The Mortgage Centre

2009-02-28T14:09:00.002-07:00

Alberta Overview

Alberta’s economy and new home construction will weaken in 2009. Weaker global demand, lower energy prices, and heightened costs will postpone capital spending for oil sands, upgrader, and pipeline projects. Meanwhile, despite the elimination of $1 billion in health care premiums, personal consumption will moderate. However, government expenditures will be an important contributor to economic growth this year, as a result of a commitment to heightened infrastructure spending. The recent decline in the Canadian dollar will also provide an important offset to the effects of low energy prices and weaker demand for Alberta’s exports. Assuming energy prices and global economies rebound by 2010, economic growth in Alberta will also stage a recovery.

The number of deferred energy projects will weigh on Alberta’s labour market this year. Employment growth will be cut to less than one per cent. Construction employment related to the oil sands will be notably weaker, but should not have severe implications on home ownership demand as the housing requirements for such staff would have been temporary. Employment growth is expected to improve in 2010, provided the economic recovery occurs. A bright spot to Alberta’s outlook will be net migration. Given the weaker employment gains and slower economic growth, interprovincial migration will remain weak by historical standards. However, international immigration will be heightened due to the province’s history of labour shortages and high wages, as well as more aggressive policies to attract migrants.

In Detail
Single Starts: Heightened uncertainty regarding economic prospects and a surplus of
unoccupied new units will postpone the recovery in single-detached construction for another year. In fact, single-detached starts will likely slip further in 2009. Edmonton will be a notable exception due to the velocity of the downturn that occurred last year. Provincial starts should rebound in 2010, provided the adjustment in starts sufficiently draws down inventories. Complete and unabsorbed units are in the process of peaking and current incentives should help reduce them further.

Multiple Starts: Multi-family developers have been slower to adjust to the weaker economic
conditions than their singledetached counterparts. As a result, multi-family starts will face a
stronger downward adjustment in 2009. Calgary will record the strongest reduction in starts this year, where the construction of several apartment condominium projects has already been halted. Provided the necessary adjustment is made this year, a modest gain in starts will occur in 2010.

Resales: Despite price reductions, low financing costs, and buyers’ market conditions, the current economic environment has prompted more cautious behaviour by households, especially for bigticket items such as real estate. The prospect of additional price reductions will further postpone the decision to purchase. As a result, existing home sales will moderate for the third consecutive year in 2009. Once buyers gain confidence that prices have stabilized and
economic conditions are improving, modestly higher sales should occur next year.

Prices: The average resale price will be slow to rebound from the first decline in 13 years. Despite a decrease in the number of active listings, weaker sales will ensure the market remains fixed in buyers conditions. As a result, the annual average price in 2009 will post a
decline for the second consecutive year. As the market moves toward balanced conditions by 2010, resale price growth should return.

Prairie Region Rental Market Outlook:

Calgary
Despite some improvement in net migration, it will not be enough to offset the movement of rental households to home ownership and competition from the secondary rental market. With condominium units declining in price, the spread between renting and owning has narrowed. As a result, the move to home ownership will continue in 2009. Moreover, with a high level of
condominium units under construction, it is likely that a significant proportion will be rented
once they reach completion. Under these conditions, the average vacancy rate is projected to increase from 2.1 per cent in 2008 to 2.7 per cent in 2009. With vacancy rates projected to
rise, landlords may hedge the risk of higher vacancies by limiting their rent increases. In October 2008, the average two-bedroom rent was $1,148, up from $1,089 the previous year. In 2009, rent growth will be less than in 2008, with the average two-bedroom rentprojected to rise marginally to $1,155.

Edmonton
Apartment vacancies across Edmonton are expected to increase in 2009 despite low levels of rental unit construction. Demand will be tempered by a moderation in net migration from the peak years of 2005 and 2006. Supply is also arriving in the form of condominium apartments purchased by investors and offered for rent. Expect the apartment vacancy rate to increase
to 3.5 per cent by October 2009, up from 2.4 per cent in October 2008. As witnessed in 2008, further increases in the vacancy rate will help restrain rent increases this year. Units in the upper rent ranges will experience the strongest competition from investor-owned condos. This will encourage some owners to hold the line on rent increases in order to reduce turnover. The average two-bedroom rent will increase from $1,034 in October 2008 to reach $1,070 in
October 2009.

2008-10-21T09:08:00.000-06:00

Canada to lead G7 in GDP growth in '09: IMF

CBC News

Canada will lead the other G7 countries in economic growth in 2009, a muted honour considering that the global economy should slow markedly, according to a new International Monetary Fund study released Wednesday.

The IMF said this country should see economic growth in the range of 1.2 per cent next year, less than half of what Canada experienced in 2007, but the best performance among Japan, the United States, Italy, France, Germany and the United Kingdom.

Still, Canada's economy is not immune from the ongoing global financial collapse, the international agency said.

"Although resource-intensive sectors have benefited from high commodity prices, the lagged effects of past real appreciation of the Canadian dollar, together with the United States slowdown, has hit manufacturing hard," said the IMF's World Economic Outlook, produced just ahead of a two-day meeting between IMF and World Bank officials.

Overall, the world economy will grow by 3.9 per cent in 2008 and three per cent in 2009. That level is 40 per cent slower than the five per cent increase it averaged for 2004-2007.

The IMF anticipates the U.S. economy will stumble badly next year, posting a microscopic growth rate of 0.1 per cent next year, a far cry even from this year's expected GDP increase of 1.6 per cent.

All of the major industrialized countries are grappling with the worst economic crisis since the Great Depression in the 1930s, the IMF said.

The IMF, which has 185 member nations, conducts economic analyses and provides loans and technical assistance to developing countries.

2008-08-15T10:47:00.004-06:00

Canadian house prices: a regional picture

Judging from the latest statistics, the Canadian housing sector remains fairly solid, particularly when compared with that of the United States, which is mired in a slump. That said, last month, a slight crimp appeared here, too. During June, the average selling price for existing homes fell by 0.4 percent compared to the same month the year before. The big question now is whether that little drop means anything.

At first glance, you'd have to say no. For one, the decline is tiny, especially when measured in conjunction with overall house prices, which have more than doubled in Canada during the past 10 years. Furthermore, the job market, which is a key driver of real estate sector demand, remains relatively solid. According to Statistics Canada's most recent Labour Force Survey, employment remained stable in June for the second consecutive month, and the overall unemployment rate came in at a respectable 6.2 percent.

In addition, interest rates, which for many buyers represent the single largest cost involved in owning a home, also look fairly attractive. Though creeping up slightly, mortgage rates remain extremely low when measured on a historical basis.

Housing sector activity remains strong

To be judged fairly, price data regarding existing homes need to be evaluated in context. For example, the Canadian Real Estate Association, or CREA, recently released data collected via its Multiple Listing Service for the first six full months of the year, and those numbers look far better. During that period, the average selling price of existing homes actually increased by 3.6 percent.

Recently released data regarding new home construction also look strong. Although housing starts slipped slightly in June to a seasonally adjusted annual rate of 217,800 units, according to the Canada Mortgage Housing Corporation, the pace remains near record levels.

Contractors' selling prices for those new homes also continue to rise. In May, new home prices rose by an average of 4.2 percent compared to the same month the year before. And while the rate of those increases has been tailing off in recent months, the increases remain well above the core inflation rate.

In fact, things are going so well that CREA experts, though cautious, expect a positive year for housing prices. "The resale housing market is more balanced that it was last year in all major urban centres," says Gregory Klump, the association's chief economist. "The frenzied pace for sales activity has faded, with buyers now better able to shop around before making an offer. Price increases are expected to be modest in the second half of 2008, as sales continue easing and listings remain high."

New listings remain high

So, if many housing sector indicators continue to look relatively strong, how could the average selling price of existing homes have fallen last month? Well for one, the amount of new listings is also very high. According to CREA, 332,958 units were put up for sale during the first half of the year, up 8.1 percent compared to the same period the year before. And when there are more homes to choose from, shoppers can haggle to get a better deal.

