Robert Taylor & Rhea Dichter

Canada first in G7 to raise interest rates, hikes policy rate to 0.5 per cent

2010-06-01T16:12:00Z

By Julian Beltrame, The Canadian Press

OTTAWA - Borrowing costs for consumers and businesses are slated to start rising moderately after the Bank of Canada moved off its ultra-stimulative monetary policy Tuesday, hiking its trendsetting interest rate a quarter point.

It was the first time in almost three years that the central bank actually raised the policy rate but it will still be regarded as a bold and perhaps risky move on the part of governor Mark Carney.

The move lifts the trendsetting overnight rate to 0.5 per cent and puts Canada first among the world's G7 leading economies to start tightening monetary policy — and it may remain out on a limb for some time.

Most analysts don't expect any others among the big seven to start raising interest rates until next year at the earliest.

The initial reaction of markets was to take the Canadian dollar down almost a cent to 94.93 cents US, although the loonie recovered most of the losses by mid-morning.

Scotiabank economist Derek Holt said the market reaction was in line with expectations that Carney would be more "hawkish" in his statement. Instead, the bank statement seemed to cast doubt whether it would continue to raise rates or take a pause.

"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," the bank said.

Markets had already largely priced in a quarter-point hike and most analysts had forecast Carney would keep making incremental increases for the rest of the year.

"They can have their cake and eat it too by signalling they are serious about reinforcing price stability, but they are not going to go too far out on a limb," said Holt.

The decision will likely affect financial vehicles such as variable rate mortgages and lines of credit tied to the prime rate.

But Holt said a quarter-point hike is so small that it will have little impact on borrowing behaviour. Canadians can mitigate the higher interest rate by stretching out amortization schedules, or by paying down less principal, he explained.

The Bank of Canada also stressed that real interest rates in Canada remain exceptionally low.

"This decision still leaves considerable monetary stimulus in place," it wrote in an accompanying note.

Carney's action would not have raised eyebrows a few weeks ago, when an entrenched global recovery appeared on solid ground. But since then Europe's unfolding debt crisis and bank weaknesses in Spain have shaken the foundations of the global outlook.

Still, Canada's central bank said conditions had improved sufficiently to move off what had been described as the emergency rate for the economy of 0.25 per cent, where it had been since April 2009.

The bank said Canada's economic growth has been unfolding largely as expected, citing Monday's release by Statistics Canada that showed gross domestic product output had expanded by 6.1 per cent in the first quarter.

It said that household spending is expected to moderate, while business investment fills in the gap.

The darkening clouds on the horizon all have to do with the global economy, which the bank said remains heavily dependent on low interest rates and government spending and is becoming "increasingly uneven."

There is strong growth in emerging economies like China and India, some consolidation in the United States and Japan and "tensions" in Europe that are likely to result in higher borrowing costs and a ratcheting down of government spending that will slow growth.

"Thus far, the spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening in financial conditions," the bank said.

But it noted that Europe remains an important downside risk for the global economy, which would likely have spillover effects for Canada.

In raising the overnight target rate, the central bank noted that it is keeping the deposit rate it pays out to financial institutions for holding short-term deposits at one-quarter point, re-establishing the normal operating band of 50 basis points.

Mortgage Rates – Is It Time To Gird Our Loins?

2010-05-16T13:48:00Z

by Andrew Pyle, for Yahoo! Canada Finance
Thursday, May 13, 2010

Now that Europe appears to have bought itself some time from those vicious currency and bond speculators (and what a price tag, at a cool trillion dollars), individuals are also feeling a little more relieved about their finances. And they are indeed quite eager to put May behind them. Where investors were lulled into a sense of false security during April, as equity volatility fell to the lowest level since July 2007 (as measured by the VIX index), the spike in volatility this month knocked people off their chairs. True, the high in the VIX last week of just above 40 was still only 50% of the peak seen in November 2008; however, it has served as a wake-up call that there are as many risks out there as rewards.

For now, though, let’s assume there are no further shocks to the system for the coming weeks and that volatility subsides. The focus for individuals and households should then return to their own fundamentals. What does the job and income situation look like? Are financial plans still intact? And what about that mortgage coming due next month?

Ah, the dreaded mortgage decision. Despite the signs of an impending rise in the general level of interest rates and warnings from government officials, I find that there is still a lack of conviction among Canadians as to whether they should lock in their mortgages at prevailing rates, versus holding on to a floating rate mortgage. It’s therefore a good time to review the facts and fiction out there so that you can make a better educated decision.

