June 29, 2009 by Cheryl Duval.

People Power and Affordability

Here is a great article by Cameron Muir from BC Homes Magazine that talks about how population growth in B.C. will spur on the housing markets for years to come.

It’s been a difficult twelve months for B.C.’s housing markets. No question. However, while we wait to hear the latest  unemployment figures or goverment stimulus packages it might be fun, or perhaps even refreshing, to take a look at two things that are working in B.C.’s favour. The first is population growth, without which the housing stock wouldn’t need to expand; and housing affordability, the quiet redeemer of markets.

B.C.’s population grew by an impressive 14,440 from October to January, second only to Alberta. This was the highest fourth quarter of growth since 1996. The largest contributor to this growth was international migrants, netting B.C. 10,255 individuals during the fourth quarter, 64 percent more than a year ago. In fact,  net international migration broke the record books in 2008, even surpassing 1996 when the province experienced a significant influx of Hong Kong immigrants. However, weaker economic conditions have slowed migration from other provinces, as B.C. economy isno longer the brightest light in the country. Net interprovincial migration fell to 6,450 individucals in 2008 from 15,520 in 2007, but nonetheles remained in positive territory. Despite the current challenges in the economy, migration will become increasingly important over the coming decades as B.C.’s population ages, and deaths begin to outpace births. By 2026/2027, migration may be the only source of population growth for the province. If B.C. Stats current population projections are any indication, the recent level of migration will be the norm and not an exception. Annual net migration is expected to range between 50,000 and 60,000 individuals over the long term. In twenty-years, this could add another 1.27 million people to the province. This means that demand for housing will be robust over the long-term, despite the current weakness.

Housing affordability is the relative difference between household income and carrying cost of ownership, in other words - your mortgage payment.  Lenders typically limit the carrying cost to a maximum of 32 percent of the borrower’s pre-tax income. Since incomes tend to grow very slowly compared to short-term changes in mortgage interest rates and home prices, the carrying cost of the average home in the market is a great indicator of housing affordability.

Many market watchers concentrate solely on home prices relative to income and ignore the impact of interest rate changes, which can be significant. You may be surprised to learn that while the average price of a hoe in B.C. is down 11 percent from a year ago, the carrying cost has actually declined 23 percent, the difference being lower mortgage interest rates. The combination of lower home prices AND lower interest rates means buying a home in B.C. is now more affordable than at any time in the last three years, which coincidently was the last time the carrying cost of housing made sense relative to income.

So, population growth is ver much in B.C.’s favour for at least the next few decades. This will keep our homebuilders building despite brief downturns in the market. In addition, housing affordability makes a lot more sense today. A typical home buyer’s mortgage payment has been slashed by nearly one-quarter over the last twelve months. No wonder so many potential buyers are kicking tires this spring.

Cameron Muir is chief economist at the BC Real Estate Association. He has 20 years experience in housing and development, devoting the last 10 years to the analysis and forecasting of B.C.’s housing markets and economy.

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June 18, 2009 by Cheryl Duval.

Source: CBSNews

In a rare interview with a sitting Fed chairman, Ben Bernanke tells 60 Minutes what went wrong with America’s financial system, how it caused the economic crisis, what the Fed is doing to help fix it and when he expects the recession to end.

Please click on the links to watch the videos!

Behind the scenes
Inside the vault of the Reserve Bank of New York, where robots move pallets of cash, each carrying 64 million dollars!

The Chairman Pt 1
If you think your job is tough, consider Ben Bernanke`s. As Chairman of the Federal Reserve, the task of reviving the U.S. economy falls largely on his shoulders. Scott Pelley has the interview

The Chairman Pt 2
Federal Reserve Chairman Ben Bernanke candidly speaks to Scott Pelley about his personal life, as both visit his old high school and how the current financial crisis is affecting Main Street America, including foreclosure on his childhood home.

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June 7, 2009 by Cheryl Duval.

