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Average Price Rises 19 Per Cent in November, Compared with a Year Ago
Steve Ladurantaye
Published on Tuesday, Dec. 15, 2009 9:27AM EST Last updated on Tuesday, Dec. 15, 2009 9:39AM EST
National home sales increased by 73 per cent in November from the trough seen a year ago, with Ontario and Quebec hitting new monthly records as buyers took advantage of record low interest
The national average
“The year-over-year increase in November continues to reflect the high degree to which the average was skewed downward last year by plummeting activity in Canada's priciest markets, and then upward by rebounding activity,” the association said in a statement.
CREA tracked 36,383 deals on its Multiple Listing Service in November. Crediting the housing
“National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year,” he said.
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About 437,507 homes have been sold through the CREA-owned MLS system so far this year, up 5 per cent from last year at the same time, but lower than the previous three years.
One of the main drivers of price increases has been a lack of supply, but higher prices are beginning to draw more sellers into the market. Seasonally adjusted new listings rose 5 per cent from October, to 69,110, in the largest gain since January 2008. There is still a dearth of supply however, with the number of homes for sale 23 per cent lower than they were a year ago.
The association's economist, Gregory Klump, said as prices climb higher, would-be buyers may put off purchases, cooling off a hot market. Higher interest
“Deteriorating housing affordability will rein in sales activity as the overall economy further improves and the pool of buyers who qualify for financing shrinks,” he said.
Friday, December 11, 2009 4:21 PM
Prepare your family budget for higher interest rates
Chaya Cooperberg
The Bank of Canada delivered a sobering warning on Thursday, reminding us that low interest rates won’t last forever. Household debt that is easy to service now could become a much heavier burden for families in the future.
“Households need to assess their ability to service these debt obligations over their entire maturity, taking into account likely changes in both income and interest rates,”' the bank told us.
In the corporate world, there has been a high level of refinancing activity over the past year as companies position their balance sheets more securely for an uncertain future.
Although the central bank has not yet moved away from its stance on keeping interest rates low, it makes sense for families to consider and prepare for a higher interest rate environment as well. In order words, think about how higher interest rates could affect your ability to manage your debt and try to reduce any potential risk of a default now.
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In my own home, we recently refinanced our largest debt obligation – our mortgage. With nearly three years to go on our five-year fixed rate mortgage, the penalty was too high to break the agreement and move to a lower interest variable rate. However, my husband and I were concerned about having to refinance our mortgage in 2012, when interest rates may be significantly higher than they are now.
Future interest rates are impossible to predict, driven as they are by a multitude of variables. But we could at least manage our risk exposure. We decided to blend and extend our existing mortgage. This means we blended the interest rate we were paying on our mortgage with the current rate, shaving off 50 basis points, and committed to another five years at the new fixed rate.
Only time will tell whether this was the right move or not. We may well be sorry to have locked into another fixed rate mortgage if rates are still low three years hence. But we have bought peace of mind, knowing that we can comfortably afford our mortgage payments at these levels.
The interest rates on lines of credit and personal loans from bank will also be affected if the central bank moves to raise the prime lending rate.
Personal lines of credit are enormously popular with Canadians. At the end of 2008 personal lines of credit represented 57 per cent of consumer credit issued by chartered banks, according to a report from the Certified General Accountants Association of Canada.
While many of us use our lines of credit as revolving facilities, personal finance experts recommend keeping the balance as low as possible.
“With interest rates low today, now is the time to get rid of the line of credit and pay down chunks of it,” says Laurie Campbell, executive director of Credit Canada, a non-profit credit counseling agency.
If you are carrying a credit card debt, with interest rates that can range anywhere from 18 to 28 per cent, consolidating that debt on a line of credit with a lower interest rate does make sense. Still, says Ms. Campbell, “Always have a plan of attack as to how to get rid of it.”
Many of use are also using home equity lines of credit (HELOCs) as a mortgage alternative. These lines of credit are typically secured against your residence and carry a lower rate of interest than a non-secured line of credit. These too, however, will fluctuate with the prime rate.
The best way to manage your debt for a world with higher interest rates is simply to have less of it. It’s not rocket science, but it takes focus and preparation to get your family’s balance sheet in shape. The time to start is now.
Greg McArthur and Jacquie McNish
Globe and Mail Update Published on Sunday, Dec. 06, 2009 8:06PM EST Last updated on Monday, Dec. 07, 2009 7:29PM EST
For the past three years, Lisa Matthews has never missed a mortgage payment – handing over $292, like clockwork, every week.