However, even more importantly, much of the decline in average house prices is simply a reflection of previous surges that occurred in the Calgary and Edmonton areas. For example, during 2006 and 2007, the average selling price of existing homes sold in Alberta rose by a mind boggling 30.8 percent and 24.8 percent respectively.

The trouble is that those kinds of performances are hard to top. In essence, prices there were thus destined to cool off. When they did, they brought the rest of the Canadian averages down with them. The irony is that this all occurred at the same time that average selling prices hit record highs in close to a dozen other markets across the country, including Ottawa, Montreal, Saskatoon, Saint John and Kitchener-Waterloo.

Of course, all of this is not to say that house prices on a national basis will not decline further. In fact, many observers have already said that housing demand growth will taper off for this year as a whole. However, compared to the increases that we have seen in recent years, there are few signs that any impending correction would be more than a minor affair.

By: Peter Diekmeyer - economics columnist

2008-06-16T10:10:00.001-06:00

Home ownership at record levels; Canadian mortgage debt headed to $1-trillion mark

TORONTO - Never before have so many Canadians owned homes. And never before have they owed so much for the privilege.

Interest rates at or near historical lows combined with low unemployment and recent changes that allow people to buy houses with less money down and pay off mortgages over longer periods resulted in 68.4 per cent of Canadians in the housing market in 2006.

That's up from 65.8 per cent in 2001 and 60 per cent in 1971, according to the latest Statistics Canada data.

The increase comes despite the fact that the cost of housing in many cities across the country has gone through the roof, outstripping inflation by far, while median incomes have essentially flatlined.

"Low mortgage rates have helped offset much, but not all, of the impact of rising house prices in recent years on mortgage debt-service costs," said Bertrand Recher, a senior economist with Canada Housing and Mortgage Corp.

The overall result has been a small increase in the percentage of Canadian homeowners who spend more than 30 per cent of their gross income on shelter costs, according to Statistics Canada census data.

But latest CMHC figures show a sharper spike in mortgage-carrying costs in terms of after-tax income.

In 2007, average household spending on monthly mortgage payments had reached 37 per cent of after-tax income, up from 32 per cent in 2006.

"That's significant - mortgage carrying costs are increasing," said Recher.

"This burden is heavier on the shoulders of first-time buyers because they don't have the equity."

Most analysts, however, see little comparison between the Canadian housing market and its American counterpart, where hundreds of thousands of homeowners suddenly found themselves in way over their heads, creating a financial meltdown.

Canadian financial institutions jealously guard the number of mortgage defaults they endure. But among the country's big banks, only about 0.27 per cent of homeowners were three months or more in arrears on their payments.

"Anecdotally, we are not seeing any rise in arrears or defaults across the country," said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, an organization that speaks for mortgage lenders.

"Canadian underwriting standards by lenders and mortgage insurers are much more thorough than they are in the United States. Canadian lenders are much more conservative."

One key factor in the rise of home ownership is the relatively new option of mortgages amortized over 40 years.

Paying off loans for homes over a longer period means much higher total interest costs, but lower ongoing monthly payments. The effect is increased affordability. Growth in such long-term mortgages has been nothing short of dramatic, figures show.

Between the fall of 2006 and fall 2007, 37 per cent of all mortgages carried amortizations longer than 25 years, up from nine per cent in the preceding period.

"Clearly they're very popular," said Murphy, adding that not only first-time buyers are opting for the new choice.

One real estate investor-analyst who disagrees with the rosy assessment of the Canadian market is Liberal MP Garth Turner, who argues too many people, especially younger buyers, are taking on too much debt to buy into the housing game.

Low interest rates coupled with 40-year amortizations and negligible downpayments might make it easier to buy higher priced homes, but it's also leaving buyers vulnerable, Turner says.
"The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt," Turner maintains in his book, "Greater Fool."
Collectively, it is a lot of debt.

In total, Canadians owe an amount fast approaching $850 billion on their homes, more than double what it was a decade ago, with percentage growth in double digits in recent years.

If trends continue as expected, the value of all outstanding mortgages will surpass the $1-trillion mark sometime toward the end of next year.

The federal government is keeping a close eye on the developments, according to Finance Minister Jim Flaherty.

"We have been monitoring the mortgage market, as we do, and we've seen a trend toward longer amortizations and smaller down payments, and that is a matter of some concern," Flaherty said recently.

"We're continuing to watch that."

Mortgage insurers, who take care of defaults, have also tightened their criteria.

Still, any concerns over the situation appear, at least for the moment, to be outweighed by more positive views.

Overall economic conditions remain healthy in Canada, with unemployment close to historical lows, Recher noted.

In addition, the forecast is for the rapid growth in house prices to moderate substantially while interest rates are expected to remain relatively stable, at least over the next year or two.

One group blissfully unconcerned about rising carrying costs are those aging baby boomers who have paid off their mortgages, a group that has grown in recent years.

More than 42 per cent of all homeowners hold no mortgage at all, according to Statistics Canada.

Many longtime owners have taken their equity and downsized to condos, joining the flood of first-time buyers who have gained their first toe-hold in the world of home ownership by entering the relatively affordable condo market.

About 10 per cent of households are now in condos, a tripling in 25 years.

"There's been quite an increase . . . in the percentage of owner-households that are in condos," said Willa Rea, senior analyst with Statistics Canada.

"There's a good deal of young people buying in and becoming homeowners. We've seen quite an increase there."

While shelter costs for homeowners have risen, they remain higher than those for renters. Roughly 40 per cent of renters spend 30 per cent or more of their income on shelter.
"That hasn't changed," said Rea. "It's pretty stable there."

The analysis released Wednesday is based on census data collected more than two years ago. The next census will be taken in 2011.

© The Canadian Press, 2008

2008-05-15T09:42:00.002-06:00

No bailout for irresponsible financial institutions, says Bank of Canada governor

OTTAWA - The governor of the Bank of Canada says he will take a tough stand with financial institutions that wind up near bankruptcy because of poor decisions.

Mark Carney says the central bank won't be bailing out Canadian financial institutions like the U.S. government did when the Bear Stearns brokerage, one of the giants of Wall Street, ran afoul of the subprime mortgage mess.

"If you cannot make a judgment (on the value of an asset), you should not own the security," Carney told a Senate committee Thursday.

"There is very high value if a situation came about to ensuring the shareholders and senior managers bear the full consequences of their actions," Carney said.

"The Bank of Canada has a role to become lender of last resort, but we would do that on the advice of the Superintendent of Financial Institutions that the institution is solvent, not because the institution needed money."

Carney said the central bank would come to the rescue of a chartered bank in the case of a temporary liquidity problem, if the institution had sufficient capital to be considered viable.
But he added if investors and managers thought there would always be a safety net, they would be encouraged to take inordinate risks in order to maximize profits.

Canada has a relatively small number of chartered banks and there's little chance of bankruptcy at any of the biggest. However, there are also a number of small, little-known chartered banks, as well as mutual fund companies, investment dealers and other financial services companies without the resources of the Big Six.

Carney's harsh stance Thursday appeared aimed at possible future behaviour by Canadian financial institutions than any past transgressions, as he mostly praised the chartered banks for leading the world in moving to meet new disclosure requirements recommended by the Financial Stability Forum last month.

And he repeatedly stressed that tight credit conditions are not as bad in Canada as in the rest of the world, saying while the banks are having some difficulty obtaining financing, the cost of inter-bank lending is about half that in the U.S. and Europe.

Carney also said that it may be possible that the International Monetary Fund's estimate of total global losses of US$945 billion from the U.S.-originated financial crisis may be overly high, although he gave no estimate himself.

As he did the previous day in testimony before a Commons committee, the bank governor defended his request for new powers to expand the list of assets the Bank of Canada can accept in injecting liquidity during the current tight credit situation.

The change would give the Bank of Canada the same flexibility as other central banks in the industrialized world, he said.

"This is a core recommendation of the Financial Stability report which was endorsed by all G-7 finance ministers and governors last month," Carney said. "These are powers (that other central) banks have and use."