WHAT IS A CREDIT SCORE
There are two main credit reporting agencies in Canada They are TransUnion and Equifax. Both these agencies grade how much of a lending risk you are in the near future by analyzing your financial history. They are grade you using a score between 300 and 900, by predicting your financial behaviour in a 10 year span compared to other people who always pay their loans on time using your financial history. One below a score of 650 is considered “poor”, making it hard to secure credit. One above 750 is considered “excellent” and can, in many instances, make you eligible for the best rates.

WHY IS YOUR CREDIT SCORE IMPORTANT
Because your credit score measures how much of a lending risk you are to creditors, it plays a major role in their decision on whether or not they are willing to help you with financing and what sort of rates or products you will be offered. This can be a bigger impact on your life than just securing a car loan, credit cards or a mortgage as other bodies such as employers, landlords, cell phone companies, and many more, put weight on your credit score before securing your services or doing business with you.

But mainly, with a high score, you’ll be in a better position to be approved for better deals and better rates and this could potentially equal thousands of dollars saved in your pocket from savings on interest charges on everything from your car loan to your mortgage.

Below are 7 useful tips on how to improve your credit rating:

1. BE INFORMED
Get a complete picture of your credit score. Make sure that you request a copy of your report once a year so that you can review it for errors and accuracy. You may find entries there that haven’t been reported properly, or items that you were not even aware of. With this knowledge, you will be able to dispute inaccurate information, or deal with any other issues you were not aware of.

2. BALANCE THE AMOUNT OF AVAILABLE CREDIT YOU HAVE
Make sure you that you have a good mix of loans and credit cards to show that you can manage debt. While it might be easier to manage one single credit card or loan, lenders like to see that you have the ability to manage different types of credit with potentially higher payment obligations.

3. MAKE MINIMUM PAYMENTS ON TIME
Late payments impact your score negatively. The longer you pay your bills on time, the higher your score will be. Bills that go into collections stay there for seven years so make sure not to let a bill go to the collection agency.

4. TRY TO KEEP YOUR REVOLVING CREDIT BALANCES LOW
Revolving credit is credit that does not have a fixed number of payments and are reusable. This is credit that doesn’t require the borrower to pay off in a certain time frame, but incurs interest on balances. Make sure to try your best to pay it off at the end of the month, or at least, to keep your balances as low as possible. Keep balances to equal only 50% of your total available limit.

5. TRY NOT TO CLOSE UP YOUR CREDIT ACCOUNTS
Try not to close up credit cards. Part of your credit score is calculated using the ratio between your debt and available credit limit so closing accounts will make this ratio higher, and can negatively impact your score. If you do have to close accounts, make sure you do so in reverse chronological order as your score improves with longer credit history. If you’ve made payments on a credit card on time and for a long while now, cancelling it will essentially negatively impact your score as you are essentially cancelling positive credit history.

6. DON’T APPLY FOR MULTIPLE CREDIT ACCOUNTS WITHIN A SHORT SPAN
Lenders assess you as being a higher lending risk if you open a number of new accounts in a short time. It appears that you are needing, and most likely using, a lot of credit in a small amount of time.

7. IF YOU HAVE POOR CREDIT, OR NO CREDIT, START REBUILDING OR BUILDING YOUR CREDIT RIGHT AWAY
Apply for a “secured credit card.” Secured credit cards are obtained by depositing an amount of money with the institution that is issuing the secured card. The credit limit is determined as a percentage of the amount deposited. With this secured card, make sure that you make your payments on time. Make sure you use this card as you don’t build credit by just having a secured card. Lenders like to see that although you are using credit, you are managing it responsibly.

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May 26, 2009 by Cheryl Duval.

Individuals and businesses have survived past downturns — and so they will again
Source: The Vancouver Sun
Author: Peter Simpson, CEO Greater Vancouver Home Builders’ Association

Readers are pulled into newspaper stories by the headlines, particularly if they are provocative. There is no way you could resist reading the story below this gem from the New York Post front page in 1982: “Headless body in topless bar.” The gutsy tabloid reported the decapitation of a barkeeper.

