Down Payment Rules Could Change!

I know that I usually only post “good news” articles, but this is too important to ignore. Why would the federal government want to raise the minimum down payment requirement and stall the economy just when we are starting to see recovery? Making the minimum down payment 10% (rather than the current 5%) would lead to other issues. If they continue to allow borrowed down thru the Flex Down programs, then you will see larger exposure to consumer credit which Mark Carney has also warned of in recent weeks. Here is a suggestion…if they must make a change, leave the 5% minimum down on owner occupied homes and remove the borrowed down options. Make the requirement that the funds be from savings. That way the home buyer has some “skin in the game”. Don’t get me wrong, I want them to leave the rules alone. But if they are set on change, this is a good option and will elevate the possible “bubble” that they are so worried about. As a member of CAAMP you have a strong voice. I would suggest you contact your CAAMP Director (Todd Harris) and get him to carry your views to CAAMP nationally and on to Mr. Flaherty and Mr. Carney.

Canada may require higher mortgage downpayments: report
OTTAWA (Reuters) - Canada may require people taking out mortgages to come up with a larger downpayment if it looks like indebtedness is getting too high, Finance Minister Jim Flaherty said in a interview released late on Sunday.
Flaherty's remarks echoed concerns voiced last week by Bank of Canada Governor Mark Carney about households' ability to pay down debt. Household debt relative to income has risen sharply though it is below U.S. and British levels, and Carney warned consumers not to assume that interest rates will stay low.
"If we see further evidence that there is excessive demand in the housing market or that there's an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action," CTV television quoted Flaherty as saying.
"The likely action we will take is to increase the size of the downpayment from 5 per cent to a higher number, reduce the amortization -- bring it down from 35 years to something less."
Shortening the amortization period would mean mortgage payments would have to go up to pay the loan off more quickly, and might make people think twice about taking on more debt.
The interview with Flaherty is expected to air on the program Question Period on Sunday.
(Reporting by Randall Palmer; editing by Rob Wilson)

Federal government urged to go slow on tightening mortgage-eligibility rules
By B.H. Mckenna, The Canadian Press
TORONTO - Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules if it sees evidence of a housing bubble developing sent ripples through the industry Monday, with analysts urging a cautious approach.
"The main risk here is overshooting, over-responding and basically shutting down or slowing down significantly the housing market," CIBC senior economist Benjamin Tal said in an interview.
"That is a risk they have to take into account, because the housing market is a major, major contributor to overall economic growth and we are still in a very fragile state of the recovery."
Tal was reacting to reports based on a taped interview with a national news agency to be broadcast next weekend in which Flaherty said the government is worried Canadians may be taking on too much debt because of historically low interest rates and could get into trouble when rates inevitably rise.
In recent weeks, the Bank of Canada has called record household debt the top risk facing the country's financial system, a warning repeated in Toronto last week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Flaherty told a national news agency that if the government sees evidence of excessive demand developing in the housing market then it could take action.
One thing government might do is increase the minimum down payment on residential mortgages from five per cent "to a higher figure," he said.
The government could also reduce the amortization period from a maximum of 35 years "to something less," he said.
However, in an interview Monday with The Canadian Press, Flaherty emphasized that the prospect of a housing bubble is "not an immediate concern."
"If we needed to act, we could do what we've done before, in the summer of 2008, and that is to increase the down payment requirements for insured mortgages."
"I haven't looked at what we might do in terms of quantum (size of increase)," he said, adding that the government might also shorten the maximum amortization period or take other, unspecified measures to tighten lending requirements.
Gary Siegle, regional manager in Calgary for national mortgage broker Invis, said any stiffening of either down payment or amortization rules would "definitely" have an effect the marketplace.
"It's just a question of mathematics that there will be people who qualify today who wouldn't be able to qualify if those changes come into play," he said.
Siegle noted that with houses in Calgary selling for $350,000 to $400,000, the current five per cent down payment means buyers have to come up with $20,000.
"But if they decide to double it (the minimum down payment) to 10, then you looking at a $30,000-$40,000 down payment that they have to make."
Siegle said he would like to know the numbers Ottawa has in mind. "It would be really nice if they going to make that move it would be 7 1/2 instead of 10 (per cent) - a kind of middle-of-the-road solution just so that we could get not so dramatic an impact on the marketplace."
Otherwise, Siegle said it understandable for the government to worry about the effects of rising rates.
"Virtually everyone that I talk to agrees that its not a question if, its a question of when, they'll start to go up," he said.
"So when people are taking on mortgages that are $200,000 and $300,000 and $400,000... how are they going to adjust when they come up for renewal?"
"In my career, which spans 30-plus years, I've seen rates in the 20 per cent range. I don't think we're ever going to go there again, but even if they went to eight, what happens to people if their interest rate doubles?"
The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, "was probably not significant because not a lot of people were going to 40 and we hadn't had it that long," Siegle said.
Meanwhile, Tal took some comfort from the fact that Flaherty was not specific as to the numbers it might consider.
"The trend (on consumer debt) is not extremely positive but the situation is not alarming," he said.
"I think they're concerned about the next 12 months and where we will find ourselves a year from now. So they're trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality."
"Therefore I don't expect this to be a huge increase (that would have)... an unreasonable and unnecessary impact."
Siegle said that while moves the government is likely to make would dampen the housing market "I wouldn't say it would kill it."
"They're still lots of people who want to get into houses and we're into a recovery, confidence (is) building in the consumer and rates are still at phenomenally low levels."
"So I think what will happen is it will take out some folks who aren't quite ready today. And the government's view probably is that if they're not quite ready, maybe they shouldn't be in the marketplace," he said.

Economies in Atlantic Canada set for growth

Economies in Atlantic Canada set for growth: RBC Economics
Rising global demand for key exports will boost East Coast prospects
TORONTO, Dec. 14 /CNW/ - All four Atlantic Canada provinces are set to experience growth in 2010, after successfully weathering the recession's negative impact on key export sectors during 2009, according to a new report by RBC Economics.
"While many challenges will remain, 2010 promises a new chapter of widespread positive economic performance," noted Craig Wright, senior vice-president and chief economist, RBC.
In Nova Scotia, better than expected results kept the economy afloat during a tumultuous 2009 and limited declines in consumer spending. Job losses in manufacturing have been fully offset by employment gains in the services sector and public administration. The provincial government's $800 million infrastructure boost has helped support growth in non-residential construction. Weak demand for Nova Scotia's natural resources and manufactured goods, combined with falling commodity prices, took a significant toll on exports.
RBC forecasts a flat 0.0 per cent growth for Nova Scotia for 2009. This is revised slightly upward from the -0.4 per cent contraction projected in the September Outlook, with economic growth forecast at 2.8 per cent in 2010.
"We're expecting the province's key exports to get a boost from a strengthening U.S. economy, which in turn should lead to increased production in the energy sector and help revive the hard-hit forestry sector," said Wright.
New Brunswick's manufacturing and export sectors were severely impacted by soft commodity prices and weak North American demand. This impact was slightly offset by the provincial government's large stimulus program ($1.6 billion over two years), which helped fuel non-residential investment as well as employment. New Brunswick is expected to be one of only three provinces to experience employment growth in 2009.
According to the RBC report, New Brunswick's economy is expected to grow in 2010 as a planned 34 per cent increase in capital project investments for 2010-2011, a $258 million provincial income tax cut in January and as well as further improvement in the job market, should boost consumer spending and housing demand.
"With a stronger U.S. economy on the horizon and commodity prices staying on a firming trend throughout the upcoming year, boosting prospects for exports, the elements should be in place for the New Brunswick economy to start expanding again," explained Wright. "We're forecasting real GDP growth of 2.9 per cent, revised upward from our September projection of 2.7 per cent."
In Newfoundland and Labrador, RBC anticipates that the province's resource sector - representing approximately 30 per cent of real GDP in the province - will jump back into growth mode in 2010. Major declines in mining and crude oil production during 2009 are expected to reverse, with stronger global demand for iron ore.
Capital investment should continue to be a key driver of activity in the province. An aggressive infrastructure plan, $800 million in both 2009-2010 and 2010-2011, should help advance several projects and improve consumer spending and boost employment. Retail sales are projected to grow by 4.2 per cent in 2010, up from a respectable 2.0 per cent in 2009, which is the only increase among provinces.
"We forecast real GDP growth for Newfoundland and Labrador in 2010 at 2.4 per cent, revised upward from 2.0 per cent projected in our September Outlook," said Wright. "GDP growth for 2009 has been revised downward to -4.5 per cent, reflecting the past year's slump in mining and oil and gas extraction."
According to the RBC report, Prince Edward Island has come through the recession in better shape than many of Canada's other provinces. Weak demand for the island's traditional tourism and seafood sectors was almost entirely offset by significant growth in the island's emergent technology industries. A dramatic decline in seafood exports was countered by strong demand for potato products. Due to export gains in technology and potato products, Prince Edward Island was the only province to show an increase in merchandise products (0.4 per cent) for the first nine months of 2009.
The provincial government has allocated $133 million for capital projects, which should help non-residential investment maintain its strong pace in 2010. Further growth is also expected in Prince Edward Island's aerospace and bioscience industries, which should boost employment growth to a nation-leading 2.1 per cent.
"An increased demand for shellfish exports and tourism, as global economic conditions improve, should support modest growth in Prince Edward Island's economy," Wright said. "We've revised growth projections for the province upward to 2.2 per cent for 2010, which is up slightly from our September forecast of 2.0 per cent. We expect 3.4 per cent growth in 2011."
The main theme of the RBC Economics Provincial Outlook is that a mild economic recovery is expected to be widespread among provinces in 2010, after a significant contraction spread across the country in 2009 (with only Manitoba and Nova Scotia barely avoiding a decline in activity). The full force of fiscal and monetary stimulus should positively contribute to growth in 2010. The price tag for that stimulus however, will be huge budget deficits. While such deficits might cause some discomfort, the alternative was even less attractive given the severity of the economic downturn. Returning to balance over the medium term will be a challenge involving difficult choices. Provincial economies are expected to be in solid growth territory in 2011, with the Prairie provinces - led by Saskatchewan - benefitting from strengthening commodity prices and hitting higher growth rates than the 3.9 per cent national average.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.
According to the report, available online as of 8 a.m. EST today at www.rbc.com/economics/market/pdf/provfcst.pdf, provincial forecast details are as follows:


Real Housing Retail
GDP starts sales
Y/Y % Change Thousands Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -4.5 2.4 1.5 3.0 3.0 3.1 2.0 4.2 5.4
P.E.I. -0.1 2.2 3.4 0.7 0.8 0.8 -0.7 3.7 4.4
N.S. 0.0 2.8 3.8 3.7 4.1 4.1 -0.3 4.4 4.9
N.B. -0.3 2.9 3.7 3.6 3.7 3.5 -0.4 3.7 4.1
QUE. -1.6 2.2 3.7 41.5 42.0 44.0 -0.9 4.3 5.1
ONT. -3.2 2.4 4.0 50.5 65.0 68.0 -2.7 3.8 5.6
MAN. 0.2 3.0 4.0 4.2 5.4 5.5 -1.3 5.1 5.8
SASK. -1.6 3.9 4.6 3.4 4.1 4.4 -2.3 5.5 6.1
ALTA. -3.4 2.4 4.4 19.2 28.5 30.5 -8.5 4.9 7.0
B.C. -2.6 3.2 3.4 15.6 24.5 27.5 -5.8 5.7 4.6
CANADA -2.5 2.6 3.9 145.4 181 191 -3.3 4.4 5.5


Unemployment
Employment rate CPI
Y/Y % Change % Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -2.5 0.6 1.8 15.5 15.7 14.9 0.4 1.8 2.3
P.E.I. -1.3 2.1 1.2 12.2 12.0 11.7 0.0 2.2 2.4
N.S. 0.0 1.3 2.0 9.2 9.4 8.8 0.0 2.1 2.4
N.B. 0.1 1.3 1.5 8.9 8.9 8.5 0.3 2.0 2.3
QUE. -1.0 1.1 2.2 8.5 8.8 8.1 0.6 1.6 2.2
ONT. -2.4 1.1 2.5 9.1 9.7 8.5 0.3 1.3 2.1
MAN. 0.2 1.4 2.2 5.2 5.5 4.9 0.7 1.8 2.3
SASK. 1.5 1.2 2.7 4.8 5.1 4.5 1.3 2.3 2.9
ALTA. -1.2 1.2 3.1 6.6 6.9 5.9 -0.2 1.3 2.0
B.C. -2.4 2.1 1.7 7.6 7.5 6.9 0.1 1.2 2.0
CANADA -1.5 1.3 2.3 8.3 8.7 7.8 0.3 1.5 2.2

Housing market in Atlantic Canada ranks among country's most affordable

November 25, 2009 05:00
Housing market in Atlantic Canada ranks among country's most affordable, says RBC Economics
TORONTO, Nov. 25 /CNW/ - Atlantic Canada continues to have one of the most affordable housing markets in the country, after experiencing relatively modest increases in homeownership costs during the third quarter, according to the latest housing report released today by RBC Economics.
"Despite rising for the first time in a year, Atlantic Canada's homeownership costs showed some of the smallest increases among all the provinces," said Robert Hogue, senior economist at RBC. "The past few months have seen steady but moderate gains in property values, which has worked to limit declines in affordability."
The RBC Affordability measure for Atlantic Canada, which captures the proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the third quarter of 2009, yet remain mostly well below long-term averages. Affordability of the benchmark detached bungalow moved up to 31.2 per cent, the standard townhouse to 26.7 per cent, the standard condo to 24.6 per cent and the standard two-storey home to 35.9 per cent (the higher the measure, the more expensive it is to afford a home).
According to the RBC Report, St. John's still stands out as one of the hottest markets in Canada, although it has shown signs of cooling off. Increases in home prices have slowed slightly in Halifax, but are still relatively solid in Saint John.
"Resale activity has picked up in the region since last winter, but the rebound has been relatively modest compared to other parts of the country," noted Hogue. "Factors weighing on affordability in the past few months include a rise in property values and increases in key mortgage rates."
RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Halifax, Saint John and St. John's. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:


- British Columbia: Following five consecutive declines, homeownership
costs rose in B.C. during the third quarter. With housing demand
growing faster than the supply, prices have been rising again. This
development likely marks the end of the affordability upswing in
B.C., with indications that homeownership costs will remain well
above long-term averages.

- Alberta: The province experienced the first increase in homeownership
costs since late-2007, in the third quarter. Housing market activity
has picked up and stabilized with the modest rise in costs
attributable to higher mortgage costs rather than a rise in property
values. Attractive affordability levels and a return to economic
growth should fuel housing demand in Alberta next year.

- Saskatchewan: With mortgage rates rising slightly and properties
gaining value, owning a home became slightly less affordable in the
province, following steady improvement for more than a year. However,
homeownership costs remain historically high in Saskatchewan as a
result of the sharp price appreciation that took place during the
recent housing boom.

- Manitoba: Despite slight increases in the cost of homeownership - the
smallest amongst all provinces in the third quarter - Manitoba's
housing market remained relatively affordable. Market conditions in
the province appear tightly balanced, which should sustain solid
resale activity in the near-term. Job growth and a faster economic
expansion next year should maintain solid housing demand.

- Ontario: After a period of declining property values, the Ontario
housing market appears to be bouncing back with home resale prices
returning to and, in some cases, surpassing earlier peaks. While this
reversal has brought confidence back into the market, third quarter
affordability levels have deteriorated for the first time in over a
year.

- Quebec: Broad-based vigour in the housing market fueled by the
earlier drop in mortgage rates to historically low levels, has sent
property values to new highs in many parts of Quebec. Consequently,
housing affordability deteriorated in the province for the first time
in more than a year during the third quarter.

The full RBC Housing Affordability report is available online, as of 8 a.m. EST today at www.rbc.com/economics/market/pdf.house.pdf.

Three Good News Articles

It has been a while since I have sent out a “good news” article, but here are three in one day. That is great!

1. The country's real estate market is so hot cities are running out of properties to sell
2. Canada's unemployment rate falls to 8.4%, first decline since recession
3. Surprise! U.S. sales rise in September

Average Canadian home prices up slightly, says Royal LePage survey
The Canadian Press

TORONTO - The housing market may be recovering, but is experiencing an undersupply of homes for sale in southern Ontario and elsewhere in Canada.
That's according to the latest house price survey by Royal LePage. It says with the recession retreating, home prices are stabilizing and unit sales are increasingly driven by improved affordability.
Royal LePage says the average price of a two storey home in Canada is up just 0.1 per cent from a year ago at $409,335.
Average bungalow values grew 0.06 per cent year-over-year to $341,146, while the price of an average condo increased 0.09 per cent to $243,748.
Royal LePage says a shortage in housing supply is leading to bidding wars in several cities, including Toronto, Montreal, St. John's, N.L.; St. John, N.B. Moncton, Edmonton, Calgary, North and West Vancouver, and Victoria.
While the Atlantic provinces saw a strong recovery in home prices, western provinces have been slower to recover from significant price corrections in 2008, particularly in British Columbia and Alberta.
Ontario and Quebec saw home prices stabilize or gain slightly year-over-year with much of the recovery occurring in a strong third quarter.