But if nothing changes, a bailiff, acting at the request of her mortgage lender, will ring her doorbell and tell Ms. Matthews, her two daughters and her boyfriend to vacate the two-storey house for good.
“This was a pure slap in the face,” said Ms. Matthews, a 36-year-old clerk with the City of Hamilton, who was recently told that, despite her perfect payment record, her mortgage will not be renewed at the end of its three-year term.
Ms. Matthews is one of many Canadians being abandoned by a breed of alternative lenders that have stopped lending to customers, who, because of poor credit
Everyone from the chief executive
Records obtained under the Access to Information Act show that a lobby group representing these lenders has warned the federal
These “orphaned mortgages,” as the industry is calling them, are held by customers who have impeccable payment histories.
But they can't be renewed because the credit crunch has shut off the funding pipeline of non-bank lenders, the lobby says.
This wave of forced sales and evictions will hit its crest this coming year when nearly half of these mortgages – most of which were issued during the real estate boom of 2007 – will not be renewed, the mortgage
Executives with alternative mortgage companies say they cannot renew the stranded mortgages because the once-thriving securitization market that attracted investors to these risky – and lucrative – mortgages collapsed in the wake of the U.S. subprime mortgage crisis. To replace the lost pool of capital, lenders are asking the federal government to back a special billion-dollar fund that would renew the healthy mortgages of borrowers who do not qualify for loans from traditional lenders.
Finance Department officials, however, have responded to the lobby group's alarm bells with caution and questioned their estimates, according to sources close to the negotiations. These sources say Ottawa is frustrated that some of the companies in this small segment of the Canadian mortgage market have been unwilling to hand over data so the problem can be fully assessed, one source said.
“The government thinks this group is asking for help for itself,” said the official close to the talks, which bogged down this summer. “Had they been willing to co-operate with the government and provide that information, some sort of program could have been designed. But you can't design a program on anecdotes.”
The roots of the problem can be traced back to the housing and lending heyday of half a decade ago, when an assortment of “non-conforming,” or subprime mortgage lenders launched operations. Some, such as Xceed and Mississauga-based N-Brook Mortgage Group Inc. had roots in Canada, and others, such as San Diego-based Accredited Home Lenders, migrated from the saturated subprime market in the United States.
Many of these mortgage companies aren't federally regulated so, unlike a bank, they aren't required to insure mortgages when the down payment is equal to less than 20 per cent of the value of the home. And unlike banks, they could – and often did – give loans to people who couldn't afford a down payment. After extra fees were piled on, some of these mortgages added up to as much as 104 per cent of the value of the house being purchased. Interest rates hovered as high as 11 per cent.
Within a few years, this sort of lending started to explode and the new players quickly took hold of 5 per cent of the Canadian market.
But when the financial crisis struck last year, and “subprime” became a dirty word, the pension funds and investment banks that these companies relied upon to fund their mortgages, spurned them. Investors that previously had a ravenous appetite for securities backed by high-risk mortgages were now demanding their money back from companies like Xceed. These investment windows are closing at a time when thousands of mortgages, like Ms. Matthews' loan, are coming due.
Few of the low-income borrowers who were targeted by alternative lenders gave much thought to where their mortgage money was coming from.
“The way we understood it, as long as our mortgage was paid, they would just renew it. The joke was on me,” said Joyce Marentette, a cook in Chatham, Ont., who was also told last year by Xceed that she would have to find other financing, when her three-year term came up.
The problem is more acute in depressed areas such as Southwestern Ontario and parts of Alberta, where there are fewer private financiers and property values have sagged, industry insiders say.
Mortgage brokers in Ontario cities such as Windsor, Chatham and St. Thomas say they regularly receive frantic phone calls from homeowners who are shocked to receive a letter explaining that their mortgage won't be renewed.
“We're not talking about a scoundrel that brought it upon himself. … These are people that didn't do anything wrong,” said Joel Katz, a Windsor mortgage broker. Mr. Katz said he believes the issue isn't on the government's radar because this type of lending accounted for such a small segment of the market compared with the United States. “The problem wasn't as big here, and there are people who are getting stepped on and overlooked.”