Still on topless topics, when I was an ink-stained newspaper wretch during the ’80s, I edited a Walter Stewart column about a trip he and his wife took to the south of France, where they sat on a boardwalk bench and watched the passing parade, including women who preferred to stroll topless.

Stewart’s column was amusing, so I wrote what I believed was a fitting headline,”Stroll down mammary lane.” Well, the managing editor did not share my sense of amusement and changed the headline, ruling it was of questionable taste. Looking back from today’s vantage spot, he was right. I did, however, fall back into favour later that week with a headline describing a new Swedish tax system that was progressive yet unpopular with taxpayers: “Swede and sour taxation.” The editor, who was likely feeling a tad hungry towards the end of his long shift, appreciated the yummy head.

Here are some other newspaper headlines: “Global recession deepens; Jobless rate hits three-year high; Recession hits auto plants; U.S. economy flashes new distress signals; Gloomy jobless rate.”

Do those demoralizing headlines sound familiar? Most of you are likely nodding your heads in agreement, thinking I am referencing recent news reports. Well, here’s the thing, those headlines don’t reflect current goings-on, they accompanied newspaper stories published 35 years ago.

I stumbled onto them while researching key events in 1974, the year the Greater Vancouver Home Builders’ Association was incorporated under the B.C. Societies Act.

Families and businesses survived the ’70s, ’80s and ’90s, and we will rebound even stronger from the current economic malaise. By the way, the average price of a detached home in the Fraser Valley in the mid 1970s was $53,525. Today it is just above $500,000 — a whopping 834 per-cent increase!

During economic downturns, history is a great teacher, but it is important to focus on current facts.

The homebuilding industry experienced many years of growth and rising prices. There are those who believe that the overheated market was unsustainable, that a cyclical downturn was a matter of when, not if, and, to use a baseball analogy, that the industry was playing in extra innings during 2008.

That said, Canada’s housing sector, particularly Metro Vancouver, remains resilient, is significantly different than elsewhere in the world, and the commonly held belief, according to the Ottawa-based Canadian Home Builders’ Association, is that we are not experiencing a U.S.-style housing slump.

The following are some points to ponder:

- Canadian lenders use prudent standards for qualifying mortgage borrowers. There are very few sub-prime mortgages in Canada, unlike in the U.S., where 20 to 25 per cent of mortgages issued from 2004-2006 went to low-income people with few assets and woefully little or no credit history.

- There is no glut of unsold new homes in Canada, as most builders pre-sell homes here. Yes, inventories here have gone up during the past six months, but they are still small and manageable. By comparison, U.S. inventories of complete and unsold homes remain high.

- Canadians typically have far less household debt and greater equity in their homes than Americans. Because of this, Canadians generally have much less risk of mortgage default.

- Only 0.3 per cent of Canadian mortgages are in arrears, compared to more than six per cent in the U.S. If Canadian borrowers have difficulties repaying their mortgages, lenders and mortgage insurers will work with them to try to find manageable solutions.

- Canadian banks are rock solid, among the strongest in the world, and they continue to approve mortgages for credit-worthy home buyers.

- Mortgage rates are at historical lows. Lower interest rates mean lower monthly payments, which in turn means more people can qualify for a mortgage and buy a home.

- The current drop in home prices is much less than generally reported, as declining prices and sales at the high end of the market have a disproportional impact on the overall numbers.

- Canada’s home ownership rate remains high, an enviable status achieved without relaxing the standards for qualifying mortgage borrowers.

One headline is sure to be written again and again, by generation after generation of journalists — “Real-estate prices rise.” Bet on it.

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May 19, 2009 by Camilo Rodriguez.

When you convert your home into an asset, or, in other words, when you use your principal residence to produce income, not only can you save money by declaring the interest portion of your mortgage as an expense in your income tax return, you can also take advantage of other various money-saving opportunities.