Canada's unemployment rate falls to 8.4%, first decline since recession
By Julian Beltrame, The Canadian Press
OTTAWA - Canada's unemployment rate fell for the first time in nearly a year to 8.4 per cent last month, in perhaps the clearest indication the hard-hit labour market may be recovering sooner than expected.
The September jobs pick-up of 30,600 was five times larger than the economist consensus forecast of 5,000 and - along with a slight decrease in the number of workers looking for jobs - helped drop the national unemployment rate by 0.3 percentage points.
This was the second consecutive month of employment gains.
There was more good news - actual hours worked increased by 1.6 per cent.
More impressive, the agency said 91,600 full-time jobs were added in September, more than offsetting the 61,000 loss in part-time employment.
This reverses the pattern observed most of the past year as employers cut back by first reducing full-time workers to part-time status.
Economists consider employment a lagging indicator because employers usually will wait until they see clear signs that a recovery is underway and will be sustained before beginning to re-hire.
By contrast, the U.S. is still reporting massive monthly job losses even though most believe the economy there has turned the corner and begun to grow.
Canada has seen a fitful rebound from the downturn, although the most recent data on gross domestic product only extends to July and does not capture the next two months of job gains.
If there was a downside to the Canadian jobs data for September, it was that hourly wage growth slowed to 2.5 per cent, the lowest year-over-year wage gain in 2 1/2 years, and that all and more of the net job growth was in the public sector.
Also, adult men continue to have difficulty finding work. September saw a decline on employment among men aged 25 to 55, while women in the same age group saw employment rise by 41,000.
Since October, most of the employment losses have occurred among adult men and youth.
But Statistics Canada noted that the trend of Canada's labour market has been improving steadily forward since the outsized job losses of last winter.
"Since the peak in October 2008, employment has fallen 2.1 per cent (357,000), with the bulk of the decline occurring between October and march 2009," the agency noted.
"Since then, the trend in employment has levelled, with the number of employed almost the same in September as it was in March."
The biggest jobs gains came in industries that have been hardest hit by the recession. Manufacturers added 26,000 workers last month, and the construction trade, which may have been boosted by federal stimulus money, picked up 25,000 workers, the second consecutive gain.
Workers in education services also saw improvement with 18,000 jobs added to the sector last month, when students returned to schools, colleges and universities following the summer break.
Meanwhile, employment in transportation and warehousing slipped by 21,000.
Regionally, British Columbia, New Brunswick and Prince Edward Island saw significant job gains in September. Nova Scotia, Quebec and Manitoba saw outright job losses.

Surprise! U.S. sales rise in September
Up by 0.6%
Jessica Wohl, Reuters
U.S. retailers gave investors an early Christmas present, posting their first monthly sales increase in more than a year and suggesting that wounded consumers might begin to heal in time for the crucial holiday season.
Store chains that included Macy's Inc., Abercrombie & Fitch and Kohl's Corp. surprised Wall Street yesterday with better-than-expected September sales.
The Standard&Poor's retail index rose 1.6%, with shares of Macy's up 2.9% and Abercrombie rising 6%.
Based on 30 retailers, sales at stores open at least a year climbed 0.6%, compared with expectations for a 1.1% decline, according to Thomson Reuters data. Nearly 80% of the companies beat expectations.
The last time sales rose was in August 2008, when retailers notched a 0.2% gain. That was just before a financial collapse in September constricted credit worldwide and sent jobless rates climbing.
Retail experts cautioned that the sales results did not yet presage a consumer-driven recovery to the U.S. economy.
"You need to see sales coming through, margins holding and overall profit rising," said Michael Niemira, chief economist of the International Council of Shopping Centers. "That overall story needs to play out for retail recovery to be solid."
The ICSC said October same-store sales should be about flat with a year earlier, when retailers averaged a 4.1% drop, said Thomson Reuters data.
One factor in the higher September sales was an easier comparison with previous results. Same-store sales fell 0.9% in September 2008, Thomson Reuters data said.
"We only get better or stronger from here, given the weak comparisons with a year ago," Mr. Niemira said.
This year's later Labour Day holiday pushed a good chunk of sales from August into September, but analysts had wondered if rising unemployment would weigh more heavily on spending.
Yesterday, a U.S. Labor Department report showed new U.S. jobless claims hit a nine-month low, suggesting the employment market was healing despite a September setback.
Sales of clothing for the back-to-school season fuelled many retailers' performances, especially in the early part of the month. Several chains raised their profit forecasts for the current quarter, although Target Corp. said it still had a cautious view of its fiscal fourth quarter, which includes the holiday season.

The rate hike heard round the world

Here is an interesting article. Could this give the Bank of Canada an excuse to raise Prime earlier than 2010? Who knows, but it is shows how up and down the rate landscape is.

The rate hike heard round the world
Paul Vieira, Financial Post
OTTAWA -- The Reserve Bank of Australia has become the first major central bank to raise interest rates since the financial crisis, citing rising home and stock prices along with the traditional focus on growth and inflation - factors other central bankers are expected to make more prominent as they seek to prevent a repeat of debilitating asset bubbles.
The surprise move by Australian central banker Glenn Stevens was greeted with enthusiasm by markets, as it was interpreted as a sign a global economic recovery was on track. Equities, commodity prices and the Canadian dollar surged on the move, although giving up some gains in later trading.
The Australian rate increase now puts the spotlight on other central banks, such as Canada's, which has been steadfast in setting rates to ensure a 2% inflation target. But inflation in Canada is expected to remain benign until 2011, forecasters say, due to excess manufacturing capacity in the economy and a strong Canadian dollar that will keep a lid on import prices.
The loonie reached a one-year high Tuesday of US94.82¢, before closing at US94.38¢, up 0.93¢ from Monday's close.
"Inflation is not going to be a problem. Consumer spending, and the consumer response to cheap money, however, may be a problem," said Stewart Hall, economist with HSBC Securities Canada.
The consumer response is what might push the Bank of Canada, just like its Australian counterpart. In its decision, Australia's central bank cited solid gains in housing prices and a "significant" recovery in equity markets for raising its benchmark rate 25 basis points, to 3.25%.
"I do get the sense asset prices are going to be play a greater role in the formation of monetary policy," said Michael Gregory, senior economist at BMO Capital Markets. "Because the amount of stimulus is unprecedented, and at emergency levels, removing it won't follow the same rules of thumb."
As a result, he said, central bankers might be looking at new measures to determine when to raise rates. As opposed to looking strictly at inflation and growth, Mr. Gregory said central banks might be forced to pay as much attention to asset prices and credit spreads.
In Australia, the central bank has always paid close attention to housing prices - which are a national obsession and have been on a tear over the past decade - and view them as a guage of the overall strength of the economy.
One of the main debates in the aftermath of the financial crisis is the role central banks should play in averting future meltdowns, and what powers they should be granted to execute this task. By taking on a beefed-up role as overseeing the financial system, central banks would be expected to identify asset bubbles and pop them before they burst. The collapse of the U.S. real estate market, fuelled by low lending rates that attracted less-creditworthy buyers, sparked a credit crisis and global recession.
"The general view before the calamity was that monetary policy was not an effective tool in dealing with asset bubbles," said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.
"But given how much damage was caused by the U.S. housing bubble, the view now is that cleaning up the mess afterward can be far too costly and that monetary policy may need to be responsive to asset prices."
Mr. Alexander was a co-author of a TD report released Tuesday, suggesting the Bank of Canada might be forced to raise rates before it expected should Canada's housing market continue its stellar performance.
Mr. Hall said the Bank of Canada has put itself in a "tiny bit" of a box by indicating it was prepared to keep its key interest rate at 0.25% until June 2010, on the condition that inflation would hit the 2% target in early 2011.
But Mr. Hall said the central bank "would do what it wants to do" should circumstances arise. "It won't get trapped by anything."
The Bank of Canada is set to deliver its next interest-rate on Oct. 20, followed by an updated economic outlook two days later. Analysts will be eyeing the documents closely for any change in tone regarding rates. In the meantime, the Bank of Canada's senior deputy governor, Paul Jenkins, is scheduled to speak in Vancouver Thursday regarding the future "challenges" facing central banking.

Great article to share with clients and realtors about the great shape of the Atlantic Market, especially St. John’s.