Regardless of the recent jump in rates, we still look to be in the middle of a downward trend in mortgage rates since 1981. You may remember that year, when five-year term rates were in excess of 22% in Canada. It came at the same time that North America fell victim to a painful double-dip recession. Of course, inflation was also sitting around 12% at the time. Many families lost their homes to be sure, but the threat posed by higher rates today is greater because of the fact that debt levels are much higher today than back then. The increased leverage in the housing sector, to say nothing of general credit among individuals, increases the sensitivity to rates – something we saw so very clearly in the US housing sector from 2003 to 2006.

Today, floating rate mortgages are still trading at various spreads to the prime rate, which itself hasn’t budged from 2.25% since April of last year. How much that spread is will depend on a host of factors, not the least of which is your credit score and perceived credit worthiness by your lender. That said, whether you chose a floating versus fixed rate mortgage doesn’t matter anymore since the new federal regulations went into effect last month. You must now meet the requirements or standards of a five-year term mortgage even if you want the adjustable rate variety. In other words, if you’re not going to budget for the possibility of short-term rates rising to where prevailing five-year rates are today, the government has done it for you.

That five-year rate has been a bit of a bouncing ball over the past year. In April 2009, the conventional five-year rate (or the posted rate) fell to a generational low of 5.25%, coinciding with the last quarter-point rate cut by the Bank of Canada. Through the summer and fall of last year, the rate got as high as 5.85%, but then eased back during the early months of this year as equity markets got a little shaky and bond yields stabilized. That all changed towards the end of the first quarter. Economies were looking a lot better, equities picked up the pace and inflation fears began to creep back in the market. There was also a definite shift in opinion as to when the Bank of Canada would start hiking rates, with the consensus focused on June 1st. Since bond yields needed to price in this new anticipation, other rates went up in sympathy, including mortgage rates as well as GICs. To give you an illustration, the five-year Government of Canada yield rose from about 2.4% in February to 3.2% in April. The five-year mortgage rate, which reached a low of 5.25% in March, shot up to 6.25% by late April. The only relief for borrowers has been a paltry 15-basis-point reduction by banks in the past week to 6.10%. Hardly a surprise when you consider the sharp drop in bond yields worldwide when it looked like contagion was going to put a recessionary grip on the world again.

But, have a look at where things are today. Despite the recent mortgage cuts, bond yields are rising again as investors move money from fixed income to stocks (not what I’m necessarily recommending). Assuming the European calm persists, economic fundamentals in North America continue to firm and China doesn’t upset the apple cart too much with its measures to rein in credit in that country, bonds will likely come under more pressure, sending yields higher. This should pave the way for five-year mortgage rates in Canada to climb to 6.5% and then potentially to 7%. Note, the high before the recession was only 7.5% - a level which could be reached this year under ideal economic conditions.

Now, some will say that it doesn’t matter where longer-term mortgage rates go, since short-term rates won’t likely climb to those levels. This has some merit to it, as the prime rate only got as high as 6.25% prior to the recession. Of course, with today’s spreads added on, the mortgage rate then for some would have been close to the 5-year rate. Whether or not short rates return to those levels depends on a number of things, including inflation, and with word governments still borrowing ridiculous amounts to fund fiscal spending, inflation cannot and should not be ruled out.

All this aside, the decision on which mortgage to chose ultimately comes down to a combination of expectations and emotion. It might seem okay to assume that the stock market won’t experience another meltdown like in 2008-09, but few of us would be willing to throw 100% of our assets into the market on that call. We need to sleep at night and therefore we apply balance to our portfolios. The same holds true for our borrowing decisions. I can come up with an economists’ tale of how interest rates will stay relatively low because of economic headwinds and the increased sensitivity to debt, but what if inflation fears overrule that view?

For those looking to put a household budget together that allows for an extended uninterrupted sleep, the five-year term option is still the best bet. There is also what I call a ‘sticker shock’ factor to keep in mind here. If rates at both ends of the spectrum climb over the next several years, those already acclimatized to a higher borrowing rate will find it less ‘shocking’ upon renewal than the individual with a floating rate mortgage that has to see a continual erosion of their monthly payment towards interest. In other words, the person with the longer and fixed-term mortgage will arrive at the principal amount that was anticipated. The adjustable rate mortgagor will not.

My final point on this has to do with opportunity cost. If the view of rising interest rates turns out to be false, and rates fall or stay flat, then this probably means the economy isn’t so hot. I would suggest in that event that there will be bigger concerns on the household budget than the extra couple of percentage points in interest. In short, this is not a time for aggressive offense, but a good shield.

Andrew Pyle (www.andrewpyle.com) is a licensed wealth adviser and associate portfolio manager with ScotiaMcLeod. A certified financial planner, Andrew has held several senior market positions in Canada's financial industry for over 20 years, providing economic and market strategy advice to individuals, corporations, central banks and major investment funds. He was previously chief Canadian economist with S&P/MMS International, chief strategist for dutch bank ABN AMRO, and vice-president and head of capital market research for Scotia Economics. Andrew writes regularly for Yahoo! Canada Finance.