The most common ways to have your home produce income are:
1) Basement suites rented out
2) Homestay for local or international students
3) Running a home-based business
What you would typically be able to deduct as business expenses:
1) Interest portion of your mortgage payment
2) Office supplies
3) Furniture
4) Software used for your business
5) Telephone bills
6) Internet bills
7) Other utility bills (hydro, heat, water)

Before you try this strategy, I would encourage you to seek the help of an accountant to help you analyze whether or not you want to use your home to generate revenue. You should pick an activity that you like and assess your overall personal and financial situation. Do not do it solely for the deductions or to save money in the short term.

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May 12, 2009 by Camilo Rodriguez.

This is a series of the best 10 ways to reduce your mortgage balance faster and/or reduce the interest rate of the largest liability most families have, their Mortgage. 

Here is an innovative program used by major builders in Vancouver that will allow you to save money by reducing your mortgage payments over a number of years.

When You Are Buying
With a Payment Subsidy, you agree to subsidize the mortgage payment of the buyer for 1-5 years vs. or in addition to a price reduction.  For listings or pre-sale units, you are able to offer rates as low as the buyer wants with very low payments.  This is intended to differentiate your property from other properties for sale as buyers would be interested in such low payments and you have an alternate option other than reducing the sale price.

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April 27, 2009 by Cheryl Duval.

With the Bank of Canada slashing it’s guideline interest rate to .25 per cent, the lowest in history, mortgaged property owners may be pondering if it’s prudent to refinance their debt.Financial experts suggest it’s a good time to consider refinancing, but, as with all monetary considerations, there can be pleasures and penalties.

The basic rule of thumb is if you are paying more than five per cent interest, you should consider revising your mortgage.

With a five-year fixed rate currently averaging less than four per cent, the savings can be huge, both in terms of monthly payments and the total interest paid out over the full term of the mortgage.

Consider, since the Bank of Canada’s announcement Tuesday, closed mortgage rates are as low as 3.2 per cent for a one year term and 3.82 per cent for five years.

Rates are expected to fluctuate as market volatility continues, however.

“It’s absolutely a fantastic time to refinance,” Dominion Lending Centres Perfect Mortgage agent Greg Barrow said. “If you have less than two years left on the term of a mortgage, 85 per cent of the time you’ll be able to save money.”

But refinancing may not be for everyone, particularly when you factor in penalties associated with breaking your mortgage, the Richmond Hill mortgage specialist said.

It’s called the interest rate differential. Homeowners considering refinancing will either have to pay a flat three months interest penalty, or make up the difference in interest rates, which ever is greater.

For instance, if you have a high mortgage interest rate, of about six per cent, with several more years remaining, the penalty for switching to a lower rate may end up costing more.

Today, most lenders charge a penalty based on the number of months left on the mortgage, the outstanding balance, the difference between current and past interest rates, and other factors.

These calculations are complicated and differ between lenders so you have to confirm the penalty figure directly from your current mortgage holder. But don’t be surprised if your penalty is astronomical.

Every mortgage is unique, Mr. Barrow said. However, we asked him to calculate a generic, best-case-scenario, based on a $250,000 mortgage in the second year of a five-year 6 per cent fixed rate, which is switched to a much lower variable rate.

Penalties vary because each lender has different policies.

“In addition, when changing to a variable rate you would have to assume the rate stays the same for the remainder of the term so it is much easier to calculate savings with a fixed rate,” he said. “If I change the interest rate to today’s low of 3.69 per cent, for a five-year fixed, the client would save $301.07 on their monthly payment and $6,957.23 over the remaining term.”

TD Canada Trust Real Estate Secured Lending vice president Joan Dal Bianco has noticed an increase in customer inquiries.

Financial experts are used to explaining the pros and cons of paying the penalty to get out of a fixed mortgage.

On the up side, there may be a potential interest savings by breaking your mortgage early.

However, if there is an actual savings could depend on the interest rate environment in the months and years ahead, Ms Dal Bianco said.

Not as uplifting, is if a homeowner breaks their mortgage and renews with a variable rate, then rates increase, the homeowner would likely not recoup their penalty fees through interest savings, she said.

Both mortgage professionals recommend homeowners discuss their circumstances with their lender, banker or broker.