Transmitted by CNW Group on : September 9, 2009 05:00
Steady improvement for housing affordability in Atlantic Canada: RBC Economics
TORONTO, Sept. 9 /CNW/ - Housing affordability continues to improve inAtlantic Canada, although at a more moderate pace than the rest of thecountry, according to the latest housing report released today by RBCEconomics.
"The rebound in Atlantic Canada has been a more subdued affair than inmost other parts of the country, but the downturn was also more restrained here," noted Robert Hogue, senior economist, RBC. "Overall, the East Coast enjoys relatively attractive affordability levels, which should supporthousing activity in the period ahead."
RBC's Affordability measures in the Atlantic Provinces have improvednoticeably since early last year, with homeownership costs falling between 0.4and 0.8 percentage points in the second quarter. Sales of existing homes climbed more than 18 per cent since January and there has also been a moderate run-up in property values.
The report noted that St. John's continues to be among the most vibrant housing markets in Canada - although the pace has cooled in the past few months - while Halifax, Saint John and Charlottetown are displaying fairlybalanced conditions.
RBC's Affordability measure for a detached bungalow for Canada's largestcities is as follows: Vancouver 63.4 per cent, Toronto 46.5 per cent, Ottawa38.6 per cent, Montreal 37.3 per cent and Calgary 35.7 per cent.
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including St. John's, Halifax, Saint John and Charlottetown. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow.Alternative housing types are also presented including a standard two-storeyhome, a standard townhouse and a standard condo. The higher the reading, themore costly it is to afford a home. For example, an Affordability reading of50 per cent means that homeownership costs, including mortgage payments,utilities and property taxes, take up 50 per cent of a typical household'smonthly pre-tax income. Highlights from across Canada:
- British Columbia: In the second quarter, housing affordability in B.C. eased once again, further extending the downward trend since the start of 2008, although homeownership costs are still significantly above long-term levels. Sales of existing homes surged by more than 125 per cent from their cyclical trough early this year. Market conditions have tightened and there has been some firming of prices.
- Alberta: The biggest cumulative drop in the history of RBC Affordability measures in Alberta deepened further in the second quarter, falling to levels not seen since before the housing boom. Existing home sales soared by more than 60 per cent between April and July, fully reversing last year's slide. Tightening market conditions should set the stage for some property value appreciation in the near future.
- Saskatchewan: Affordability has improved considerably in Saskatchewan since early last year, but homeownership costs remain above long-term averages. Regardless, sales of existing homes rebounded smartly, rising by more than 50 per cent since their lows in March. If this trend is sustained, property prices can be expected to eventually heat up as well.
- Manitoba: The notable easing of homeownership costs in the past year has fully repaired affordability in Manitoba, compared to historical averages. Resale activity ramped up during spring and summer and property prices generally maintained their steady upward trend, supported by relatively tight market conditions.
- Ontario: Solid improvements in affordability in Ontario have supported a strong upturn in the market in recent months. All affordability measures are now below historic averages, indicating that homeownership costs are at attractive levels in the province. The general tone of the market is generally positive, but local demand continues to be held back by the tough economic prospects many communities in Ontario continue to face.
- Quebec: Housing affordability improved once again in the second quarter in Quebec, prolonging a trend that has been ongoing during the past year. Sales of existing homes surged by more than 40 per cent over the cyclical low reached mid-winter. With a more upbeat market sentiment and tightening demand-supply conditions pushing property values upward, the Quebec housing market appears to be back on track.

The full RBC Housing Affordability report is available online, as of 8a.m. EDT today at www.rbc.com/economics/market/pdf/house.pdf.

This article is mainly for originators in NS, but it is of interest to everyone. The NS Government is rolling out a tax rebate for new construction homes. This is on the heels of the new CMHC stats that show new home starts are down 30%. Good timing me thinks. The article is from today’s Halifax Chronicle Herald.

NDP rolls out rebate for new houses
By DAVID JACKSON Provincial Reporter Thu. Aug 13 - 6:12 AM

Home builders and homebuyers stand to benefit from a new tax break, Premier Darrell Dexter said Wednesday.Buyers of newly constructed homes can now apply for a 50 per cent rebate on the provincial portion of the harmonized sales tax.It’s a program the Nova Scotia Home Builders’ Association suggested to the three major political parties before the spring election.The NDP put the program in its platform, but with a start date of May 1. The government has changed it to Jan. 1, at the association’s urging. A maximum of 1,500 rebates will be offered.To qualify, buyers of new homes must have a municipal building permit dated on or after Jan. 1, 2009, and before April 1, 2010. The home must be the primary residence and construction has to be completed between Jan. 1, 2009, and March 31, 2010, or the purchase closed by March 31, 2010.Cottages and income properties don’t qualify.Mr. Dexter said the government changed the start date because the association was concerned that homes started between January and May might not have sold because the tax break came later in the year.“They indicated that they had been working through the winter, trying to keep people employed, so . . . there were a large number of building permits between Jan. 1 and the May 1 date. The result of that, of course . . . potentially, would have been to strand that inventory," Mr. Dex­ter said.Speaking at a Dartmouth townhouse construction site, Mr. Dexter said there were about 600 permits issued in the province between January and May, although he didn’t know how many homes were under construction. Opposition leaders said the tax incentive sounds more like a reward.“I don’t see it stimulating any activity that otherwise wouldn’t have happened," Liberal Leader Stephen McNeil said.Mr. McNeil also said he is skeptical whether a $7,000 benefit will be enough to entice people making a $200,000 or $300,000 purchase. And he wondered whether home builders would increase their prices, negating the benefit of the tax break to the buyer.Mr. Dexter said buyers will negotiate their prices, and he thinks competition will take care of Mr. McNeil’s concern.“There are a lot of companies out there that are really looking to get work, so I expect there to be a very competitive market, and that this rebate will ultimately benefit those who are intended to benefit," he said.Interim Tory leader Karen Casey said people now looking at buying a new home may be concerned that the 1,500 rebates will be gone by the time they apply.Service Nova Scotia Minister Ramona Jennex said at the news conference that the website www.getyourrebate.ca will track the number of applicants and rebates.Ms. Casey said the original intent of the program — to spur economic activity and keep tradespeople working — was good, but that doesn’t seem to be happening.“I consider this now a reward, rather than an incentive," she said.Andrew Holley, president of the home builders association, said he would have preferred the qualifying date go back to October, but he was still pleased with the new program.“We didn’t get everything that we wanted, but it was a good compromise," Mr. Holley said.Mr. Dexter said the NDP did its own due diligence on the proposal and decided the province could do it.The province would forgo $10.5million if the maximum number of people gets the top rebate.The maximum — $7,000 — kicks in for homes costing $175,000 or more.“I don’t think there’s anything wrong with listening to the stakeholders who are involved in the industry, and thereby turn­ing the wheels of the economy," Mr. Dexter said.“That’s really what we’re here for, to try and make sure that we get through what is a very difficult economic time, try to recog­nize the importance of the residential construction sector and make sure that we keep trades­people working."Mr. Holley said more than 20,000 people work in the residential construction industry across the province, while new housing accounts for more than $800 million in annual revenue.A Canada Mortgage and Housing Corp. report released this week said housing starts, which include apartment buildings, were down close to 30 per cent in the province during the spring and early summer. In Halifax, the decline was 44 per cent.Housing sales, provincewide, were also down by 14.5 per cent when compared to the same peri­od last year.

More information is available at www.getyourrebate.ca, or by calling 424-5200 in the Halifax re­gion or toll-free 1-800-670-4357.(djackson@herald.ca)

How are HELOCs affecting credit scores

Interesting article from Canadian Mortgage Trends today about how some HELOC mortgages are being reported to Equifax and changing the clients credit score. I am checking to see if our HELOCs were reported (but I don’t think they were).
August 06, 2009
HELOCs & Credit Scores
Lots of people are now choosing HELOCs for their next mortgage. HELOCs offer features like:
Fully open terms
Interest offsetting (where positive savings or chequing balances reduce your debt and interest)
Re-advancebility (i.e. the ability to re-borrow after you make principle payments)
Multiple segregated sub-accounts (to separate different types of borrowing)
Interest-only payments
What many don’t realize is that choosing a HELOC instead of a mortgage can have a potentially adverse effect on their credit score. That’s because HELOCs are often reported to credit bureaus while mortgages are generally not. (In cases where mortgages are reported, sources at Equifax, the nation’s largest credit bureau, say they don’t harm your score).
We recently came across a case where a person’s credit score dropped 80 points after putting their $300,000 mortgage in a HELOC.
Causation is hard to quantify because Equifax doesn’t disclose its scoring algorithms, but here are the facts of this particular case:
The individual’s score before the HELOC was in the low 700’s. Following the HELOC being reported to the credit bureau, the score fell below 630.
There were no other major differences on this individual’s two credit reports (i.e. the report before the HELOC and after)
After the HELOC closed, an explanatory note appeared on the person’s credit report stating that his balances were too high in relation to his credit limits.
The lender reported the HELOC balance as being 99% of the HELOC limit. (Which is common when the mortgage amount and HELOC limit are similar)
Given that Equifax bases 30% of its Beacon scores on credit utilization and 15% on account age, a brand new $300,000 HELOC, at 99% of its limit, is a big potential negative.
Now, an 80 point drop is not catastrophic to some people, but to many others it can be. 80 points is over 10% of the average Canadian’s score. A drop like that can cause you to no longer qualify for financing on other properties, for financing on consumer loans, for credit cards, and even for getting a job (some employers check credit before hiring).
At the very least, it’s something to keep in mind when comparing lines of credit. There are a handful of lenders who do not report HELOCs to the bureaus. If you’re concerned about your score, you’d do well to consult a mortgage professional and consider those options.
Posted at 06:18 PM

The Recession is Over...