Speaking to reporters after his testimony, Carney said he was sticking by his forecast that Canada's economy would suffer through a slow first half of the year and start to recover in the second half despite Wednesday's Statistics Canada report that the country's gross domestic product actually shrank by 0.2 per cent in February.

He said the central bank does not put great weight on monthly statistics, which sometimes get revised and can be volatile.

"We're talking about an economy that has grown 3.3 per cent for 15 years," he said. "There have been big shocks, but there's a lot of strength in the Canadian economy. There's a lot of strength in domestic demand."

© The Canadian Press, 2008

2008-03-26T12:30:00.001-06:00

Canadian economy in good shape despite possible U.S. recession: CIBC economist

LAKE LOUISE, Alta. - Canada will be relatively sheltered from a possible U.S recession because of our booming resource sector and minimal exposure to subprime mortgages, CIBC World Markets (TSX:CM) senior economist Avery Shenfeld says.

Shenfeld told a conference Thursday the recent spike in commodities like oil and natural gas reflect "the kind of numbers that you see amidst a global economic boom."

Canada benefits from the fact that it is an exporter of oil, which surged above US$110 a barrel on the New York Mercantile Exchange on Thursday.

"Increasingly Canada's become almost a petro-currency where the fluctuations in the price of oil drive the story almost day to day of the value of the Canadian dollar," Shenfeld said.

"When you are a resource exporter, which Canada is to a significant degree, you're getting more for each barrel of oil each tonne of nickel."

Any growth of the Canadian economy will come almost entirely from resource-rich Western Canada. Meanwhile the manufacturing heartland in Central Canada, which depends on selling exports to the United States, is experiencing virtually recession-like conditions.

"The key difference here is if Canada were an island unto itself, if we didn't trade with anybody, we'd be in a boom not a bust," Shenfeld said.

"If Canada were not a trading partner with the U.S. we'd be projecting a boom in the Canadian economy in 2008."

Canadian domestic demand has been growing at a much higher rate than in its neighbour to the south. That is mostly due to our relative insulation from the subprime mortgage crisis in the United States.

"Canadian banks tend to be pretty boring institutions. We're not as exciting as those Wall Street institutions. We don't try invent as many ways to lend people money who can't pay it back," Shenfeld said.

"So the net result was that we never really had much of a subprime mortgage market. It's not blowing up as a result."

© The Canadian Press, 2008

2008-02-23T16:23:00.002-07:00

House prices jump 45%

Market expected to climb, after record-breaking 2007

The past 12 months have been record-breaking for residential Realtors in Saskatoon, with 4,446 homes sold, an average price 45 per cent higher than 2006 and a total dollar volume topping $1 billion.

According to year-end figures released Thursday by the Saskatoon Region Association of Realtors, $1,034,826,425 in residential property was sold in the city, a total residential dollar volume 88 per cent higher than 2006's total of just over $550 million. The average price of a home in the city reached $232,754, up 45 per cent from 2006's average of $160,586.

It has been a landmark year for real estate in Saskatoon, said the association's executive officer Harry Janzen. With a rolling six-month average home price of $250,428, Janzen said the past 12 months have been a whirlwind for the industry.

It was a year of numerous milestones, he said.
"If we look at the month of August, it was the first (time) that we surpassed $1 billion in total MLS dollar volume, which represented a 97 per cent increase from the previous year. But the other milestone was accomplished in December as we passed the $1-billion mark in residential dollar volume," he said. "Those are actually quite incredible numbers for our marketplace, and certainly that translates into the average selling price which has been consistent over the past six months."

In December, the average price of a home reached $255,271, up 46 per cent from December 2006 when the average price was $175,301. December was the second month in 2007, along with October, that the average price topped $255,000.

A high average at the end of the year indicates a strong market for the next 12 months, said Janzen. Driven by in-migration and a strong economy, 2007 home prices also reflected a market correction. Prices are expected to continue to rise this year, though not with the intensity of 2007 increases.

"We're very stable around that $250,000 mark, but will those prices go up? I certainly believe they will, because demand dictates price. We have indicators from every area that there's a strong confidence in the Saskatoon market -- there's exceptional optimism, probably more than I've ever seen," he said.

Homes in the $300,000 to $400,000 range were the best-sellers of the year, Janzen said, but that didn't stop prices from rising on smaller, starter homes. With people priced out of the market and investors capitalizing on a strong economy by raising rents or converting apartments into condos, the rough side of a gleaming real estate market quickly came to light. The executive officer said other Canadian cities, such as Calgary and Winnipeg, that have recently dealt with the question of affordable housing, act as benchmarks for Saskatoon.

"There's no question that an active real estate market has some inherent issues, and certainly housing affordability is on the front burner," he said. "One thing I can say with 100 per cent confidence is our province, and most importantly our city, have been very proactive in trying to prepare for the issue of affordable housing. These issues are not unique to Saskatoon, they are inherent with any active real estate market."

Although the banner year for residential real estate wasn't universally positive, Janzen said Saskatonians can expect more of the same in 2008.

"I guess it might be said that anyone who's out there thinking, 'I'm going to wait to purchase a property because prices are going to come down,' we should encourage them to not think that way."

Now is the time to try and buy, said Kent Bittner, mortgage broker and owner of Dominion Lending Centres on Saskatoon's Wall Street. People trying to enter the market for the first time are concerned they will be left out in the rush, he said, and their worries are valid.

"We do see people, call them first-time homebuyers, caught in the market where they know what's going on, they've heard that prices have been increasing. They're fearful that they will be left out in the dark if they don't get into the market soon," Bittner said. "Somebody that's looking right now is best to look seriously in the next couple months rather than waiting for the spring months, because last year people could have easily paid 30 per cent more just waiting a couple months."

Higher prices are making it more difficult to qualify for loans, he said, saying a $150,000 starter home 18 months ago likely retails for closer to $250,000 today. Bittner added the price barrier is too much for some to compete with, but lending institutions are offering products that make getting into a home for the first time a little easier.

"There's definitely some people who are not able to afford what they would consider adequate housing, but, as a side note, there have been extended amortization and debt service ratios which have come into our market in the last couple of years which have kind of coincided with increased pricing. So prices have made it tougher to qualify, but yet we've had products out there that do make it easier on that end, too," he explained.

With home prices expected to rise through 2008, the broker suggests people thinking about buying a home move forward with their plans.

"With what's happened in Saskatchewan here, in Saskatoon $250,000 used to be a fairly big number; $500,000 isn't even a big number any more," he said. "I think people who are renting, the longer they are renting the less chance they have of purchasing."

2008-01-15T11:17:00.000-07:00

What 2008 holds for the Canadian economy

The new buzz word among economists in recent weeks has been "decoupling." With the American economy slowing, the big question now is whether the rest of the world will follow suit as it usually does, or whether other countries are sufficiently decoupled from the US that they can continue to grow without support from American consumers.

Nowhere is the decoupling question more relevant than it is in Canada. Close to 25 percent of Canadian Gross Domestic Product, or GDP, ends up as exports to the US, so if our biggest customer catches a cold, we tend to get pneumonia. According to one expert, things aren't likely to be any different this time around.

"Canada's economy is headed for weaker times in 2008," said Craig Alexander, deputy chief economist at TD Financial Group, in a recent note to clients. "The good news is that Canada is well positioned to weather the storm. The domestic economy remains solid and the risks in the real estate market remain limited."

Although the Indian and Chinese economies remain exceptionally robust, "the correlation between overseas economic growth and US consumer activity has remained strong," says Alexander. "This implies that the coming tightening in American purse strings will act as a major dampening factor." Alexander expects world GDP growth to slow from 5.2 percent in 2007 to 4.2 percent in 2008. Canadian growth is expected to slow to 1.9 percent in 2008 before bouncing back up to 2.5 percent in 2009.

A dose of preventive medicineAccording to Yanick Desnoyers, a senior economist at National Bank Financial, the Bank of Canada's move to cut interest rates earlier this month may prove to be prescient. The strong loonie, coupled with tighter credit south of the border, is putting a crimp in the growth of Canadian exports. The fact that domestic inflation remains well contained gave the central bank room to act earlier than it might otherwise have.