If you can save money by lowering your mortgage payments, you will be better able to manage your debt, Mr. Barrow said.

Refinancing your first mortgage and taking some existing equity out could also help you pay off some of your high-interest rate credit card debts. You could also take some extra money out to invest, go on vacation, do some renovations or even invest in your children’s education.

Refinancing your first mortgage is typically more cost effective than taking out a second mortgage.

And, with tax credits up to $1,350 and $5,000 eco-energy retrofit grants available from the government, putting refinanced savings back into your home helps build value and equity.

Slow economic growth and low interest are expected to continue into 2010.

“We’re also being proactive with clients who are struggling,” Ms Dal Bianco said. “We want to see how we can help keep them in their homes during these challenging times.”

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April 20, 2009 by Cheryl Duval.

If you are looking to predict when mortgage rates will rise and fall, tracking the movements of Government of Canada bond yields daily is a great way to do this. A strong correlation exists between mortgage rates and government bond yields which many people aren’t aware of. As government bond yields change daily, so can fixed mortgage rates. The simplest explanation for this is that chartered banks set their mortgage rates based on yields in the bond market. 

Although there are many factors that affect mortgage rates, Government of Canada bond yields is considered the largest.

Why are mortgage rates higher than bond rates?
With a government bond, an investor is guaranteed repayment. However, this is not the case with mortgages; therefore mortgages carry more risk, either through default or early repayment. Because of this, mortgage rates are higher to compensate for the extra risk that lenders incur for financing a mortgage. Banks will set their mortgage rates high enough above the bond yield to cover costs and have a profit margin for incurring the extra risk.

How much higher are mortgages priced?
The average “spread” or markup above the secured government bond is approximately 120 basis points, or 1.2%, in a normal or steady economy. However, this relationship is not a fixed one. This “spread” widens or contracts depending an a number of economic and market conditions. As you can see in the graph below, the recent financial crisis has had a great affect in widening the spread.

One major factor for this widened spread is due to the fact that at this time of recession, people are more wary of high-risk investments and prefer to invest in safe bets, such as government bonds. Because of the large demands, the effective yield for many government bonds are less than 2% while mortgages aren’t moving. However, if you look at the graph, both the rates for mortgages and bond yields are still trending the same. The result for this is, because fixed mortgage rates do follow bond yield rates, are that at this time, it is safe to say that fixed mortgage rates are trending downwards.

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April 13, 2009 by Cheryl Duval.

 ’Lenders of last resort’ now enjoy 30% share of market
Source: THE PROVINCE, April 13, 2009

More than a decade ago, Bob Alexander was working as a professional accountant when he walked into a bank to get a mortgage. When he got turned down, he was completely baffled.

“My friend told me I should go see a broker,” says Alexander. It was a perception that was prevalent at the time: Mortgage brokers were seen as the place you went when the banks turned you down.

Alexander went to see a broker, secured a mortgage and bought a home. He was so intrigued by this often misunderstood field that he decided to switch careers and become a broker himself.

“Ten or 15 years ago, mortgage brokers used to be the lenders of last resort,” says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals, the organization that certifies the AMP designation.

“The mortgage broker channel has grown enormously,” says Murphy. “I think the consumer sees it in a much more positive light.” In fact, about 30 per cent of all mortgages in Canada today are secured through mortgage brokers, according to a study from CAAMP. There are 3,800 certified professionals with the AMP designation working across Canada.

When CAAMP introduced the certification four years ago, Alexander — whose been a broker for eight years now — decided to earn his designation.

Banks used to compete directly with brokers, using their own sales forces to go out and develop new leads. The brokers, meanwhile, would charge their own clients a fee to find them a mortgage.

Now, most banks have chopped those sales forces and instead enjoy a more mutually beneficial deal with brokers, who no longer charge the client a fee. Alexander, like other AMP brokers, provides his services free to the client. The lending institution pays him a finder’s fee based on the size and type of the mortgage he secures for his clients.

The AMP designation requires two years of industry experience, an entry-level certification course plus 10 hours of continuing education every 12-month cycle to remain current.

