Financial Stability Forum.
Together, these reforms must ensure that incentives are aligned to support stability and that resilience is built into the financial system.
The open market system did not fail in this crisis. However, some forgot Adam Smith's maxim that the invisible hand needs to be supported by an appropriate legal and regulatory framework. We need to work together to strengthen those frameworks, and that work must begin at home.”
Angela Calla, AMPMortgage Expert
Host of "The Mortgage Show" on 1410am The Buzz every Saturday at 1pm
DLCBC Mortgage Group Ltd.
Tel: 604-802-3983Fax: 604-939-8795
Toll Free: 1-888-806-8080
Email: acalla@dominionlending.ca
Web: www.angelacalla.ca
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