This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your Wealth Advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance. ScotiaMcLeod does not offer tax advice, but working with our team of experts we are able to provide a suite of financial services for clients. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF. Scotia Capital Inc. and its affiliates may collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities mentioned in this publication. Within the last 12 months, Scotia Capital Inc. may have undertaken an underwriting liability with respect to equity securities of, or has provided advice for a fee with respect to any securities mentioned in this publication. All insurance products are sold through ScotiaMcLeod Financial Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Quebec) representing ScotiaMcLeod Financial Services Inc.

Townhome For Sale in Pierrefonds

2010-05-15T04:21:00Z

Beautiful Young Decor!

• 3 bath, 4 bdrm 2 story - MLS® $299,900 CAD - Outstanding Value

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Property information

Feds want tighter rules to ground fly-by-night movers

2010-05-11T13:23:00Z

By Dean Beeby, The Canadian Press

OTTAWA - The federal government is putting the moves on movers.

Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they've been ripped off by crooked operators.

Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.

"Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging," says an internal document.

"In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings."

The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.

"This work is in the very early stages of development and findings are not yet available," department spokesman Michael Hammond said.

Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.

Many provinces also have consumer protection laws, as does the federal government.

But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.

The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.

And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.

An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.

The head of Canada's largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.

"You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged," president John Levi said in an interview from the group's Mississauga, Ont., headquarters.

But even with tougher regulations "there's no government agency out there that can help you in a timely fashion."

Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.

"There's sufficient legislation and regulation in place — if it were enforced."

The best defence is to do some research, he said.

The mover's association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.

The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers' association and the business bureau.

Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.

Non-residents selling their Canadian home be warned

2010-04-14T21:39:00Z

Helen Morris

National Post

Moving house can be pretty stressful, when you have to line up all the finances, paperwork, packing up, getting a moving truck and so on. However, if it is a move out of the country, there are still more things to consider.

In a standard Agreement of Purchase and Sale, a person selling their home in Canada must be able to declare that, for the purposes of Canadian taxation, they are a resident of Canada. If he cannot, he must provide the purchaser with a certificate of compliance from the Canada Revenue Agency (CRA). While most of us think that proceeds from the sale of a principle residence are not taxed, that doesn't hold for non-residents. Profit from the sale of a property may be subject to capital gains tax unless an exemption is obtained from the CRA.

(To determine whether you are a non-resident for income tax purposes, visit the CRA's website at cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html.)"When a non-resident taxpayer sells taxable Canadian property -- which includes real estate-- they are required to file for a 116 Tax Certificate (Form T2062) with CRA within 10 days of the sale," says Tannis Dawson, a tax and financial planning expert with Investors Group.

The certificate can take two to three months to obtain; in the absence of the certificate, the buyer becomes liable for any tax owed by the non-resident seller.

"If the seller leaves and doesn't pay the tax, the government has decided it has the right to collect against the buyer," says Ray Leclair, real estate lawyer and vice-president at TitlePLUS. "So, to protect the buyer, it put in a provision that says if the seller is a non-resident, the buyer has the right to withhold up to 25% of the purchase price" until the seller produces a certificate of compliance from the CRA. That withheld amount is put in a trust account by the buyer's solicitor.

Caroline Blake, a British citizen who was a Canadian resident, moved to a new job in the U.K. and then sold her Toronto home. She says her solicitor first told her about the need to obtain this tax certificate a couple of weeks before closing. At the time the deal closed, the buyer of her Toronto property had the right to withhold 25% of the purchase price until Ms. Blake was able to provide the certificate. However, Ms. Blake's solicitor had assured her that even with the 25% withholding tax, there was enough equity in the home to cover closing costs and pay off the mortgage. Ms. Blake returned to Canada last month to finalize the sale of her home.

"The night before I flew back, the solicitor sent me an email, effectively saying, 'Whoops, sorry, I made a mistake. There isn't enough equity in the house. Could you please come with a $32,000 cheque,'" says Ms. Blake. "I sent her a very curt note saying, 'We've left the country --it's not as if we have a spare $32,000 in our Canadian bank accounts, so you'd better come up with an alternative.'"

Because Ms. Blake sold her home after she had left Canada, she was not allowed to sign the declaration saying she was a resident for tax purposes. But because she sold her house at a loss, she will not have any capital gains to be taxed. In order to close the sale, her real estate agent and the buyer's agent agreed to wait for their commissions until the compliance certificate is obtained and the 25% withholding tax is released.

Advisors say this situation could have been avoided.

"They could have got this certificate before they started marketing, as soon as they knew they were selling the property," says Mr. Leclair. This would then have been given to the buyer so they would not be on the hook for any unpaid tax.