"In terms of domestic demand, the U.S. economy is ambling, while Canada is running full steam," comments Desnoyers. "In stark contrast with the situation south of the border, house prices here continue to climb, with the resulting real estate wealth and a strong job market providing solid support for consumption growth. However, with the US consumer almost completely tapped out, the risks that Canadian exports will be hit hard are much higher than many believe."

Recent real estate performanceOne area that has done quite well recently, but which could see some cooling off next year, is house prices. According to the Canadian Real Estate Association, or CREA, existing home sales in Canada reached record levels during the first 11 months of this year. The average price of a home sold via the association's Multiple Listing Service, or MLS, rose by an impressive 11.6 percent to $332,807 in November.

According to one CREA spokesperson, worries that the effects from the sub-prime loan debacle in the US would spread to Canada's housing sector have yet to be confirmed. "Our association has not received any reports from realtors that creditworthy homebuyers are having difficulty getting mortgage financing as a result of the sub-prime meltdown," says Anne Bosley, CREA's president.

Housing starts also remain strong and ran at an annual rate of 227,900 units in November, a pace that is almost unchanged from the previous month. That said, the rate of growth in the selling price of new houses slowed again last month for the 14th consecutive month. According to Statistics Canada, contractors' selling prices for new homes rose by 6.1 percent between October 2006 and October 2007, down from a 6.2 percent year-over-year increase the previous month.

Existing home prices have now risen in the double digits for the past three years. However, despite the Canadian real estate market's impressive numbers, Douglas Porter, an economist with BMO Capital Markets, believes that that strength is unlikely to continue forever. That said, the slowdown will be moderate. "Housing may not manage to pack as strong a punch next year as it did in 2007 for the Canadian economy," says Porter. "But it's also unlikely to suffer a knockout blow, a la the US market over the past year."

In short, while the US economy may not be completely decoupled from Canada's, Canadian homeowners can at least rest assured that for the time being, their real estate market looks like it is.

By Peter Diekmeyer of Bankrate.com

2007-12-05T14:05:00.000-07:00

81 per cent of Canadians satisfied with their mortgages

Canadian Association of Accredited Mortgage Professionals survey shows longer amortization and flexible terms keep mortgage industry buoyant

TORONTO, Ontario, November 07, 2007 — The vast majority of Canadians (81 per cent) are happy with the terms of their mortgages thanks in large measure to "good interest rates" and longer amortization options, according to a report released today by the Canadian Association of Accredited Mortgage Professionals (CAAMP). Significantly, thirty seven per cent of Canadians who have taken out a mortgage in the last year have chosen amortization periods of more than 25 years. The information was gathered by Maritz from an online survey of 2,000 Canadians in late September and analyzed in conjunction with CAAMP economist, Will Dunning.

While mortgage rates continue to be the most common factor consumers use to rate satisfaction with their mortgages, consumers are clearly pleased with the many new alternatives they have. Fifty-eight per cent cited more choice for payment options and mortgage terms as reasons for being satisfied with their current mortgage.

"Canadians, particularly first time homeowners, are looking for lending products that can help them enter the market as prices continue to rise," said Jim Murphy, AMP, President and CEO of CAAMP. "Alternative lending products, such as longer amortizations, with the option to renegotiate terms, are keeping the housing market accessible to a wider range of investors."

Most Canadians chose their mortgage lender because of the rate offered and most said they sought two or less quotes, suggesting that at least on rates, there is not much difference among institutions. The number of Canadians who have consulted with a mortgage broker remained unchanged from last year at 28 per cent; however for those new mortgages taken out during the last year, the number consulting mortgage brokers rises to 43 per cent. The majority of Canadian mortgage holders continued to consult with one of the major banks when taking out a mortgage.

The survey asked Canadians about the turmoil in the United State's sub-prime mortgage and housing markets. Most Canadians said they are aware of the events, and that they are concerned about them to varying degrees. However, they see little impact on themselves - even among those who are concerned to some degree, 58 per cent said that the changes in the U.S. have had no effect on their recent decisions.

"Canadian homebuyers are a sophisticated and savvy group," said Andrew Moor, AMP, CAAMP Chairman. "They have a risk management attitude. Canadians understand that our mortgage market remains strong and stable, even as they continue to keep a close eye on interest rates."

Growth of residential mortgage credit continues to accelerate - during the past two years, it expanded by an average of $77 billion per year, or 11.4 per cent per year. The volume of residential mortgage credit outstanding is forecast to grow by 11.7 per cent in 2007, 9.3 per cent in 2008 and 8.4 per cent in 2009. Total mortgage credit is projected to reach $963 billion by the end of 2009 and will surpass $1 trillion during 2010.

The mortgage market's expansion in recent years is related to strong housing market activity. The volume of sales more than doubled (rising by 144 per cent) in the six years from 2000 to 2006, for a growth rate of 16 per cent per year - resulting in a rapidly rising requirement for mortgage financing. Over the same period, outstanding residential mortgage credit expanded at a rate of 8.9 per cent per year.

Canadian attitudes towards buying a home varied according to their locations. Those most negative pointed to high house prices. Those most positive cited low interest rates. When asked if "now is a good or bad time to buy a home in your community," British Columbians were slightly less positive about buying than a year ago while Saskatchewan and Alberta were the only two provinces where a majority gave a negative response (60 and 59 per cent respectively) reflecting the heated housing markets in those two provinces. In the East, Quebec and Ontario, respondents were more positive about buying at this time.

About CAAMPEstablished in 1994, the Canadian Association of Accredited Mortgage Professionals (CAAMP), formerly the Canadian Institute of Mortgage Brokers and Lenders, is Canada's national mortgage industry association. CAAMP has assumed a leadership role in the industry it serves and has set the standard for best practices for Canada's mortgage practitioners. In 2004, CAAMP created the Accredited Mortgage Professional (AMP) designation as part of an ongoing commitment to increasing the level of professionalism in Canada's mortgage industry.

As a membership-based organization, CAAMP strives to develop its network of professionals and to represent the interests of these individuals to government, media and consumers.

CAAMP has attracted over 10,000 members and 1,100 companies from across Canada - representing over 90% of Canada's mortgage activity. CAAMP members make up the largest and most respected network of mortgage professionals in the country. CAAMP's membership base consists of mortgage lenders, brokers, insurers and other industry participants.

CAAMP's other primary role is that of consumer advocate. On an ongoing basis CAAMP aims to educate and inform the public about the mortgage industry. Through its extensive membership database, CAAMP provides consumers with access to a cross-country network of the industry's most respected and ethical professionals.

In September/October 2007, Maritz Research conducted a 21-question telephone survey with 2,000 Canadian consumers. A sample of 2,000 Canadians ensures an accuracy of + 2.2%, 19 times out of 20.

A copy of the survey is available at www.caamp.org

2007-11-21T11:58:00.000-07:00

The next shoe to drop in the mortgage and credit crunch saga will be commercial real estate.

WASHINGTON - One of the troubling features of the U.S. subprime mortgage mess is the number of times experts have insisted the worst is over.

First, we were told the housing slump had bottomed out. Not.

Then, we were assured that subprime mortgage problems were contained and wouldn't affect banks and brokers. Wrong again.

And what about the experts who pointed out that housing is only a small piece of the economy, leaving the mighty consumer unscathed? Logic suggests this hypothesis is also flawed. Several major retailers, including Starbucks and J.C. Penney, are now sounding the alarm about future sales.

Now some economists are taking comfort in the notion that no matter how bad it gets in residential real estate, the commercial side of the business is still healthy.
Well, maybe not so much.

There are disturbing signs that the commercial real estate market may be headed for a repeat of the crash that rocked housing.

The same factors that got housing lenders into trouble are rampant in commercial real estate: poor underwriting standards, loose lending to marginal projects and reckless, interest-only, minimal-equity loans, according to Nouriel Roubini, a New York University economist who was among the early voices of doom about the subprime fallout.

"The next shoe to drop in the mortgage and credit crunch saga will be commercial real estate," Mr. Roubini ominously predicted last week in his popular blog. "The bubble in commercial real estate construction, like the bubble in residential construction will soon turn into a painful bust."