BoC Governor Mark Carney has indicated that the recession is over, with conditions. Jobless numbers will still be affected and consumers (including real estate buyers) have to get the message and start spending. Here is the article from Halifax’s Chronicle Herald.

BoC: Recession over
Economy will grow this summer but job growth will lag, Carney says
By JULIAN BELTRAME The Canadian PressFri. Jul 24 - 4:46 AM

OTTAWA — The Bank of Canada is declaring the recession essentially over, saying Canada’s economy will begin growing this summer after nine months of stagnation and lead most of the industrialized world next year.
The rosy assessment — despite numerous cautions and caveats — rippled through the markets Thursday, lifting the loonie and many stocks.
"We believe the economy will grow this quarter," bank governor Mark Carney told a news conference.
"Things are unfolding a little faster in terms of the recovery in (consumer and business) confidence and financial conditions."
However, experts say the renewed growth after three quarters of economic shrinkage — two straight declining quarters is the technical definition of a recession — won’t lead to job growth until much later, when companies regain confidence and begin hiring again.
Earlier, the bank had dropped its April call for a one per cent contraction this quarter and now says the economy will instead expand by 1.3 per cent annualized.
That will be followed by a three per cent advance in the last three months of this year, and three per cent growth next year.
But Carney also issued a caution that recovery "is not a foregone conclusion," and that the economy remains dependent on massive government stimulus and his own conditional pledge to keep the policy interest rate at the historic low of 0.25 per cent until mid-2010.
Without such interventions in Canada and around the world, economies would still be spiraling downwards, he said.
Even with recent improvements, Carney said the part of the economy that impacts Canadians most directly — jobs — will continue to deteriorate even as output perks up. Economists say that’s because employers are unlikely to take on new workers until they are certain demand will last. "It is going to be a tough, long, hard slog to get this country back to full employment and Mr. Carney is hinting at that we are not out of the woods yet," agreed, Liberal Leader Michael Ignatieff, repeating his call for expansion of employment insurance benefits."
Statistics Canada calculates 370,000 jobs have disappeared since October, and some economists believe more than 500,000 will be lost before labour markets begin to recover.
While more optimistic than most forecasts, Carney concedes the bounce-back is modest by historical standards. In fact, he does not have the economy returning to full capacity until mid-2011.
Currently, the bank estimates the Canadian economy is operating 3.5 per cent below capacity.
Still, the markets chose to see the bright side of Carney’s new outlook.
The Toronto stock market surged almost 200 points late morning, while the Canadian dollar gained a full cent against the greenback and peaked above 92 cents US.
The latter result won’t please the central banker, who again voiced his concern that a stubbornly high-priced loonie will cut into the recovery because it will price some Canadian exports out of world markets.
Many economists doubt that the central bank would intervene to reign in the loonie, however, although the bank’s governing council has not ruled out action.
’Things are unfolding a little faster in terms of the recovery . . .’
MARK CARNEY Bank of Canada governor

Rate - how important is it? Really?

Lots of info in this one. First off, I recently attended the CMHC 2009 Broker Survey meeting in Halifax and got some great information to share (some of it about rates is very surprising). And to back it up, I got an article from Canadian Mortgage Trends website that talks to the point of Best Deal over Best Rate. Enjoy.
CMHC 2009 Customer Survey

· Brokers market share
o 44% of first time buyers
o 38% of all purchasers (nationally and in Atlantic Canada)
· 24% of all mortgage transactions are done by brokers
o 16% are done by personal bankers
o 13% are done by general loans officers
o Another 7% done by bank managers/senior staff
o That’s 36% being done in the bank and another 33% done by bank’s “sales force” staff
· 90% of all renewers stay with their original lender (this speaks volumes about trailer fees offered by Merix – why swim against the current?)
o 66% of all first time home buyers stay with their original lender
· What is the customer’s main reason for remaining with their original lender?

Reason Renewers Refinancers 1st time buyers Repeat buyers
Rate 45% 40% 52% 50%
Service related 33% 32% 26% 26%
Convenience 20% 17% 16% 13%
· This shows that if the client is staying with their original lender, it is usually rate/deal related, so trying to move a client for a better rate doesn’t seem to work
· And if they are switching lenders due to rate, how much of a difference does it take for them to move. You might be surprised by this:

Main Reason Renewers Refinancers 1st time buyers Repeat buyers
25 bps or less 7% 3% 5% 8%
25 to 50 bps 17% 10% 23% 21%
50 to 75 bps 8% 18% 22% 15%
75 to 100 bps 16% 13% 8% 8%
100 to 200 bps 23% 22% 21% 29%
200+ bps 24% 31% 13% 14%
· This shows that a rate difference below 25 BPS is really not that important to the clients.
· Then what drives a client’s satisfaction, if it is not just rate? Of all segments surveyed, 32% said “Best Deal” was the key driver of satisfaction. 25% said “Rate”, 20% said “Good Relationship” and 13% said “Good Service”.

These are great points to guide you as to where to focus in your business. Get the client the “Best Deal”, not just the best rate, but keep the rate in the ballpark (within 25 BPS of the others). And use a lender who will pay you after renewal (now who does that, oh yeah – MERIX), as 90% of your customers are staying with their original lender!

July 22, 2009
The Best Mortgage Rate for You
The Mortgage Centre’s rate page has a very sage title:
“Is it the best rate, or the best rate for you?”
Its point being: A lot of websites claim to have the best rates, but there’s always more to the story.
For one thing, probably 95% of “best rate” claims are false. More importantly, as the Mortgage Centre rightly suggests, the lowest rate is not necessarily the best rate for you.
Unless you know who the quoted lender is, and know that lender’s criteria for credit score, debt ratio, property type, loan-to-value, income, etc., there’s no way to tell on your own if you meet their standards. (Albeit, someone proving $100,000 income the past few years, putting down 20% on a marketable home, with a 35% TDS, and an 720 beacon score, can feel confident about qualifying at most lenders [just as an example]).
Back to the point, there are lots of qualification hoops to jump through with some lenders—especially the lowest cost lenders.
Moreover, there are various economic dangers strewn about the fine print of many mortgages. Examples include:
Zero prepayment privileges
12-month interest penalties
IRD penalties based on bond yields
Fully closed terms (no way out until maturity)
Ultra-short rate-hold periods
No pre-approvals
No portability
Other annoyances:
Horrible post-closing service
Slow approval times
No online access
Unexpected fees
It is the job of mortgage planners to filter the plethora of mortgages and present the best overall value to you. When determining overall value, rate is the #1 criteria, but only after a mortgage is determined to be suitable.
There’s no downside to good advice, so get as much of it as you can. As Canadian Mortgage Professional very wisely wrote: “Homebuyers who ask mortgage professionals 'what is your best rate?' are not going to be well served by a mortgage professional that simply responds with a number.”
Posted at 12:49 AM (www.canadianmortgagetrends.com)

Where is the 5 year rate going?

Here is an interesting article from Canadian Mortgage Trends on where the 5 year rate is headed. They say that lenders want to make sure the lower bond yields are not a “flash in the pan”, but with the bond yield going up to 2.52% and spreads falling below 2% today, I submit that we are going to continue to see that yo-yo effect on bond yields and that will keep the lenders from committing to a rate drop (based on bond yields) until there is some more stability on the spreads.