“It’s really important because a mortgage is the biggest financial investment most people will make in their lives, so they want to make sure the [broker] is knowledgeable, trained, knows the issues and the market and is able to give the consumer good advice,” says Murphy.

Since brokers like Alexander have access to 40 lenders offering upward of 400 different products, the field has evolved in recent years to become a viable option for anybody seeking a competitive mortgage.

While he works with the big five banks in Canada, he also taps into other lending institutions such as First National Financial LP and Australian-based lending giant Macquarie Financial (Canada) Ltd.

When anybody walks into Alexander’s office, his job is to match your credit level — A, B, C or D — with an appropriate lender that caters to the same type or types of customers.

What has changed in recent months, due to the economic recession, is there are fewer D-level lenders around, especially the American banks that ventured north prior to the subprime market collapse last year.

“We’ve seen a general tightening [of credit] right across the board,” he says.

Murphy says it’s important that in any kind of economy for potential homebuyers to realize — and utilize — the new brand of mortgage professional.

Alexander agrees, but cautions people to do a little research, make sure they’re comfortable with the person across the table and ask questions.

“The first thing you should do is look for someone with that AMP designation,” says Alexander.

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April 6, 2009 by Cheryl Duval.

 Source: Derek Sankey, Canwest News Service, Financial Post 

Paul Anderson and his wife, Sue, felt like they could only dream of home ownership. After having some credit problems, the effects of which lingered on for several years, they got their financial house in order and got up the courage to apply for a mortgage a few weeks ago.

Much to their surprise, and after some negotiating, the couple were approved. “I looked at my wife with a tear in my eye and realized … I might get a house,” says Mr. Anderson, 42. The couple have three children.

“There are good people out there with good jobs that really don’t have a lot to bring to the party, but they’re already paying $1,600, $1,800 a month [in rent] anyway,” he says. “At the end of the day, I’ma proud owner of a new home.”

It’s one of the best buyers’ real estate markets in years, with interest rates at historic lows, falling house prices and new incentive programs available. But many consumers — including many first-time homebuyers — lack the knowledge and preparation to determine what they can afford.

Banking experts say this is the first crucial step toward making any successful real estate transaction. Yet many consumers are missing out on opportunities to determine how much they can afford and they are overlooking tools available to help them get into home ownership.

The Andersons, for example, had no idea what to expect before they were approved for a $400,000 mortgage for a new Calgary home.

“It should start with getting pre-approved and not being intimidated by the process,” says Laura Parsons, area manager in specialized sales with Bank of Montreal (BMO). Many people think home ownership is out of reach because they haven’t done the calculations or sought expert advice about their options.

“We look at university professionals or tradespeople coming out of school with all this student-loan debt, but it doesn’t mean you cannot get into home ownership,” Ms. Parsons says. She notes banks can consolidate debt to reduce monthly payments.

A pre-approved mortgage establishes realistic expectations about what you can afford based on your gross debt service ratio — your gross annual income relative to the principal and interest of the mortgage plus typical heating costs and property taxes. Canadian guidelines state those costs cannot exceed 32% of your gross annual income.

“Pre-approval … really demonstrates that a buyer is serious, and that can help you with negotiating with sellers and agents,” says Bernice Dunsby, senior manager of home equity financing with Royal Bank of Canada (RBC).

It also allows buyers to lock in their interest rates for 90 days in the event that rates go up, or they can take a lower rate during that time if rates go down further.

You must now have at least 5% of the cost of the mortgage as a down payment. If it’s less than 20%, it gets classified as a “high ratio” mortgage and will require insurance. Despite gloomy public perception, banks are working with all types of people to develop home ownership plans and doing everything they can to get you a mortgage that works for you. It’s not just young couples with children who are buying these days, either.

“It’s not your traditional buyers,” Ms. Parsons says. “There are options for everybody.” She recently saw a group of friends pool their resources to buy, while people of all ages who have previously rented — such as the Andersons — are increasingly looking to own a home.