Data on the commercial market isn't as extensive as it is on the residential side. But there are some clear warning signs.

Most worrying: Prices have apparently peaked after a five-year boom, putting stress on lenders and borrowers alike.

The value of U.S. commercial real estate owned by big pension funds fell 2.5 per cent in the third quarter of 2007, according to an index released last week by the Massachusetts Institute of Technology's Center for Real Estate.

The index provides the first hint that weakness in the housing market is spilling over into commercial real estate, MIT's David Geltner said.

"The fall in our index is the first solid, quantitative evidence that the subprime mortgage debacle, which hit the broader capital markets in August, may be spreading to the commercial property markets," he said.

The index's quarterly decline is the first in four years and the largest reversal since the fourth quarter of 2001, when the economy seized up after the Sept. 11 terrorist attacks.

Commercial real estate typically follows the housing market. So as subdivision "ghost towns" pop up around overbuilt cities such as Las Vegas, San Diego and Phoenix, logic suggests the commercial and office complexes that normally follow these developments will also falter.

"If the towns are empty, the stores and malls and offices will be empty, too," said Mr. Roubini, a former senior adviser to the White House Council of Economic Advisers and the U.S. Treasury Department. Recent trends in business investment similarly point to less demand for factory and warehouse space, he added.

If all that isn't worrying enough, there's evidence that lenders are overstretched. Commercial real estate loans represented a precariously high ratio of 118 per cent of underlying real estate values in the third quarter, according to a recent Moody's report.

Many U.S. cities are still dotted with construction cranes. But when the current pipeline of projects dries up, financing may evaporate. The value of commercial mortgage-backed securities - the bonds that underpin most commercial loans - tumbled 84 per cent to $6.3-billion (U.S.) between March and October.
Mr. Roubini estimates that falling commercial prices could eventually open up a $100-billion to $150-billion crater of bad loans for banks.

That's not as large as the banks' exposure to soured home loans, but it would weigh heavily on an already-stressed banking industry, causing lenders to further restrict credit.

"The coming bust of commercial real estate will lead to another round of massive losses for the banks who made these loans and the investors who bought these toxic mortgages," he warned. "The financial markets massacre is just starting and a generalized liquidity and credit crunch will become full-blown in the next few months."

Early reassurances from the likes of U.S. Federal Reserve Board chief Ben Bernanke and countless Wall Street luminaries have proven pretty unreliable So maybe it's time to pay attention to some of the darker voices out there - just to be on the safe side.

From Tuesday Nov 20, 2007 Globe and Mail

2007-10-01T10:42:00.000-06:00

Bank of Canada likely to cut interest rates before year-end: Scotiabank

TORONTO - Slower growth, lower interest rates and a strong Canadian dollar will be the key economic trends into 2008, according to the latest forecast from Scotia Economics (TSX:BNS).

Its latest Global Outlook report, it says the recent U.S. Federal Reserve decision to cut interest rates has put U.S. monetary policy out of sync with the more cautious stance in Canada, Europe and Japan.

Warren Jestin, Scotiabank's chief economist, says this divergence will widen into 2008 as the Fed brings in more rate cuts.

The report also says the Bank of Canada has moved out of tightening mode and is expected to be very cautious about reversing direction.

However, with the loonie trading close to parity against the U.S. dollar and exports dampened by weakening trends in the United States, the central bank may opt to cut rates by half a percentage point around year-end.

But Jestin says rate cuts won't be as deep as those in the U.S. because output growth, job gains, the housing market and consumer spending are all stronger here and are "likely to remain that way."

© The Canadian Press, 2007

2007-08-26T16:08:00.000-06:00

Housing market stabilizing with increased listings

Single-detached home construction in Edmonton took a hit in July, falling 39 per cent following a record performance the previous month.

But the current downward trend may soon change due to a recent surge in existing homes being put for sale, says Canadian Mortgage and Housing Corporation senior market analyst Richard Goatcher.

“Now, there’s a lot more choice in the resale market, or at least there will be over the next few months,” he says. “That’s going to cause inventory replenishment in the new home market because they now have a lot more competitors in the existing market. That should put some downward pressure on new home starts next year.”

Single-detached housing starts within Edmonton fell from 487 in last year’s record-setting month of July, to 296 in 2007.

The decline was countered by a year-over-year increase in multiple-family construction, which rose 62 per cent from 255 in July 2006, to 413 this year.

Year over year, the total fell by 4.4 per cent in July while year-to-date numbers have followed suit with a near 10 per cent decrease overall. Single-detached home construction is down one quarter from this time in 2006, from 3,288 to 2,477. Multiple-family homes are up by 10 per cent from 2,542 to 2,793.

In the existing home market, escalating prices and higher mortgage rates are cutting into the demand for existing homes across the province.

“Activity levels will start to moderate because of the affordability impacts of mortgage rates that moved up over the past year and the kind of price acceleration that we’ve seen in the marketplace over the past year to 18 months,” says Goatcher. “That acceleration seems to have slowed down in the existing market here in Edmonton. Still prices have moved up over the past year and that’s starting to take its toll in terms of what people can afford to buy.”

Average resale prices in Alberta will continue to have the highest rate of growth in the country this year, despite the slowdown caused by an increase in existing home inventory.

“That’s going to rein in price increases going forward,” says Goatcher.’

However, with the amount prices have risen so far in 2007, Goatcher says the question remains how much mortgage debt are people able and willing to take on.

But is the housing crunch over in Edmonton?

“I think that would be kind of a misleading thing to say because for people in a certain income bracket, there’s still a shortage of housing,” says Goatcher, noting just because a house is available doesn’t necessarily mean it’s affordable for everyone.

The good news to potential house hunters in Edmonton is prices aren’t expected to increase substantially over the rest of 2007.

“Our view is the growth in prices for this year has already occurred,” says Goatcher, adding the increased inventory in existing homes has shifted the market away from sellers to a more balanced position. “A normal market where people aren’t going to pay over list price, where houses are going to take 30 to 40 days to sell. People have to price them accordingly or they’re going to sit. It’s definitely a different market from the one back in April.”

Although the CMHC no longer includes a forecast for Edmonton’s average single-family dwelling prices in its reports, the average residential resale price is currently $403,649.

“I don’t see that moving much this year and then maybe a five to 10 per cent increase next year,” says Goatcher. “Prices could move lower if we see a continued high level of new listings coming on the market. From our perspective, if prices start to edge downward that would discourage people from listing. They’ll pull those listings from the market and they’ll just wait it out. There’s a potential for some downward pressure, but I don’t think it’s going to be that big.”

2007-07-25T19:20:00.000-06:00

CIBC ECONOMICS & STRATEGY

Economic Flash!
July 24, 2007

Canadians Stormed the Stores in May

* annualized

• Canadian retailers won’t see a month like May 2007 more than once in a decade, but the 2.8% rise in sales, with a 2.3% rise excluding autos, will leave its mark on second quarter economic growth, and on Bank of Canada thinking. The stars were aligned for a good month – Québec civil servants had a lump sum pay equity settlement to spend, the weather finally turned seasonal for spring clothing, renovations and outdoor equipment, and as has been the case for some time, spending plans were backed by a low jobless rate. Still, nobody saw this sort of month coming.

• Statistics Canada emphasized the impact of the Québec payout, but sales were up a heady 2.2% excluding that province, which would still have been the best national monthly gain since 2002. Indeed, Québec’s nearly 10% rise from a year ago was surpassed by three provinces (Sask, Alta, Nfld).

• Gains were broadly based across store categories, with items for the home (furniture, electronics etc.) a key exception in the month, but having registered strong gains earlier. Gas station’s 3.3% rise was price-related, but real retail sales as a whole were also up sharply. New car dealers saw a solid month, and sales by new and used dealers are up more than 11% from a year ago, despite reports of increased cross-border shopping by Canadians seeking lower US prices.