Ms. Dawson says the CRA will issue a certificate before a sale actually occurs, using the price you expect to get for the property. If there is tax payable, the seller pays the tax or provides security to the CRA that the tax will be paid ( just what this security could consist of, the CRA says "you or your representative should contact the Revenue Collections Division of the applicable Tax Services Office.")

The seller must file a tax return for the year the sale of the home took place. Any overpayment of the tax can be refunded. Other costs such as real estate fees, legal fees, and any other closing costs could be set off on your general taxes against any gain to reduce the tax you may have to pay.

For further details on selling property as a non-resident, including exemptions for a principal residence, see Canada Revenue Agency details at cra-arc.gc.ca/E/pub/tp/ic72-17r5/ic72-17r5-e. html

New rules for rental properties could squeeze first-time homebuyers

2010-04-05T13:54:00Z

Sat Apr 3, 11:17 AM
Derek Scott, The Canadian Press

By Derek Scott, The Canadian Press

VANCOUVER, B.C. - Buying a house in the hot housing markets of Vancouver, Toronto and other major cities in recent years has been a possible dream for some first-time homebuyers only because many of those houses had suites they could rent out.

But new rules coming into effect April 19 will all but wipe out that advantage in the eyes of banks handing out mortgages.

"It makes it much more difficult for people with rental properties to qualify for their own mortgage on their personal residence," said Vancouver mortgage specialist Patrick Mulhern.

The new regulations are designed to prevent speculation in the market, said Jack Aubrey, of the Canada Mortgage and Housing Corporation.

But Vancouver mortgage agent Mike Averbach said the new rules will do little to prevent investors from gambling in the housing market.

"They haven't decreased risk," he said. "They're just not allowing you to use the income."

Currently, landlords can use 80 per cent of their rental income to offset monthly mortgage payments. That means, if they receive $1,000 per month in rental income, they can use $800 to offset a $1,200 mortgage payment, leaving only $400 to be debt financed.

But under the new rule, only 50 per cent of a landlord's rental income will be used. Even then, that money will not be used to offset their monthly mortgage payment. It will be added to their total income, forcing them to qualify for the entire monthly mortgage.

For instance, a person earning $100,000 per year in regular income plus $12,000 per year in rental income will have a total income of $106,000 with which to qualify for a mortgage on their own home.

Rental income is essential for many of his clients, Averbach said.

In cities like Vancouver, where the average home price in February was more than $662,000, rental offset is the only way many people can qualify for a mortgage and the new rules will keep many of his clients in condos rather than houses, he said.

"Putting a renter in your basement is not speculative, it's reality," he said. "It helps you pay your mortgage."

The rule changes also make it more difficult for people to buy a property separate property to use as a revenue generator.

CMHC will no longer offer high-ratio financing on rental property not lived in by the owner. That means someone looking to buy a house as a rental investment will have to come up with a 20-per-cent down payment on the property, as opposed to five per cent before the rules changed.

The changes haven't worried groups advocating for tenants.

Jeordie Dent, of the Federation of Metro Tenants' Association in Toronto, where vacancy and availability rates have dropped over the last year, said he doesn't see a negative impact on renters.

Instead, he said his group welcomes the changes.

Dent said too many people become landlords without the financial or intellectual wherewithal to properly manage their properties.

"Anything that strengthens mortgage rules, from our perspective, is a good thing."

Cancelling of home retrofit program draws fire

2010-04-04T13:30:00Z

Conservatives suspend energy rebates a year early because they're too popular

The government's decision to suspend a federal program that offered homeowners financial incentives to make their houses more energy efficient has drawn fire from the opposition and consumers.

Former minister of natural resources Lisa Raitt, left, assists with a home evaluation in this 2009 photo. (Natural Resources Canada)

"In a desperate attempt to free up money that would allow them to cover up their waste, the Conservatives are cutting the best environmental program we've got," Liberal MP David McGuinty said in question period Thursday.

Launched in 2007, the ecoEnergy program encouraged homeowners to make their homes more energy efficient by getting energy audits done and making the appropriate retrofits. Up to $5,000 in rebates was available in some cases.

The program was due to expire in March 2011, but at 5 p.m. ET on Wednesday, the Department of Natural Resources issued a press release saying no new applicants for the rebates would be accepted after midnight Wednesday.

"The program will continue to be administered until March 31, 2011," the release said.

Homeowners can still qualify for a rebate if they have done the first audit but have yet to complete the retrofits.

"If you have already booked an appointment for a pre-retrofit evaluation, have completed an evaluation or applied for re-entry to the program, you remain eligible to apply for a grant," the release said.

Homeowners who haven't booked an audit won't be eligible for the rebate.

As recently as in the March 4 budget, Ottawa was promoting the program, earmarking more funds for it.