But exactly how many people are being “stepped on?” Public records in Canada are so scarce, it's impossible – even for lawmakers – to know for sure. Ottawa relies on Canada Mortgage and Housing Corp. for data, but because none of these subprime players insured their mortgages through CMHC, the public agency knows very little about their state of their books. One source close to the Finance Department said officials at the Crown corporation figure that stranded borrowers account for only “a tiny sliver” of the country's homeowners.
Paul McGill, president of mortgage provider N-Brook and spokesman for the mortgage lenders lobby, argues Ottawa is understating the problem. He said he has supplied federal officials with data showing that $1.7-billion of healthy mortgages could be stranded and that these borrowers lack high enough credit scores to qualify for loans from more conservative lenders.
Mr. McGill said federal officials responded by asking mortgage lenders to supply extensive borrower details such as marital status and garage dimensions. Mr. McGill said the requests would have cost too much time and money to fulfill. Lenders have scaled back their proposal to call for a $1-billion Ottawa-backed fund that could renew stranded mortgages. He said Ottawa has not been supportive.
In response to questions, the Finance Department issued a statement saying: “The government is monitoring housing and mortgage markets in order to ensure they remain stable, strong and competitive.”
Far away from the push and pull in Ottawa, Ms. Matthews has put her house up for sale. A handful of prospective buyers has wandered through, but she has received no offers. A few weeks ago, she received a letter from Xceed's lawyers, explaining that she owes the company nearly $128,000. This means that, despite paying Xceed about $40,000 over the past three years, she now owes $1,000 more than she originally borrowed.
When she opted to buy her first home, she had to get over the hurdle of her low credit score. An unpaid student loan had caught up with her. She had no down payment, and paid a 9.15-per-cent interest rate with Xceed.
“I just thought they were my foot in the door,” she said.
Ivan Wahl, Xceed's CEO, said his company has identified 1,100 borrowers that his company will maroon over the next three years. For those people “it is an absolute disaster,” he said. Despite his sympathy, he says he is contractually obligated to pay Xceed's investors, which means demanding full payment at renewal time. “The government certainly should step up to the plate to provide some facilities for people who got caught in the crunch.”
Ms. Matthews said she doesn't expect the government to do anything for her, and is reserving her frustration for Xceed. She said the companies involved should be giving their customers more warning about their inability to renew. She received a warning letter 31/2 months before her mortgage matured.
“If I knew it was going to end like this, I never would have done it.”
Full Percentage Point Rate Hikes Expected by Economists
TORONTO — The Bank of Canada repeated its pledge Tuesday to keep interests rates at historic lows until the middle of next year to stimulate growth and a sense of stability in the midst of a slow economic recovery.
But, economists are calling for rate hikes as much as a full percentage point or more later next year, and say the bank’s commitment to keep its key rates at 0.25 per cent creates a false sense of security in borrowers who have taken on debts larger than they could normally afford.
The C.D. Howe Institute’s 12-member monetary policy council’s median target for the overnight rate was for one per cent in the second half of 2010.
The council said the central bank should give a strong signal that when the overnight rate moves up, it may be quick and large. They also suggested the bank rein in the housing market by raising the required down payment on government-insured mortgages.
C.D. Howe president and CEO William Robson says a rapid rise in interest rates expected late next year could prove devastating for homeowners who have not evaluated their ability to carry their mortgage at a higher interest rate.
The central bank announced Tuesday the global economy has been slightly more positive than it was at the time of the bank’s October pronouncement, but added “significant fragilities remain.”
The economy grew less than analysts expected in the third quarter and inflation has been slightly higher than the central bank expected.
Diana Petramala, an economist at TD Bank, said as long as those fragilities remain, the Bank of Canada will not be swayed to move quickly with interest rate hikes.
She said TD believes there is more risk associated with the combination of a mild U.S. recovery and strengthening Canadian dollar than the central bank has outlined.
Petramala said the bank’s projection for three per cent growth in 2010 is slightly more optimistic than TD’s forecast of 2.7 per cent growth, adding that she believes the Bank of Canada’s first rate hike will not come until the fourth quarter of next year.
Dawn Desjardins, assistant chief economist at RBC Economics, said still volatile markets and global market uncertainties suggest a significant change to the central bank’s policy is premature.
Given the still-fragile global economy, she said, Canada’s growth rate in 2010 will likely fall short of those recorded during the early stages of past recoveries.
Desjardins added that if the economy continues to build momentum by next summer, the bank will likely hike the rate by one percentage point for the second half of next year.