Implications & Actions

Re: Economic Forecast — One can be assured that this won’t happen again soon – particularly with the weather gods turning less favourable during central Canada’s summer shopping season. Still, after a modest gain in real manufacturing shipments, but big results for retail and wholesale trade, May looks to be a strong month overall, and Q2 GDP should now handily top 3%. The C$ climb will dent the forward-looking outlook for net exports (and the retail splurge will likely show up in higher imports ahead), but domestic demand will raise the odds of a second Bank of Canada hike in September.

Re: Markets — The data sparked a rally in the C$ to yet more multi-decade records, and should be supportive for related equities, while negative for fixed income markets.

2007-06-12T20:04:00.000-06:00

Population growth depresses Alberta, B.C. rental vacancies; building permits fall

TORONTO (CP) - A booming western economy that attracted job seekers from the rest of Canada made finding an apartment to rent close to impossible in Alberta and British Columbia in April, the federal housing agency reported Wednesday.

Canada Mortgage and Housing Corp. said the lowest rental vacancy rate was in Alberta, where just under one in 100 units was available, while in British Columbia the figure was barely above one.

"The economic expansion experienced in western provinces is attracting workers from central and Atlantic Canada," CMHC chief economist Bob Dugan said in a release.

"Upon their arrival, many of these people settle in rental housing, which has put downward pressure on vacancy rates in major centres in Alberta and British Columbia."

The report finds the economy supportive of strong demand for rental housing, thanks to strong employment growth, income gains and high immigration levels.

Nationally, the rental vacancy rate rate was 2.8 per cent in April in the 35 major centres that CMHC uses for its measurements.

While that's nominally higher than the 2.6 per cent in October, the agency warned against drawing any conclusions about trends on the grounds that seasonal factors might make comparisons meaningless.

The worst place in Canada to have been apartment hunting was in Calgary, where the vacancy rate was 0.5 per cent - or 1-in-200 units available, CMHC found.

The situation was barely better in B.C. centres such as Victoria, Kelowna and Abbotsford, B.C., due to population growth and high home ownership costs, the agency said.

On the other hand, it was a renter's market in Windsor, Ont., with a nationally high vacancy rate of 11.6 per cent.

When it comes to rent, the highest in the country was to be found in the northern Alberta community of Wood Buffalo, where two-bedroom units go for an average $1,681 a month.
"Strong economic growth due to activity in the oilsands in Wood Buffalo has attracted workers from other parts of the country and has driven up demand for rental housing," Dugan explained.
Among major urban centres, Toronto led the way with average two bedrooms renting for $1,073 a month, with Vancouver and Calgary not far behind.

In contrast, a two-bedroom unit in Quebec's Trois-Rivieres and Saguenay could be found for under $500 on average.

This is the first time CMHC has released rental market information in the spring. The agency plans now to release the data twice yearly - in June and December - instead of just at the end of the year.

Meanwhile, Statistics Canada reported Wednesday that only Nova Scotia saw an increase in building permit values in April, bucking an otherwise cross-country slump of 8.4 per cent from March, more than the consensus forecast of a three per cent drop.

Alberta and Ontario saw the largest declines.

Construction intentions fell in both the residential and non-residential sectors, with contractors taking out permits worth $5.6 billion.

While the decline in the residential sector was modest, non-residential permit values fell 18.9 per cent to just under $2 billion.

It was the second time in 12 months the total value has dipped below the $2-billion mark, with all three components, industrial, commercial and institutional, losing ground.

It was also the second biggest dollar decline since 1989.

"While the permits data is volatile, the underlying trends fall broadly in line with our view that the economy continues to grow at a decent pace in the second quarter," according to an RBC Economics Daily analysis.

"The data will have little influence on monetary policy and will not throw up any roadblock for the Bank of Canada to raise the overnight rate in July."

© The Canadian Press, 2007

2007-06-03T15:10:00.000-06:00

Save taxes on your residential real estate

Home owners can realize tax gains when they know the rules.

Residential real estate in Edmonton is hot, hot, hot! If you seek your fortune in the market the taxman wants his share. Here are some important points to keep in mind when investing in residential real estate.

The principal residence exemption is a significant benefit available to homeowners. It’s intended to allow all the proceeds from the sale of your home to be used to purchase another one. Like most tax provisions, however, the rules are filled with traps.

For tax purposes, “principal residence” is essentially a home owned and “ordinarily inhabited” by the taxpayer, his or her current or former spouse (includes common-law), or their children.

It’s not uncommon to own more than one property that could qualify as a principal residence. Many families, for example, own a home and a cottage. You don’t need to live year round at the cottage to “ordinarily inhabit” it.

The good news is you don’t need to decide which property to designate as your principal residence until the property is sold and you sit down to do your taxes. The bad news is, once you’ve sold your home and designated it as your principal residence for any year, no other property can be designated as your principal residence for those same years. Thus, you need to compare the anticipated sale dates and expected gain on each property before deciding which one to designate as your principal residence for any particular year.

Due to the way principal residence exemptions are calculated, home sale gains are deemed to accrue equally over the total years of ownership. This also has to be considered when deciding which property to designate as your principal residence.

If your home sits on large parcel of land, issues arise as to how much land is included under your principal residence exemption. As a general rule, land beyond ½ hectare is included only under special circumstances. This rule is of particular concern to acreage owners and farmers.

To claim your exemption you have to report your gain from the sale of your home on your income tax return and file a special form. But not all home sales are eligible for exemption. If your gain is regarded as income, it will be taxed as income not as a capital gain, and the exemption will not apply. This can happen when a home is “flipped” (purchased just to fix up and sell for profit).

In Alberta, the top combined marginal tax rate on income is 39 per cent. Capital gains, on the other hand, are taxed at the top marginal rate of 19.5 per cent.

Taxpayers are often unaware of the “change-of –use” rules which apply when a property changes from personal use to business use or vice versa. Tax rules regard this as simultaneously disposing of, then reacquiring the property, at market value. This applies when your home (or part thereof) becomes a rental property, or your rental property becomes your home. The home will not normally qualify as your principal residence for any year in which it was a rental property.

When it comes to realizing a gain on your residential real estate, knowing what to expect from the taxman makes all the difference.

2007-03-26T19:21:00.000-06:00

Apartment Vacancies Decline in Alberta

Alberta’s booming economy and strong migratory inflows contributed to a substantial tightening of the province’s rental markets this year. According to the results of Canada Mortgage and Housing Corporation’s (CMHC) annual Rental Market Survey conducted in October, all of Alberta’s 13 major urban centres reported a decrease in apartment vacancies in 2006. The vacancy rate in privately initiated rental apartments in Alberta centres with population of 10,000 or more declined from 3.1 per cent in October 2005 to 0.9 per cent in October 2006.

Edmonton and Calgary, Alberta’s two Census Metropolitan Areas (CMAs), recorded a sharp decline in their vacancy rates in 2006. Following a moderate decline of 0.8 percentage points in 2005, apartment vacancies in Edmonton have tumbled from 4.5 per cent in 2005 to 1.2 per cent this year, the lowest rate since 2001. “A rapidly expanding economy, tight labour market, strong in-migration, and soaring house prices are some of the reasons for the increased demand for rental accommodations in Edmonton,” noted Richard Corriveau, CMHC’s Regional Economist for the Prairie and Territories region. With vacancies declining rapidly across the Edmonton CMA, landlords have raised rents in 2006. The average rent for a two-bedroom apartment unit in 2006 increased to $808 per month, up from $732 in 2005.

By excluding the impact of new structures built since the last survey and conversions from the calculation, we can get a better indication of the rent increase in existing structures. For the Edmonton CMA, the average rent for a two-bedroom apartment in existing structures increased by 9.9 per cent in October 2006 compared to a year ago.

The apartment vacancy rate in the Calgary CMA fell from 1.6 per cent in 2005 to 0.5 per cent this October. “This is the third consecutive year of vacancy rate declines, matching the record low recorded in 1997,” claimed Corriveau. “Record levels of net migration, a shortage of active resale listings, and escalating home-ownership costs helped bolster the demand for rental units,” he added. With vacancies falling below one per cent this year, landlords were able to boost rents substantially. Tenants in the Calgary CMA saw apartment rents for two-bedroom units reach $960 per month, up from $808 in 2005. The average rent for a two-bedroom apartment in existing structures increased by 19.5 per cent in October 2006 compared to a year ago.