"Due to unprecedented demand under the ecoENERGY Retrofit — Homes program, the government is allocating a further $80-million to support additional retrofits by Canadian homeowners," the budget said.

The lack of warning in shutting down the program rankled the opposition.

"Today — Day 1 of the budget year — we learn the government is set to pull the plug on billions of dollars of job creation and savings," NDP MP Linda Duncan said in question period on Thursday.

"The result? Higher energy costs, increased pollution and greenhouse gases but nothing for homeowners."

The program has proved to be more popular than initial estimates predicted, with three times the amount of money going into the program thus far than was initially proposed.

Several provinces offer similar incentives to homeowners as the federal program. The Department of Natural Resources website has a list of some of these programs.

Homebuyers' pain, mortgage brokers' gain as tighter rules come into place

2010-04-02T17:08:00Z

By Derek Scott, The Canadian Press

VANCOUVER, B.C. - The same things that are squeezing first-time homebuyers these days are creating a boom for mortgage brokers.

With interest rates climbing and new rules that crack down on who qualifies for a mortgage, first-time homebuyers are having to look harder for their first mortgage, meaning brokers' services are in demand, members of the profession say.

"Consumers and borrowers may not know the impacts of the changes so they'll need to use the services of someone who understands what the rule changes mean," said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

The new rules, which come into effect April 19, will require homebuyers to qualify for a standard five-year, fixed-rate interest rate regardless of whether they plan to choose a lower-rate variable mortgage.

As well, rental property income is not being given the same weight when qualifying for a mortgage.

Meanwhile, interest rates are on the march upward, pushing young, first-time buyers to turn first towards a mortgage broker, rather than booking an appointment with their bank.

An annual CMHC mortgage survey released in 2009 reported about 25 per cent of all mortgages in the previous year were conducted through brokers.

The online survey of 2,507 mortgage consumers showed an increase in broker usage by first-time home buyers of nine per cent between 2007 and 2009. For purchasers aged 25 to 34, the broker share was 42 per cent of all loans.

The numbers are expected to rise as the tighter qualifying rules push first-time homebuyers to look wherever they can for the best deal.

The trend toward mortgage brokers may be because new homebuyers have grown-up in a different era than their parents did, said Patrick Mulhern a Vancouver mortgage specialist.

"The younger generation is a little more worldly. They don't have the same sort of loyalty to their financial institutions that the older generation does."

Buyer Leslie Urquhart said buying her first home was a horrifying ordeal.

Urquhart, 34, began her six-month home shopping odyssey with one goal-to get into the market. But she quickly realized that was easier said than done. Increasing budgets, pressure from her realtor to commit to a place and finding a mortgage made her wonder what she had got herself into.

Urquhart's realtor urged her to use a broker, saying a broker could find a better interest rate than her bank.

The broker did find a cheaper rate, but it was still too high for her to manage.

Although brokers can offer market expertise, Bob Dugan, the chief economist for the Canadian Mortgage and Housing Corporation, said it's unlikely they can offer any more guidance than the banks.

"I don't know if people going to a broker are getting better advice than I did 1/8by going through a bank 3/8," he said.

Russ Husum, a Vancouver real estate agent, said his clients have had success dealing with mortgage brokers because the brokers have access to a menu of options a bank may not have.

Brokers, who collect their fees from the lender, do not work exclusively with any one bank. This allows them to shop around for the best deal.

Husum noted that though borrowers may have dealt with one bank their entire life, the bank is bound by its own lending rules.

While someone's traditional bank might decline them a mortgage loan, another lender may say yes.

"The beauty of an independent mortgage broker is they have access to all the banks," Husum said.

Sometimes a better rate elsewhere can be used as leverage by the borrower at their own bank.

"If the bank thinks they're going to lose you, they'll often match it," he said.

But Urquart was left somewhat cold by the experience with her broker.

She said she was left in the uncomfortable position of putting her trust in someone she had only spoken with over the phone.

"I never met with him, it was very impersonal," she said.

Although she eventually found a condo in for $60,000 more than her original budget, she advised other first-timers to do their homework and prepare themselves for changes.

"It's a learning process that's so scary," she said. "No one can ever tell you what it's going to be like."

In the end, Urquhart accomplished her goal of getting into the housing market, but she won't be living in her new place as she had hoped.

Instead, she will become a landlord, renting the place out while living in a basement suite at her parent's house where rent is cheap.

"At least I'm in the market and I'm learning," she said.

Big banks raise mortgage rates in sign era of historically low rates ending

2010-03-30T05:44:00Z

Mon Mar 29, 5:27 PM
Sunny Freeman, The Canadian Press

Enlarge Photo
(The Canadian Press)

By Sunny Freeman, The Canadian Press

TORONTO - Rising mortgage rates announced Monday signal the end of historically low home borrowing costs and present Canadian consumers with a dilemma: either stay flexible, hope for the best and ride out the next several months or lock in to long-term loans.