Many parents are even laying the foundation of home ownership for their children in university, she says. A recent RBC survey revealed 48% of potential buyers stated they would buy this year, while 52% said they would wait until next year.

The vast majority across Canada — 65% — agree it’s firmly a buyers’ market.

While it’s one of the best markets right now to buy, be realistic and work with an expert since each individual’s affordability is different.

“Don’t get caught up in the hype of the opportunity, but sit down with a specialist and determine what’s right for you,” Ms. Dunsby says. “You don’t want to stretch yourself too thin.”

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March 26, 2009 by Camilo Rodriguez.

 For those not in the mortgage industry, Fannie Mae is the US equivalent of CMHC (Canada housing and Mortgage Corporation) in Canada.  This article written in the New York Times in September 30, 1999 is very clear on what could happen in the future by Fannie Mae easing the credit requirements on loans.  Interesting to note as well how politics also play a very important role in the current US Financial crisis.

Highlights:

* Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

* “Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements”, said Franklin D. Raines, Fannie Mae’s chairman and cheif executive officer.  “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has requrired who have been relegated to paying significantly higher mortgage rates in the so called subprime market.”

* In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times.  But the government subsidized corporation may run into trouble in an economic turndown, prompting a government rescue similar to that of the savings and loan industry in the 1080’s.

Read full article:  nytimes1999.pdf

Special Thanks to Henk Gauw for sharing this article.

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March 23, 2009 by Camilo Rodriguez.

Ross Marowits, THE CANADIAN PRESS MONTREAL -

Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.Canadian Imperial Bank of Commerce’s chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.“If you’re really risk-averse, jump on those fixed-term rates because they’re extremely cheap,” Benjamin Tal said in an interview.

“Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising.”Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.The central bank went even further on Tuesday, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.50 per cent.

Bank governor Mark Carney said he now sees recovery coming later than it had projected, possibly in early 2010. And he hinted that instead of further lowering rates, the central bank may consider alternative strategies, including buying back government bonds and other forms of credit from chartered banks.Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.The self-professed fan of variable mortgages said they give customers control, which is important in the current economic climate.Gaetano said homeowners should use this window of low rates to pay down their mortgages as quickly as possible.

“The key is if you can pay your mortgage in half by the time your variable rate doubles your interest cost is going to be the same on your balance.”He accused banks of scaring mortgage holders last fall to lock in their variable rates by suggesting rates will rise. The deteriorating economy has only caused rates to fall even further.“There’s lots of consumers not happy with their banks right now for bad advice,” he said, noting that people who opt for variable mortgages have to be comfortable with fluctuations.Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.Mark Olkowski, Southern Ontario manager of mortgage firm Invis, said fixed rates have dropped so low that new mortgage holders are looking more closely at this option than they did just a few months ago.

“The average consumer is looking at it now and they’re probably waiting for something to trigger,” he said.If rates haven’t reached a floor, they are probably close to it, added Olkowski, who said he hasn’t yet seen a flurry of people opt for fixed rates.“We pretty much have a good idea what’s going to happen in 2009. The trick is trying to figure out what’s going to happen in 2010, 2011, 2012 and 2013.”The beauty of variable rates is that consumers can convert to a fixed rate without penalty.Mortgage expert Moshe Milevsky of York

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March 19, 2009 by Camilo Rodriguez.

Historical data of Fixed Rates vs Prime rate for Mortgages.  Fixed rates are 5 year term fixed interest rates while Prime rate affects Home Equity Lines of Credit and Variable Rates.  Please Note that the Fixed rates in the graph are the posted rates and banks give discounts ranging from 1% to 2.5% in some instances.  Special thanks to Donna Rachel of FirstLine Mortgages for providing the information. 

prime_vs_conv_5yr_mtg_rate.jpg

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March 4, 2009 by Cheryl Duval.