Among Alberta’s 11 Census Agglomerations (CAs), seven saw their vacancy rates fall below one per cent, while two of these centres recorded a vacancy rate of zero per cent. The strongest vacancy rate drop was recorded in Wetaskiwin, where the rate fell from 2.4 per cent in 2005 to zero in 2006. Lethbridge’s rental market was not far behind, seeing its vacancy rate tighten by 2.1 percentage points from 2.7 per cent in 2005 to 0.6 per cent in 2006. Red Deer, Camrose, and Wood Buffalo saw their vacancies decline to 0.5, 0.9 and 0.2 per cent, respectively. Similar to last year, Cold Lake recorded the highest vacancy rate of 3.9 per cent in 2006 among all of the CAs in Alberta.

The tight vacancies across the province led to increases in average rents in all of Alberta’s 11 CAs. With a vacancy rate of 0.1 per cent, Grande Prairie landlords hiked the average monthly rent for two-bedroom apartments to $952 this year, up from $790 in October 2005. In Wood Buffalo, the average two-bedroom apartment rented for $1,717 per month, up from the $1,478 paid per month in 2005. “This was the second year in a row that Wood Buffalo was the most expensive centre in which to rent across Canada,” Corriveau claimed.

With the release of its 2006 Rental Market Survey, CMHC has broadened its coverage of the rental market to include apartment condominiums offered for rent in the following centres: Vancouver, Calgary, Edmonton, Toronto, Ottawa, Montréal, and Québec. In 2006, vacancy rates for rental condominium apartments were below one per cent in five of the seven centres surveyed. Rental condominiums in Vancouver and Toronto had the lowest vacancy rate at 0.4 per cent. On the other hand, Québec and Montréal registered the highest vacancy rates for condominium apartments at 1.2 per cent and 2.8 per cent in 2006, respectively. The survey showed that vacancy rates for rental condominium apartments in 2006 were lower than vacancy rates in the conventional rental market in all the surveyed centres, except Montréal and Calgary. The highest average monthly rents for twobedroom condominium apartments were in Toronto ($1,487), Vancouver ($1,273), and Calgary ($1,257). All surveyed centres posted average monthly rents for two-bedroom condominium apartments that were higher than average monthly rents for two-bedroom private apartments in the conventional rental market in 2006.

A second enhancement starting in 2007, is that CMHC will be conducting a rental market survey in the spring, in addition to the one conducted in the fall. The results of the spring survey will be published in June and will provide centre-level information on key rental market indicators such as vacancy rates and average rents.

2007-02-20T18:44:00.000-07:00

Interest rates: The cost of money

What goes down must — when it comes to interest rates — eventually go up (and vice versa). Interest rates hit 40-year lows in Canada and the United States early in 2004. Then they headed steadily up for the next two years. By the end of June 2006, the Bank of Canada had hiked its key overnight lending rate nine times to 4.25 per cent. Its American counterpart, the Federal Reserve, was more aggressive, hiking its key rate no fewer than 17 times to reach 5.25 per cent.

Both central banks then took a breather from raising rates in the summer and fall of 2006, saying that economic growth appeared to be moderating, taking some of the upward pressure off interest rates.

Some economists think the next move at both banks will be a lowering of interest rates. But that will depend on the economic signposts in both countries pointing to a continuing slowdown and no significant inflation.

The movement of American rates is critical to what happens on this side of the border. According to the Bank of Canada:

"Interest rates in Canada are broadly determined by the level of interest rates in the United States, the relative inflation rates in both countries, and the relative stances of their monetary policies. A risk factor is also factored in. The result is that Canadian interest rates can be either higher or lower than U.S. rates but are never fully independent.

"The Canadian economy also does not necessarily follow the American economy as it expands or contracts. When the Canadian economy is doing better than the American economy and inflation remains under control, the central bank may not have to follow every move the American central bank makes.

Why change interest rates?

Think of money like any other commodity where the price is determined by supply and demand. When the Bank of Canada changes its key lending rate, it’s changing the supply of money (or “monetary stimulus” in bank-speak). Making money more expensive to borrow reduces monetary stimulus because it reduces the demand for money. The Bank does this when it’s worried about rising inflationary pressures in an overheated economy. The central bank’s main way of keeping inflation in check is by hiking its benchmark lending rate. The best way to jump-start a stagnant economy is by making it cheaper to borrow money – a stimulative move.

Does the Bank of Canada set all interest rates?

No. The Bank of Canada sets the "target for the overnight rate." The overnight rate is the interest rate that banks charge each other to cover their short-term daily transactions. The target for the overnight rate is a half-percentage-point band.

If, for instance, that band is 3.25 per cent to 3.75 per cent, it means that banks will charge 3.75 per cent interest on money they lend to other banks and pay 3.25 per cent interest on money deposited by other banks.

The chartered banks use the overnight rate as a guide in setting their prime lending rate – the rate at which the bank's best customers can borrow money. When the central bank changes its overnight rate, it's sending a signal to the chartered banks that it wants them to change their prime lending rates. The banks always follow suit; if the central bank raises its overnight rate and a bank leaves its prime rate unchanged, it will make less profit.

The Bank of Canada does not directly set mortgage rates or credit card rates. Variable mortgage rates and other floating rate loans like lines of credit move up and down in lock step with the prime lending rate. But the rates for fixed mortgages depend more on the bond market. Banks rely on the bond market to raise money for those kinds of mortgages. Interest rates on the bond market can move up or down more frequently than the prime rate because the bond market is far more sensitive to market fluctuations. Rates move when traders believe the central bank may be about to increase – or reduce – interest rates.

Credit card rates, on the other hand, hardly budge at all. Most cards carry an annual interest rate of around 19 per cent. Department store and gas cards are often around 28 per cent. The higher rate, according to the Canadian Bankers Association, is attributable to risk. A mortgage is a secured loan because the loan is backed up with a tangible asset: your house. Using a credit card is essentially taking out an unsecured loan because there is nothing physical used as security for the lender. In addition, the CBA says, credit cards are much more susceptible to fraud, which necessitates an interest rate that remains consistently high.

What happens when rates go up?

It goes without saying that it costs more to borrow money when interest rates increase. This doesn't have much of an impact on most day-to-day buying decisions. But if you're in the market for a house, you might think twice about buying as rates rise. For instance, if you need a $200,000 mortgage – which is not uncommon now that you can buy a home with essentially no down payment – you would be paying $1,163.21 every month in principal and interest for 25 years, if your mortgage interest rate was five per cent.

But if that rate was just one percentage point higher, your payments would be $1,279.62 per month. And that doesn't include property taxes. Bump the rate to seven per cent and your payments are just over $1,400 a month. Might be enough to make you think twice about buying.

And if you don't buy, then those big box hardware stores might not see as much of you since you won't be renovating that new house. Same goes for the furniture stores that wanted to sell you that entertainment unit for the new home theatre you were thinking of installing.

On the other hand, if you've paid off your mortgage and have a whack of cash lying around, higher rates mean the bank will pay you more to let your money sit with them in savings accounts or GICs.

The central bank moves to higher rates when it believes the economy is in danger of growing too rapidly. Rapid economic growth could cause a cycle of rising prices and wages. The central bank wants that growth to be moderate, so inflationary pressures are kept in check.

What happens when rates go down?

The simple answer is, of course, that the cost of borrowing goes down. But there's method behind the manoeuvring. Lower rates are an unmistakable signal from the central bank that it's worried that the economy is weakening and people aren't buying enough big-ticket items. Lowering rates helps to spur economic growth because it makes it more attractive for businesses and consumers to borrow. The central bank must be careful not to inject too much stimulus into the economy or it risks igniting inflation. Correctly forecasting this balance of risks is the central bank’s most difficult and most important task.

When are interest rates set in Canada?

The Bank of Canada sets rates eight times a year – in late January, early March, mid-April, late May, mid July, early September, mid-October and early December.

The Bank retains the option of taking action between fixed dates, but only under extraordinary circumstances.