Three big banks raised their mortgage rates by more than half a point, effective Tuesday, and most industry watchers expect that's just the beginning of future small jumps that will hike the the cost of home ownership the rest of this year.

For consumers nervous about the changes, the security of five-year, or longer, fixed loans may be the best option, says one mortgage expert.

'If that (rising rates) causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be," said Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.

"If you're closing in the next six months, I suggest people do that quickly."

The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX: RY.TO), Laurentian Bank (TSX: LB.TO), and TD Canada Trust (TSX: TD.TO). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets, where mortgage loans are financed.

Other banks are expected to follow suit.

The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

That means a homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.

Many people with decent credit history who are applying for mortgages can negotiate better than posted rates.

The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.

The latest increases reflect real-time market interest rates, which usually signal future central bank rate jumps months in advance.

Looking ahead, potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?

Historically, staying short-term and flexible has been the best strategy over the long term. But banks advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk and sleep at night.

If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points - an average increase during a rate-rising cycle - a homeowner with a variable mortgage should expect to pay about 30 per cent more on the monthly mortgage, says McLister.

Generally, long-term fixed rates rise by about half of the variable rate, he said.

While the fixed versus variable decision is specific to each individual, McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.

Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.

McLister said it's difficult to tell if bank prime rates will rise by 2.5 points, but he added the banks have begun a cycle of rate increases and rates in the near and medium term will continue to rise before falling again.

'They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable," he said.

McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year.

But using recent history as a guide, its not likely rates will rise much higher than 2.5 points.

'When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down."

CIBC (TSX: CM.TO) chief economist Avery Shenfeld also said mortgage rates hikes are a trend consumers should expect to continue.

'Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."

He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of September.

That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.

'Consumers are forewarned that when they look at borrowing today they have to factor in potentially highe costs," he said.

'Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."

When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.

The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.

Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.

Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still comparatively low.

'Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much."

'We're coming off emergency level rates, and clearly the emergency has passed."

Cost of owning a home up slightly in late 2009: RBC Economics

2010-03-15T15:36:00Z

By The Canadian Press

TORONTO - A new report says the cost of owning a home in Canada increased slightly across all housing segments in the closing months of 2009.

RBC Economics says rising prices made it more expensive to own a home, but that was partly offset by a small drop in mortgage rates and higher wages. Senior economist Robert Hogue says while affordability deteriorated in the fourth quarter of 2009, the change was relatively modest.

The RBC index looks at the proportion of pre-tax household income needed to service the costs of owning a home.

The index for a detached bungalow rose 0.3 per cent to 40.6 per cent and a standard townhouse rose by 0.2 percentage points to 32.9 per cent.

The standard condo climbed 0.1 per cent up to 28 per cent and the standard two-storey home increased by 0.3 percentage points to 46.7 per cent.

Despite the recent increase, all affordability measures remain well below their levels from a year ago.

Housing prices rise for third straight month in January: StatsCan

2010-03-11T16:45:00Z

By The Canadian Press

OTTAWA - The New Housing Price Index rose 0.4 per cent for the third straight month in January.

Statistics Canada reports St. John's, N.L., led the way at 1.7 per cent growth, followed by Winnipeg (0.7), and Toronto and Oshawa (0.6). Ottawa-Gatineau, Saskatoon and Calgary all registered 0.5 per cent increases.

The largest monthly decrease in new housing prices was recorded in St. Catharines-Niagara, at a 0.4 per cent drop.

Charlottetown as well as in Saint John, Fredericton and Moncton, N.B., all registered 0.2 per cent declines.

Year over year, the New Housing Price Index was up 0.1 per cent in January, the first year-over-year increase since December 2008.

Flaherty moves to toughen mortgage rules

2010-02-16T15:18:00Z

Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.

After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa's disposal aimed at removing some of the speculative froth in the housing market.

"There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one," he said at a news conference in Ottawa. "If some lenders aren't willing to act themselves, we will act."

Broadly speaking, the plan unveiled has three components.

First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

"This will guard against higher rates in the future," Flaherty said.

Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.

"We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said.

Minimum down payment unchanged

There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home's value, or reduce the maximum amortization period from 35 years to 30 years.

Those measures were not part of Flaherty's announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.

The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, a number of large Canadian lenders already practise the first peg of Flaherty's plan. After Tuesday's announcement, Bank of Montreal noted that it requires its high-ratio borrowers to be able to qualify using the five-year rate.

"While we do not believe that Canada faces a housing bubble, we fully support the minister's actions," the bank said in a release. "Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent."

"This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage," Royal Bank chief economist Patricia Croft said in reaction to Flaherty's announcement.

Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.