Michael Gregory, a senior economist at BMO Capital Markets, said there was a faintly more hawkish tone in the bank’s announcement.
“The combination of higher-than-projected global growth and domestic core inflation is a shade more hawkish no matter what prism you’re looking through,” he said.
“The bank is on hold until the end of June, but come next Canada Day the bank will be hoisting its hawkish colours amid all the Canadian flags.”
The Canadian Press
Bank of Canada maintains rate at .50%
| FOR IMMEDIATE RELEASE 8 December 2009 | CONTACT: Jeremy Harrison 613 782-8782 |
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.
While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank's projection in its October Monetary Policy Report (MPR).
In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.
The main drivers and the profile of the projected recovery in Canada remain consistent with the Bank's views in the October MPR. The Bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2 per cent target in the second half of 2011.
Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.
The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. The Bank views all of these risks through the prism of achieving the 2 per cent inflation target.
While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.
Information note:
The next scheduled date for announcing the overnight rate target is 19 January 2010. A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 January 2010.
In Vancouver, camping out for condos is the norm once more
Real estate market is back to its regular insanity, and the promised market correction is nowhere to be seen
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Gary Mason
From Tuesday's Globe and Mail Published on Monday, Dec. 07, 2009 7:12PM EST Last updated on Tuesday, Dec. 08, 2009 8:09AM EST
People were sleeping on the streets of Vancouver the other night.
This is nothing new, of course. Except these people weren't homeless, they were home-hunters, camping overnight on a downtown sidewalk to be among the first to buy into a new condo tower opening in the city's trendy Yaletown district.
About 20 people spent a frigid Friday night a week ago outside the sales office for a new building called The Mark. By the end of business the next day, 163 of the 214 available condos had been sold.
Phew, what a relief. Insanity is back in the real estate market.
Not that long ago, these condo campouts were all the rage. And new towers were going up as fast as man could build them. Many of the purchasers were young couples who weren't prepared to part with their first born – and a million bucks of the bank's money – to own some shack on the city's east side.
Open houses, meantime, were events. Cars of would-be buyers would line neighbourhood streets waiting for a real estate agent to fling open the front doors of some red-hot property that the owner had bought for a song 10 years earlier. A stampede would ensue. Bidding wars would erupt on the spot. Sellers would routinely get tens of thousands over their asking price.
When financial calamity arrived in the form of the economic meltdown of 2008, it was almost a blessing. Home prices had become way out of whack. Now there would be a massive market correction. Economic forecasters were predicting it might be two or three years before we again saw house sales and prices begin to grow at the rates we had witnessed for much of the decade.
Some correction.
A recent report by the TD Bank indicates Canadians have gone house mad once again. As of October, sales were up 74 per cent and prices were 20 per cent ahead of what they were at their low point in 2008. In some markets, sales and prices have recovered to the crazy 2007 levels and beyond. The report says the average home right now is about 12 per cent overpriced.
And climbing.
Vancouver certainly isn't your typical real estate market. Still, it's all relative. And lately there doesn't seem to be a home that isn't selling for more than the listed price. One home on the east side of the city went for more than $300,000 above asking. Many have been going for a couple of hundred grand more.
What's fuelling this madness? Pent-up demand certainly. But more importantly, mortgage rates that are almost too good to be true. And definitely too good to be passed up.
If you believe the economy is coming back, that your job is safe and that real estate remains the most solid investment a person can make, why wouldn't you jump in? Prices are only going to keep going up, right? The longer you wait the more it will cost you. Isn't that the law of the jungle? It is, except no one expects this latest price surge to continue. The bidding will become unsustainable. Home affordability will deteriorate to a point where the average person can't get in. Some think we're almost there.
The greater worry, however, is with some of those who are taking huge gambles. Many have assumed a massive mortgage load to finance their little piece of heaven. It all seems manageable now with mortgage rates so low. Here's the problem: those rates will soon begin going up as sure as a blonde cocktail waitress from Las Vegas will claim later this week that she slept with Tiger Woods.
And in three or four years time, the mortgage math on which some people predicated the purchase of their home will no longer make sense. Suddenly, their payments are hundreds of dollars more a month.
Then what? “Some of these folks undoubtedly will end up in financial distress in a few years' time,” says economist Jock Finlayson of the Business Council of B.C.
Many of today's buyers will deal with that crisis when they come to it. For now, they're not going to let a little scary talk burst their housing bubble.
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