July 14, 2009
Will 5-Year Mortgage Rates Fall Further?
Banks last raised mortgage rates on June 9, when the 5-year bond yield was at 2.68%.
Since then, the 5-year yield (which guides fixed mortgage pricing) has fallen to 2.44%, but bank rates have not budged.
BMO economist, Doug Porter, told the Toronto Star it’s because banks "want to be convinced that it is not a flash in the pan and that any retreat in yields is sustained."
He says: "I believe that we are probably not too far away from that point. It might take a little more of a deeper rally (in bond prices) to make it completely convincing."
The often quoted CIBC economist, Benjamin Tal, thinks yields could fall another 0.05% to 0.10%, but any drop in fixed-rates will be short-lived. "By the end of the year, we'll start seeing rates rising," he says.
If rates do drop another 0.10%, it would translate into a $5.50 monthly payment savings for every $100,000 of mortgage. That’s a total savings of $478 over five years, assuming a 25-year amortization and typical fixed rates.
But remember, trying to time bond and mortgage rates is financially hazardous. While you’re waiting, rates can move the wrong way—quickly.
You’re usually better served by focusing on factors that can dwarf a 0.10% rate savings, like finding a mortgage with the optimal term and just the right amount of flexibility (pre-payment options, openness, re-advanceability, etc.). Too much flexibility is a waste, and too little can cost you in the long-run.
Posted at 12:03 AM in Mortgage Rate Trends

Atlantic Canada better than most in Canada for housing

Here is a great article to share with your clients and referral sources. Looks like Atlantic Canada is doing better than most other regions.
Transmitted by CNW Group on : July 8, 2009 05:00
Atlantic Canada sails through the housing storm with minimal damage, says RBC Economics
TORONTO, July 8 /CNW/ - The cost of owning a home in Atlantic Canada continues to improve with housing affordability rates among the best in the country, according to the latest housing report released today by RBCEconomics.
"Generally favourable affordability levels in Atlantic Canada have giventhe region some protection against the housing storm," said Robert Hogue,senior economist, RBC. "Home prices have sailed through mostly unscathed, withfew declines reported since last fall."
RBC's affordability measures in the Atlantic Provinces improved again inthe first quarter between 2.1 and 3.5 percentage points, marking the thirdtime this has occurred in the past year, for all housing types.
The report noted that St. John's continues to be Canada's housing hotspot, showing significant price appreciation over the past year although thepace has slowed in recent months. The price of homes in Halifax, Saint Johnand Charlottetown also grew, despite increased levels of volatility.
RBC's Affordability measure for a detached bungalow for Canada's largestcities is as follows: Vancouver 62.6 per cent, Toronto 45.9 per cent, Ottawa39.1 per cent, Montreal 36.5 per cent and Calgary 35.1 per cent.
The report also looked at mortgage carrying costs relative to incomes fora broader sampling of cities across the country, including St. John's,Halifax, Saint John and Charlottetown. For these cities, RBC has used anarrower measure of housing affordability that only takes mortgage paymentsrelative to income into account.
The property benchmark for the Housing Affordability measure, which RBChas compiled since 1985, is based on the costs of owning a detached bungalow.Alternative housing types are also presented including a standard two-storeyhome, a standard townhouse and a standard condo. The higher the reading, themore costly it is to afford a home. For example, an Affordability reading of50 per cent means that homeownership costs, including mortgage payments,utilities and property taxes, take up 50 per cent of a typical household'smonthly pre-tax income.
Highlights from across Canada:
- British Columbia: In the first quarter, housing affordability in B.C. showed the sharpest improvements since 1991. Sales of existing homes have picked up vigorously since the November-January lows, prices appear to be leveling off and more balanced supply and demand conditions are expected to emerge in coming months.
- Alberta: The drop in mortgage rates and sinking home prices have fully restored homeownership affordability in the province. Sales of existing units have rebounded smartly this spring from earlier depressed levels and market conditions have tightened. Alberta's housing market is likely at the point of turning the corner.
- Saskatchewan: Significant improvement in affordability has helped the Saskatchewan housing market pick up pace again after bottoming at the start of the year. Moderately stronger sales of existing homes this spring and a slower pace of home sale listings have restored some balance into the market.
- Manitoba: Supported by relatively favourable affordability rates, Manitoba's market continues to be among the most resilient in the country. A relatively robust economy, steady population growth and recent improvement in affordability should support housing demand in the period ahead.
- Ontario: Spring resales figures show a surprising amount of activity in Ontario, with average prices for existing homes climbing back to where they were mid-2008. Much of this resurgence in the province is due to greater affordability, with homeownership costs for detached bungalows and condominiums dropping below long-term averages.
- Quebec: Resale activity has rebounded quickly in Quebec, reflecting a homeownership market that is now more accessible than has generally been the case in the province since the mid-1980s. Home prices have generally stayed their upward course, even through the period of weaker resale activity earlier this year.

The full RBC Housing Affordability report is available online, as of 8a.m. EDT today at www.rbc.com/economics/market/pdf.house.pdf. /For further information: Robert Hogue, RBC Economics, (416) 974-6192;Matthew Gierasimczuk, RBC Media Relations, (416) 974-2124/

Market Trends / CMHC Report on Lender Retention

There wasn’t much in the way of “news” over the past while, so I decided to write about some trends that are happening now, and speculate about what might be coming down the road. Then head office sent this piece out (below) and I thought it was a great attachment to what I was going to send.

At our recent Atlantic CAAMP Conference, there was lots of talk about efficiencies, funding ratios and lenders looking beyond just volume to make decisions, and there were discussions about supporting “broker lenders” and how to stem the tide of early payouts.

As the recession moves along, lenders are taking a very serious look at how business comes in the door – do lenders want $5M funded from someone with a 20% funding ratio or $2M from someone with an 80% funding ratio? This is a tough decision, but when you factor in every element in the equation – cost of funds, overhead, technology, systems, salaries, commissions, chance of early payout, replacing lost volume in the CMB pool, etc. – the answer most times is that efficiencies are the answer, not just volume. Let’s make this clear, all lenders want volume too, but not volume for volume sake.

When we talk about supporting broker lenders (such as MERIX), we are talking about more than just trying to steal market share. Two years ago in Australia, when the credit crunch happened and asset backed commercial paper (ABCP) markets dried up, the broker lenders in Australia lost the bulk of their funding source (they had no CMB pool as we do in Canada) and most of them shut down. That left only bank lenders there and they almost immediately cut commissions by 40 BPS. That pushed thousands of brokers out of the business. By supporting your broker lenders in Canada, we can avoid letting this happen. In any market, decreased competition leads to less choice for you. Less commission and poorer service are not what we want in this business going forward.

The last thing to cover is the talk about “early payouts” and how this affects the industry. As an originator, you want to own your client, service them indefinitely, do their next mortgage for them, and get paid to do it. As lenders, we want to get a client and keep a client, with some lenders wanting to pay as little as possible to keep the client. So how do these two opposing views get together? There was a panel discussion at CAAMP that asked the question, but came up with very opposing answers. Is the answer having lenders “lock in” their clients so that you can’t refi them and move them elsewhere mid-term? No. Is the answer having originators move their clients to another lender just so they can get paid again, and more? No. As I listened to this panel discussion, I realized that the MERIX Xtended (and even our Basic) Compensation Models were the answer. Paying you beyond the first day of the mortgage, giving you a reason to let that client renew with MERIX by way of trailer fees, and paying you again on a refinance while still keeping your trailer fees in place, now that’s the answer!

To wrap up, let’s look at where the industry is going. Individual incentives in place of volume bonus is a trend we are seeing, and one that likely will continue. Some lenders will leave the industry, some will come in. The trend in subprime business is that it will be funded by “balance sheets” and not by ABCP. This is proving true with VFC (backed by TD Bank money) coming into the market and Xceed announcing that they applied for bank status so that they can raise money through investments, the same way Home Trust does. We will see the numbers of brokers go down overall (but mainly due to “bad” brokers leaving the business). We are also going to see more evolution in the business, and perhaps some revolution too – stay tuned.




CMHC Reports Lender Retention is on the Rise!

But you already knew that, right? How many of you have lost customers to the existing Lender at renewal? The same Lender you referred them to 5 years ago? And how much were you compensated for this?

Good Day Approved Originators!

The 2009 CMHC Consumer Survey was released yesterday and we wanted to share one statistic in particular:

The number of people up for renewal who stayed with their existing lender increased to 90%. That compares to 83% in 2007.

This is a good and bad news story.
The bad news for originators is that decisions you made 5 years ago may be negatively impacting what you are earning today. How much time are you wasting on the 90%? Shouldn’t you be focusing on the other 10%?
The good news is that 5 years ago you didn’t have the options available to you that you have today. And MERIX can help you with this increased retention problem.