"If you wanted to buy a house, wouldn't you now do it before April?" Croft asked. "It's even more evidence that house prices are going to cool down later this year."

Municipal taxes, suburban anger: Municipalities face 10-13% hike in their share of tab for island-wide services

2010-02-05T14:16:00Z

By David Johnston, The GazetteFebruary 4, 2010

The 2010 municipal budget season is over and here are the final standings:

Highest tax increase on the island of Montreal: Baie d'Urfé, 8.5 per cent.

Lowest tax increase on the island of Montreal: Dorval, 3.79 per cent.

Municipality in Greater Montreal with the highest assessed value for its average single-family home: Westmount, $1.02 million.

This week saw the final few of the 82 municipalities in the Montreal region pass their budgets for 2010.

The 15 suburbs on the island of Montreal - most of them in the West Island - were among the last of the 82 to table budgets. They had to wait until the city of Montreal got around to producing its budget on Jan. 13, because that budget assigned the suburbs their shares of the bill for island-wide services like policing and transit.

The increase in those shares turned out to range between 10 and 13 per cent; those hikes that provoked anger and raised questions about tax equity in the Montreal region.

Today, The Gazette is publishing tax data for 25 selected municipalities, on and off the island of Montreal. The municipalities are ranked in descending order of real-estate wealth, as reflected in valuation rolls, with Westmount topping the list.

Main highlights of the 2010 budget season and a summary of fiscal trends can be found here.

djohnston@thegazette.canwest.com

Montreal municipal taxes 2010

The Québec Province Real Estate Market Ended the Year on a High Note

2010-01-27T15:20:00Z

Île-des-Soeurs, January 19, 2010 –Québec’s provincial real estate market performed well in 2009, with sales increasing by 3 per cent over 2008 for a total of 79,185 MLS® sales transactions, according to the Québec Federation of Real Estate Boards (QFREB).

"Québec’s real estate market, with three consecutive quarterly increases in sales, finished the year on a positive note even though sales decreased by 19 per cent in the first three months of the year," said Michel Beauséjour, FCA, Chief Executive Officer of the QFREB. "Despite the economic downturn, sales increased by 3 per cent in 2009 compared to 2008, showing that Québec’s real estate market is quite stable."

Sales increased for all property categories in Québec in 2009. Single-family homes led the way with a 4 per cent increase in sales compared to 2008. Condominium and plex sales followed closely with increases of 3 and 2 per cent, respectively.

In terms of prices, the median price of both single-family homes and plexes increased by 5 per cent in 2009 compared to last year, while condominiums posted a 4 per cent increase.

A Record-Breaking Fourth Quarter

The fourth quarter of 2009 exceeded the record set in the fourth quarter of 2007 by 8 per cent, with a total of 18,130 transactions registered in the MLS® system province-wide. When compared to the last three months of 2008, the increase was 36 per cent.

"This 36 per cent increase in the last quarter seems quite dramatic, but this was magnified by the market’s poor performance for the same quarter in 2008. We have to remember that in the fourth quarter of 2008, following the recession, sales in Québec were down 21 per cent," said Mr. Beauséjour. "The strength of the province’s real estate market shows that both buyers and sellers were active at the end of the year, which bodes well for 2010," he added.

In terms of prices, the median price of single-family homes in the province of Québec reached $200,000 in the fourth quarter of 2009, an 8 per cent increase compared to the same period in 2008. The median price of condominiums increased by 6 per cent, while that of plexes grew by 9 per cent.

Québec’s Metropolitan Areas Performed Well in 2009

The strong performance of the province’s real estate market resulted in an increase in sales in most of Québec’s metropolitan areas in 2009. The Montreal area posted a 3 per cent increase in sales compared to 2008, with 41,802 transactions. Property prices also continued to increase in the Montréal area in 2009 compared to 2008. The median price of condominiums increased by 5 per cent, while that of single-family homes and plexes increased by 4 per cent.

The Gatineau area was just as active as Montréal in 2009, with a 3 per cent increase in sales compared to 2008. In terms of prices, single-family homes registered a 4 per cent increase in median price in 2009 compared to 2008. Plexes posted the largest increase in median price, at 16 per cent, while that of condominiums increased by 7 per cent.

The Québec City area also performed well in 2009, with a 2 per cent increase in sales compared to 2008. As for prices, single-family homes and condominiums posted a 7 per cent increase in median price compared to 2008, while plexes registered the largest increase, with a 12 per cent increase.

The market was equally active in the Trois-Rivières area, which registered a 2 per cent increase in sales in 2009 compared to 2008. Property prices also increased, with the median price of single-family homes and condominiums increasing by 4 per cent. The median price of plexes grew by 8 per cent.