Source: Globe & Mail, March 3, 2009

The Bank of Canada cut its benchmark lending rate to within spitting distance of zero, and signalled that it is prepared to increase the money supply to spark a rebound that policy makers acknowledged could be farther off than they first thought.As most economists expected, the central bank cut its overnight lending rate by half a percentage point to 0.5 per cent, the lowest ever, prompting the country’s biggest lenders to quickly match, dropping their prime rates to 2.5 per cent.The surprise in Tuesday’s statement was the declaration that Governor Mark Carney and his advisers on the governing council are preparing the ground for a program of “credit and quantitative easing.”

Such an effort would pump money into Canada’s financial system by giving banks and others a new buyer for assets such as government bonds and corporate debt. The Bank of Canada’s current credit-market programsare different because they only offer short-term loans, taking banks’ paper assets as collateral.

The Bank of Japan already is buying company debt, and the U.S. Federal Reserve and the Bank of England are considering similar plans because some markets for credit remain unusually tight more than a year into the financial crisis.

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February 28, 2009 by Cheryl Duval.

Source: The Canadian Press / CBC

Here is a great article  from CBC News that discusses how young first-time homebuyers could potentially drive the rebound in the housing market: 

Lower home prices and shifting demographics mean first-time buyers could lead a rebound in Canada’s real estate market, experts said Wednesday at a real estate conference in Toronto.

Phil Soper, president and CEO of Brookfield Real Estate Services, said rookies are the largest category of buyers in the real estate market, accounting for close to 70 per cent of all transactions at the height of the housing boom.

However, they’ve been scared away in droves by the economic downturn, which was led in part by record foreclosure rates in the United States as homeowners defaulted on their mortgage debt.

Such a lack of first-time buyers can grind the real estate market to a halt, Soper told Scotiabank’s annual real estate outlook conference.

“When new buyers stop entering the market, it’s like sand in the gears,” he said.

Homes hit a wall

Although Canada has managed to duck the severity of the housing crisis that has hit the U.S., the 10-year boom that saw housing prices soar, particularly in the western provinces, ended abruptly last year.

Canadian housing starts — the number of new residential construction projects — were down to 211,056 in 2008, about eight per cent lower than an average of almost 230,000 in the period from 2004 to 2007. Resale activity fell by 17 per cent in 2008 while home prices dipped by one per cent, according to Scotiabank.

Things seem to have worsened dramatically in January, with housing starts falling to an eight-year low of 153,500 annualized units and home prices down 11 per cent year-over-year.

The bank predicted the decline will continue through 2009, with housing starts forecast to fall to around 155,000 units, another 15 to 20 per cent decline in the number of resales and a 10 per cent drop in prices.

Buyers’ market

But Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said all of this seemingly bad news is working to create a buyers’ market. And although young buyers are likely keeping an eye on the job market before they rush into buying a home, conditions are improving, she said.

“Certainly, the softening we’ve seen in prices, the increase in listings, is giving first-time buyers more choice,” Warren said.

“We have seen some deterioration in affordability in recent years as home prices continued to rise, and I think that began to pinch a lot of first-time buyers. Hopefully, when we see some relief on prices, more choice, less bidding wars, we’ll see more interest coming back.”

And even though most first-time home buyers — generally in their late 20s or early 30s — tend to have much more debt than their parents did, Soper said they’re also much more “real-estate savvy” than the generations that came before them.

“If you think of the traditionalists, the older people who went through very different economic times, they’re very, very conservative about mortgages and debt as it relates to housing,” Soper said.

“Today’s first-time buyer views this as just a natural way to get into the market.”

He added that young prospective buyers also tend to be much more confident about their future, less financially dependent on one job and one company and less concerned about the recession than their parents.

This confidence has combined with lower housing prices, better government incentives and less risk to make the real estate market more appealing to first-time buyers, Soper said.

Warren added that the demographic of first-time home buyers is growing as the children of baby boomers reach the age where they begin to consider entering the housing market.

“The baby ‘echo’ boomers that are now just graduating university, going out on their own … will be an increasingly important demographic behind the pickup in some sales,” Warren said.

She added that new immigrants will also be an important driver of home sales in the coming years as Canada’s population growth becomes increasingly reliant on those born elsewhere.

However, Warren predicted that the housing market won’t see a substantial rebound until 2013 or 2014.

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