Merix:
A) Pays you when the mortgage renews, and for the life of the mortgage
B) Doesn’t believe any party owns the customer. Instead, we support and enhance the relationship between originators and their customers.
C) Always has competitive rates and products. And MERIX customers receive our low published rates at renewal – no need to haggle.
D) Provides incredible long term compensation packages for your book of business

Don't handcuff your mortgage

A big thank you to Gary Marr of the Financial Post for writing today’s email for me! He talks about not only the ARM rate being your best bet still (and says lowest you will get is Prime +60, except he is wrong…Merix is at P+40bps) but he also suggests why not take one of those half fixed, half variable products (like the Merix 50/50 Wise Mortgages)!

Don't handcuff your mortgage
Gary Marr, Financial Post Published: Saturday, June 13, 2009
Would you like to pay an extra $300 per month on your mortgage? Not likely.
That hasn't stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage, from switching over to a more expensive fixed-rate product and paying the extra freight.
A fear of rising rates is driving the rash decision. But if you've finally managed to pin your banker to the ground, why on Earth would you let him off the mat?
More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October of last year, chances are you are now borrowing money for as little as 1.35%. That's based on deals that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.
The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a five-year fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04.
Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week, although discounters were still offering 4% this past week.
"It's not a mass rush yet, but we are starting to see ... people locking in. But variable rates are still so good," says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She stops short of questioning why a consumer would pull out of these "deals" that are no longer available on the market.
Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%.
The landscape changed dramatically in October during the credit crunch. As the Bank of Canada lowered rates, the major banks reluctantly lowered prime because of the massive amount of customers with variable-rate products negotiated under the old, higher terms.
"Bonds yields are going up rapidly and people are starting to realize the rates are going to go up," Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word "conditional"(on inflation rates)when it promised not to raise rates until June, and you can understand why some people think today's record-low prime rate might not hold.
But if you're someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term.
"I don't understand why you would lock in," says Jim Murphy, chief executive of CAAMP. "Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won't rise, so you've got another year at that prime-minus rate."
Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. "The only logic two locking in would be for someone very sensitive to any rate change and they just want to be secure," Mr. Lawby says.
But at what price? If you're using the "feeling secure" logic, why not go for the 10-year fixed-rate product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet fewer than 10% of Canadians consider a 10-year product.
There are some compromises you can make. For starters, there is nothing to prevent consumers from having a blended mortgage at most Canadian banks. Some banks will let you take half your outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to adhere to the same philosophy when managing their debt.
Consumers might want to take their cue from business. Few companies would want all of their debt coming due at the same time -- it presents too much risk. The other option is knocking down principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal every month.
The bottom line is if you've got a deal on your mortgage, why would you give it back?
Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a second receipt. In the interim, DW had to pay the second $56 charge.
gmarr@national-post. Com

BoC's Mark Carney says Merix ARM is a great choice

Here is an article from Canadian Mortgage Trends that quotes Bank of Canada’s Mark Carney stating that the BoC overnight rate will remain low until 2010.
With fixed rates moving up (but still at fantastic rates), it may make sense to offer an ARM rate today. The Merix ARM is at Prime + 0.40%, which equals 2.65% today. This is a great option for lots of clients. If your client is still sitting on the fence, remember that the Merix 50/50 Wise mortgage allows ½ in an ARM and ½ in Fixed, and it goes up to 95% LTV. Great options. And maybe Carney doesn’t exactly say the Merix ARM is a great choice, but all the evidence leads us to that conclusion!

June 11, 2009
Carney Repeats: Rates Low Till June 2010
Bank of Canada chief, Mark Carney, repeated his pledge to keep rates low, saying today:
“Conditional on the outlook for inflation, the Bank expects the policy rate to remain at its current level until the end of the second quarter of 2010…”
That “inflation” caveat means there is a chance rates will rise beforehand, but few are brave enough to predict it. Nonetheless, Carney stressed that things can change.
Carney also said people shouldn’t get overly excited about an economic recovery just yet. He noted lots of uncertainty on the horizon, including the Canadian dollar. It’s virtually unprecedented 2-month rise (see chart) is offsetting much of the government’s economic stimulus.
In conjunction with this news, Canada’s 5-year bond yield promptly bounced off of technical resistance and closed near the day’s lows, at 2.75%. It will be interesting to see if it can get through the 3% level. Perhaps we’ll have a respite from rising mortgage rates for a little while. Or perhaps we’re wishful thinkers.

Canadian Economy on the Rise

Here is a good article for you to share with your clients and referral sources. This may push some of those “fence sitters” onto the right side of the fence for a Merix mortgage, including our great ARM at Prime + 0.40% or our NEW 50/50 Wise Mortgage.

Economic confidence is rising
Julian BeltrameThe Canadian Press OTTAWA
There is mounting evidence that Canada's economy is springing back to life, bringing with it the spirits of ordinary Canadians -- except, it seems, when it comes to the question of whether or not they'll have a job to go to next month.
As the recession relaxes its steely grip on the country, employment remains among the last of the country's economic wounds to heal, usually because leery firms are biding their time lest the signs of improvement prove a false harbinger of better times ahead.
That's why the consensus is predicting Statistics Canada, which releases its latest employment figures tomorrow, will reveal the country dropped another 36,000 jobs in May, and that jobs will keep disappearing for most of the year and possibly well into 2010.
The expected losses would completely wipe out April's surprising 36,000 pickup, which many economists believe overly flattered Canada's ugly labour market.
"I don't believe the StatsCan report for April reflected material improvement for job markets,'' said Derek Holt, vice president of economics with Scotia Capital. "I think it was just a big head-fake on people declaring themselves self-employed for involuntary reasons.''
After five months of vanishing jobs, April's data shocked most observers -- until it became clear the gains were based entirely on 37,000 new jobs in the self-employment category.
In a recession, that is most likely an indication that the newly jobless were trying to create their own work because regular work couldn't be found, they say.
Not that there aren't signs of life -- the so-called "green shoots'' cited by economists as they scour for hope amid the blackened economic landscape -- appearing in increasing regularity in Canada, as well as in the U.S., Europe and Asia.
Yesterday's correction notwithstanding, North American markets are up close to 40 per cent since the lows of early March. Oil prices have also been moving upwards on the expectation of demand in China.
Canadians have started to notice the brightening sky.
Consumer confidence hit a 15-month high last month, according to a Harris-Decima poll that found only 29 per cent of Canadians surveyed expecting economic times to worsen in the next year, compared to a pessimistic 59-per-cent reading in February.
With the sharp downturn seen at the end of 2008 and beginning of 2009 apparently slowing -- but the economy still in recession -- most economists expect the Bank of Canada to sit on its hands today and keep the trend-setting interest rate at the historical low of 0.25 per cent.
But they also see little chance of central bank governor Mark Carney priming the pump with additional stimulus, such as resorting to increasing the money supply through so-called quantitative easing -- a tactic that essentially amounts to printing more cash.
"The significant rise in the Canadian dollar has increased the chances they may move to ease policy further, but at this point we don't think they are willing to do that yet,'' said economist Benjamin Reitzes of BMO Capital Markets.
"If the dollar keeps rising, however, it may provide a significant enough downside shock to the economy for them to feel that further easing is warranted.''
A strong dollar is particularly damaging to Canadian manufacturers, already on their knees from the recession, by making their products less competitive on world markets.
But even the dollar movement yesterday pointed to the central bank taking a time out. After a torrid climb from the 77-cent US levels, the loonie experienced the first significant pullback in weeks, diving 2.29 cents to close at 90.22 cents US.

Rate History Since 1951

If you are having trouble convincing your clients that today’s rates are anything short of fantastic, show them this chart. It shows the average interest rate for the month of June for every year since 1951. The average rate since 1951(excluding 2009) is 9.08%. Pretty powerful stuff.