In the Sherbrooke area, sales increased by 2 per cent in 2009 compared to 2008. The median price of single-family homes increased by 2 per cent in 2009 compared to last year, while that of plexes increased by 7 per cent. The median price of condominiums decreased slightly by 2 per cent.

The Saguenay area is the only area to register a slight decrease in sales in 2009, as the number of transactions fell by 1 per cent compared to 2008. Despite this decrease, property prices continued to climb. The median price of single-family homes increased by 4 per cent in 2009 compared to 2008, while that of condominiums and plexes increased by 15 and 10 per cent, respectively.

About the Québec Federation of Real Estate Boards

The Québec Federation of Real Estate Boards is a non-profit organization composed of Québec's 12 real estate boards as associate members and the 14,000 real estate agents and brokers who are affiliated members. Its mission is to promote and protect the interests of Québec’s real estate industry so that the boards and their members can successfully meet their business objectives.

Bank of Canada chief more confident in recovery

2010-01-22T03:22:00Z

Thu Jan 21, 5:31 PM

By Louise Egan

OTTAWA (Reuters) - Canada's economy is on track to recover this year and the outlook has improved since October, the Bank of Canada said on Thursday, while giving few hints on how soon it will start raising record-low interest rates.

Bank Governor Mark Carney told Canadians to prepare for an eventual return to "normal" interest rates from the key rate's historically low 0.25 percent level, but kept markets guessing about the timing of his exit strategy.

The bank held rates steady on Tuesday and repeated its promise to keep them unchanged until the end of June, conditional on inflation staying on track.

"To be honest, (we) don't feel compelled to provide any further guidance at this stage beyond that," Carney told reporters at a news conference.

When asked about criticism that the bank had been "trigger-happy" after past recessions by hiking rates too soon and whether it would wait longer before doing so this time, Carney defended the bank as having "one of the best track records in the world" in meeting its 2 percent inflation target.

"It may not be a convenient path for somebody's trading position but if they set their trading position on the basis of achieving the 2 percent CPI inflation target it would be the appropriate path and I'm confident we will continue."

In an interview with CBC Television, Carney repeated the bank's rising concern about the level of household debt in Canada, first flagged by the bank last month, saying he was more concerned than he was one year ago.

Carney said he expected private businesses to start doing most of the heavy lifting to boost economic growth in the second half of this year. That would take some of the load off the central bank and the government, whose fiscal stimulus and rock-bottom lending rates have largely been responsible for the growth so far.

"2010 should mark the hand-off from growth that is heavily influenced by public policy, notably fiscal policy, in the first half of this year to growth that is largely determined by the private sector," he told reporters.

"And then by 2011 ... the private sector would be the sole contributor to domestic demand growth in Canada," he said.

LOWER GROWTH SEEN IN LONG TERM

Carney spoke after the central bank released a report that painted a slightly more upbeat picture of the 2010 economy, raising most of its quarterly forecasts for growth and inflation. It said exports would be stronger than it previously expected due to an improved outlook for the U.S. and global economies.

"We had a less severe recession than other major economies. We will get back, in our view, to our peak, the peak of GDP that we were at, sooner than other major economies. We expect to be there around about the third quarter of this year," he told CBC.

Even though the bank estimates growth at 2.9 percent this year and 3.5 percent next, Carney warned that growth would be closer to 2 percent than 3 percent beyond 2011. The recession has reduced the economy's capacity to grow and limited productivity.

"Until we see evidence of an uptick in productivity, at least at this stage, looking for real growth much north of 2 percent is not yet a realistic prospect," he said.

The federal government's latest projections in September are for growth of between 2.6 percent and 3.1 percent in the 2012-14 period.

The bank maintained its view that growth would come in at 3.3 percent for the fourth quarter of last year, and it lowered its expectations for first-quarter growth to 3.5 percent from 3.8 percent. But it now sees the economy expanding by 4.3 percent in the second quarter before edging down.

Likewise, price pressures are coming back faster than the bank predicted last October, with overall inflation now seen rising from 1.6 percent in the first quarter to 1.9 percent by the fourth quarter, very close to the bank's 2 percent target.

The labor market has stopped deteriorating, Carney said, but he would not venture a bet that the jobless rate had peaked.

Despite the improved tone, the bank included all its usual caveats about the risk posed by the strong Canadian dollar to exports and uncertainty surrounding the global recovery. It said its overall profile for the 2010-11 period is largely unchanged from October and it still expects inflation to hit its 2 percent target in the third quarter of next year.

Looking beyond the two-year horizon, the bank said that countries running current account surpluses need to let their currencies rise or else global imbalances could once again burgeon.

"The important thing is that there is a suite of policy actions that will be required across all major industrialized countries to secure more balance and strong growth," Carney said.

(Reporting by Louise Egan and Randall Palmer; editing by Peter Galloway and Rob Wilson)

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