New numbers give hope for early recovery

Julian BeltrameThe Canadian Press
OTTAWA -- The hair-raising plunge in the world and Canadian economies this winter is showing signs of levelling off as new evidence emerged yesterday pointing to improving conditions.
Economic growth is still months away, say economists, but with each "less bad'' indicator that is posted, fear of continued free-fall is being replaced by cautious optimism.
"I'm in the glass half-full camp,'' said Bank of Montreal deputy chief economist Douglas Porter. "The way the financial markets are going, I think it's quite possible we'll see a recovery sooner than the end of the year. It seems the optimism is becoming more infectious around the world, and that's a good thing.''
The glass half-empty camp argues that financial markets, while much improved, remain risk adverse and that the recovery may be too dependent on temporary massive government stimulus to be sustained.
Yesterday saw more reasons to support a growing consensus that sees global economies starting to come out of the nightmare of the past few months.
* Canada's inflation rate fell to a near 15-year low of 0.4 per cent in April, a clear signal of economic weakness but because the plunge was due to a single-factor -- lower gasoline prices compared to last year -- the steep drop was not worrisome.
* The country's leading indicator of future economic activity rose 0.5 per cent last month over March, the first sign of life in eight months.
* As significant, a survey of 220 fund managers by Bank of America-Merrill Lynch showed the bulls are waking from their slumber, with 57 per cent of managers forecasting a stronger global economy in the next 12 months.
"The unrelenting gloom of a mere three months ago has been replaced by a fairly typical early-cyclical sentiment, with the only hint of potential irrational exuberance in emerging markets,'' the global investment bank said.
The May survey showed that fund managers are still reluctant to jump into the market with both feet as asset allocations remain underweight in securities by six per cent, but that is less than the minus-17 per cent number found in the April survey.
Merrill Lynch analysts said there is still a risk of "too much, too soon'' with the stock markets rally of the past two months, but noted that unlike last fall and early 2009, investors now appear willing to shrug off bad news in expectation the economy will indeed recover.
The past month has seen the emergence of a number of so-called "green shoots'' that point to an improving economic landscape.
After a correction last week, Toronto's stock exchange was back over the 10,000-point line this week.
More bad news is on the way as countries start reporting first-quarter gross domestic product retreats in the next few weeks.
Japan said yesterday its economy contracted a massive 15.2 per cent, the most since it began to keep records in 1955.
The Bank of Canada forecasts Canada's first quarter GDP contraction will top seven per cent when all the data is available in two weeks, also the worst performance since records began in 1961.
But these numbers represent a rear-view mirror of the economy, say analysts, something markets have already left behind.
Economists also judged that the Bank of Canada is now less likely to resort to extraordinary measures because the risk of further steep contraction has diminished.
In a speech Tuesday, Bank of Canada deputy governor John Murray said the bank's action of dropping the policy rate to 0.25 per cent -- and vowing to keep it there for the next year -- has succeeded in improving credit.

Bond Yield affects Fixed Mortgage Rates

Bond yields were down yesterday to 2.07, a drop of 0.07. Four weeks ago it was 1.85. The spread is now 1.71%.
Here is some information from Merix economist, John Bordignon, on the rates:

Spreads have really come down and not sure how long this is going to last. If bond yields get any higher I would say that rates are going to start to move up. I think the Big Banks are keeping the rates artificially low because of the spring season and don’t wish to be perceived as making things harder for consumers. I anticipate that the stock market will be down today (which it was) so we may see an easing on the bond yield side (bond yield will drop). Keep watching them and if they continue to rise, I believe we will see a rate increase.

21 month convertible mortgage

The Merix 21 month rate special made the news at www.canadianmortgagetrends.com. Here is the article:

May 07, 2009
A Variable Alternative
Most variable-rate mortgages are still at prime + 0.60% to prime + 0.80%. That rate premium is part of the reason people aren’t as jazzed up about variables anymore. Many think prime is going up in the next year as well.
If you’re one of these people, and don’t want to commit to locking in a 5-year variable at those high premiums, Merix offers a solution: a 21-month fixed-rate promotion at 2.90%!
This secures you a great variable-equivalent rate for 1.75 years. At that point, you can then hopefully move into a variable at prime (or even prime minus if the mortgage gods allow). It’s also convertible any time into a 5-year fixed at discounted broker rates.
This product is not perfect for everyone, but it’s a solid choice for variable-lovers in the crowd.
The fine print:
Only available for high ratio CMHC-insured financing (i.e., those with less than 20% down payments)
No pre-approvals or switches
Must close by May 29, 2009 (That means applications should be submitted by next week to allow 10 days after approval to close.)
Other conditions apply. Speak with any mortgage planner for complete information.

Where are rates going?

Here is a good article from www.canadianmortgagetrends.com that speaks to some of the factors influencing our rates. Note the last line. With the bond yield update I send out, it should be very easy to track this.

April 26, 2009
“We Can't Go Any Lower”
That’s the opinion of Eric Lascelles, chief economics and rates strategist for TD Securities.
Lascelles was referencing the Bank of Canada’s all-time low 0.25% overnight target rate in his quote.
Canada’s most important banker, Marc Carney, seems to agree. Last week on BNN he said rates were at the "lowest possible level.” He said going from 0.25% to 0.00% is not an option because it would cause technical problems with the functioning of the money market.
Most now see two possible outcomes from here: sideways or up.
If inflation stays at bay, our current sideways interest-rate market could last up to 14 months—the duration Carney hopes to keep the Bank of Canada rate steady.
On the other hand, an uptrend could start as soon as the bond market anticipates a recovery. Bond yields have historically risen well in advance of economic recoveries.
Interestingly, very few people are predicting an imminent jump in bond yields. They feel it’s too unlikely with Canada’s GDP shrinking at the fastest pace on record.
Nonetheless, a short-term yield increase can happen for many reasons besides economic output and inflation. There can be technical reasons (e.g., technical analysts see a nice double-bottom on yield charts right now), supply reasons (if the government issues new debt to finance its activities), and asset allocation reasons (i.e., investors moving out of bonds to higher returning alternatives).

Bank of Canada Explanation Today

There will be lots of information coming out today. Bank of Canada governor Mark Carney will be explaining (maybe vaguely) the reasons for the BoC rate drop and expectations we should have for the future, quantitative easing (printing money), and how this will all affect the Canadian economy. Here is an article from the Financial Post that expands on this. Keep an eye on this as it will affect bond rates/yields which could affect mortgage rates.

Terence Corcoran: Quantitative schemes at the Bank of Canada
Posted: April 22, 2009, 9:17 PM by Ron Nurwisah
Terence Corcoran, central banks
On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary. At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for the next year, assuming borrowers are willing to take a flyer on current Governor Mark Carney’s statement that it will not be changing rates again for the next year.With mortgages going for next to nothing, you might expect house sales to be climbing. But they are not, at least not yet — an indication that there is more to getting an economy moving than monetary policy and interest-rate manipulation. Nor has there been much to show from the deficit spending extravaganzas announced by Ottawa and the provinces. And so now the Bank of Canada is apparently set to announce the next phase in its attempt to kick start borrowing and lending. The bank has already bought up more than $30-billion in various securities from private institutions over the last six months in an attempt to ease credit pressures in some markets. But it has done so carefully without creating excess monetary stimulus that would risk future inflation. This next phase will be different, “unconventional,” according to a Bank of Canada description.Until now, no Canadian central banker has ever used the words “quantitative easing.” Only in the last few weeks has the Bank of Canada issued quick definitions of the phrase. What is quantitative easing? It’s the bank’s “purchase of financial assets through creation of central bank reserves.” The result is twofold. First, the new reserves are also known as “printing money.” The reserves provide the chartered banks with new ability to increase their lending to business and households. Second, by buying financial securities, the Bank of Canada would be increasing the supply of money to a particular market, thereby driving down the interest rates on those securities. If the bank were to buy 10-year corporate bonds, for example, then 10-year bond rates should decline.So that’s the theory. Quantitative easing is supposed to do two things: increase the money supply via chartered bank expansion of lending and reduce longer-term interest rates in areas of the market the Bank of Canada usually has no influence over. The other technique, called “credit easing,” also involves buying private market securities, but in a way that does not necessarily increase the money supply and the risk of inflation.In its monetary report on Wednesday, the Bank is expected to more precisely identify how, when and even if it will start engaging in the business of buying up financial securities so as to drive down longer-term interest rates and increase the money supply beyond the rates of increase already taking place.The risks in this next phase are numerous. As John Crow reports, eventually the big run up in the Bank’s assets has to stop and the process will have to be reversed. The financial securities will have to be sold back into the market. Running around with mop, pail and squeegee to scoop up the excess monetary stimulus will require a degree of central bank fortitude that does not always come easy. The political pressure on central bankers to become what Mr. Crow calls “team players” in keeping growth up at the risk of higher inflation could weaken their resolve. In an odd note on this subject, the Bank of Canada’s recent Q & A says that “if a profound disagreement were to occur between the Bank and the government, the Minister of Finance could issue a written directive to the Governor ... This would most likely result in the Governor’s resignation.”That’s never happened, adds the bank, perhaps hopefully.Another uncertainty is that the quantitative and credit easings may not work. The credit markets and the economies of the world are stalled due to lack of confidence and a market belief that the investment climate is still too risky. The cause of the risk is not interest rates or lack of ready cash or liquidity. There is no absolute proof of this, but investors are likely holding back due to growing concern over government involvement in the economy, especially from the United States, the most crucial drag on the Canadian economy. The Obama administration is setting itself up as controlling manager and chief lever-puller of the banking and financial system, the auto industry and the energy markets. No amount of quantitative easing or stimulus activity in Canada can overcome that drag.