The U.S. Federal Reserve also sets rates eight times a year. The Bank of England sets rates 12 times a year.

2006-12-03T17:01:00.000-07:00

Drug dens revealed

Health website to give purchaser look at homes ‘history

Buyers worried about unknowing purchasing a former marijuana grow-house will soon be able to trace a home’s history on a website briefly unveiled by the Calgary Health Region yesterday. The health region released a list a list of city homes hit with executive orders for running drug operations on its environmental health website as a tool for prospective owners unsure if their dream home has a checkered past.
The list of 108 houses, along with executive orders that name the former owners responsible for the cleanup, was unveiled on the website yesterday before being taken down to address some lingering legal questions.

Robert Bradbury, director for the CHR, said “somebody jumped the gun,” by posting the orders before a full legal review was finished but the registry will soon return. “We’re just making it easier and more transparent to find this information, “Bradbury said, noting houses busted for illicit drug purposes can be checked by the public at the CHR’s downtown headquarters.
“This way people can decide if they want to buy that house that was formerly a grow-op and is being remediated.”
The online registry lists 83 homes that have been hit with cleanup orders and 25 more that have met the requirements in the CHR’s executive health orders. Based on Calgary’s red-hot housing market, the value of the dubious properties is around $40 million.
Bradbury said former grow-ops could present a number of potential health concern due to mould, fire hazard, chemicals and venting.

He said the CHR will keep the database in place so homebuyers can check back to see if a house was used as a drug operation. Ald Diane Colley-Urquhart, who chairs the Stop Marijuana Grow-op Coalition, said the registry is a welcome resource for homebuyers, who want to make a safe purchase.
“This is a significant step forward in the fight against neighborhood drug factories,” she said.

“We‘re just making it…..more transparent.”
Robert Bradbury
CHR health protection

2006-11-13T09:11:00.000-07:00

Calgary housing market to stay strong

The 2006 Real Estate Investment Network report- despite skyrocketing property values –Calgary remains one of the most affordable cities in the country, based on housing prices compared to average incomes. Only Ottawa, Atlantic Canada and Saskatchewan are rated more affordable. REIN says Calgary’s housing market will stay strong in the years to come. Here is their list Top 11 reason:

No.11: Average incomes are increasing faster than the provincial average.
No.10: Population is growing faster than the provincial average.
No.9: Businesses are creating jobs faster than the provincial average.
No.8: There is more than one major employer in the city.
No.7: Is in the RBC Affordability Index Hot Zone of 25 %to 39 %( 36.2%).
No.6: Calgary will benefit from an economic or real estate ripple effect.
No.5: Political leadership has created an economic growth atmosphere.
No.4: The Economic Development Office is progressive and helpful.
No.3: Major transportation improvements are underway.
No.2: Calgary suits baby boomer life style.
No.1: Increase in labour and material costs in the area.

2006-10-04T15:09:00.000-06:00

Variable mortgages merit closer look amid signs of dropping interest rates

CALGARY (CP) - With enough mortgage choices out there to make your head spin and fresh signs that interest rates could be dropping, a good place to broach the subject of home financing is the age-old debate of fixed-term versus floating rates.

While fixed terms appeal to those with tight budgets who prefer knowing exactly what the month-to-month payments are, a good argument can be made to go with a floating or variable rate mortgage - at least for the short term.

Andrew Moor, president and CEO of Invis, one of Canada's biggest mortgage brokerage firms, said his company is currently advising people to go with a variable rate mortgage and then maybe lock in once rates come down.

Moor said a "strange anomaly" is occurring now where larger-than-normal spreads between fixed-rate mortgages and bond rates - which compete against each other for investment dollars - suggest that mortgage rates are likely to drop over the next several weeks.

As a graphic illustration of this, Toronto-based Royal Bank (TSX:RY) cut its long-term mortgage rates twice in one week in late September.

Added to this is a growing belief that a looming economic slowdown will force the Bank of Canada to keep its key lending rate unchanged at 4.25 per cent for the next few months and potentially even lower next year.

Earlier in September, the central bank signalled that a quicker-than-expected slowdown in the U.S. housing market could bring about larger economic problems that would require rate decreases on both sides of the border.

"It certainly seems to us that there's very little risk of the variable rate mortgages going up in cost over the next little while," said Moor.

"So if you close on a variable (mortgage) today, you can expect your monthly payments or your interest costs are going to drop for the next little while."

Invis says that even with seven rate increases over the past year, people who had variable mortgages still fared about as well as those who had locked into a five-year fixed term.
Still, picking between a fixed and floating rate mortgage should be about more than just simple number crunching, said Nancy Mitchell, senior manager of RBC's home equity financing group in Toronto.

"The whole thing around choosing mortgages is not only about the rate and what you're going to pay, but it's a great time to look at your overall needs."

This includes what your future borrowing needs might be like - if you have kids going to university or want to undertake a big renovation.

It's also about comfort levels.

A first-time home buyer already frazzled with getting a big mortgage might not want the extra stress of seeing their payments increase if interest rates rise slightly.

"That same person when they come up for renewal, they've had the experience of owning a home for a few years. They know what their expenses are and their comfort level is there," said Mitchell

"It may be very appropriate at that time for them to look at a floating rate."
One potential strategy is to get a variable-rate mortgage, but set the payments at or slightly higher than those required for a five-year fixed term. That way, if rates go up you're more than covered. And if they don't, then you're simply paying the principle down faster.

Most financial institutions also now offer the ability to hedge your bets and split your mortgage into two pieces - one that you lock in and one that you allow to float.

Before you get a mortgage, it's important to set goals and clearly know your present financial status and cashflow, says Kevin Gebert, a certified financial planner with Partners in Planning based in Surrey, B.C.

Gebert likes fixed-term mortgages because it allows people to fix their costs, set up a budget and set goals throughout the year to make extra payments that will take down the mortgage faster.

"What's really scary is someone doing a variable rate mortgage, where they're penny pinching and going into debt, but all they can afford is that variable rate," he said.

"And then they don't worry about the future."

With the rapid ramp-up in housing prices in most big markets across Canada, new mortgage products have been designed to help people afford the bigger price tags. These include mortgages that have longer terms, like 30 and 35 years.

In late September, First National Financial LP became one of the first lenders in Canada to offer an interest-only mortgage that allows homebuyers to pay only the interest on their property for the first five or ten years.

"Like a lot of things in financial services, you bring innovation that makes sense for a certain consumer, but it can be abused by others," said Moor at Invis.

"You've got to have a plan in place that says 'I'm going to have more income to be able to handle that payment five years from now.' If you're just doing it without any thought as to how to handle those extra payments later on, then it's a fairly foolish thing to be doing."

2006-08-30T20:48:00.000-06:00

Which one? Fixed rate mortgage or variable rate mortgage

Before we answer that question, it’s important to understand the difference between a fixed rate mortgage and a variable rate mortgage.

Fixed rate mortgage - A fixed rate mortgage is a mortgage where the rate of interest is fixed for a specific period of time. Generally known as the mortgage term, it usually ranges from between 6 months and 25 years. As time goes on, more of the mortgage payment goes towards the principal and less of the payment goes to the interest.

Variable rate mortgage - A variable rate mortgage is a mortgage that has fixed payments, but the interest rate fluctuates with any changes in interest rates. If interest rates go down, more of the payment goes to principal and if interest rates go up, more of the payment goes towards the interest.

So, which one is better?

Determining which one is better is as simple as looking at your ability to handle risk...
Here’s an easy test...

If you loose sleep worrying about the possibility of a .25% increase in the interest rate or get stressed thinking about the impact on your monthly budget if your monthly mortgage payment changes, then a fixed rate mortgage is for you.

You should also take the same test when choosing the length of the fixed rate mortgage term.

If you breath easier knowing that your mortgage payment is fixed for the next 5 years then a 5 year term is right for you.

It’s pretty simple, don’t like risk, then a fixed rate mortgage term is right for you.

Now if risk is not as much of an issue, then a variable rate mortgage is the way to go.

Here’s why...

Based on a detail study completed by Moshe Arye Milevsky of interest rates from 1950 to 2000, consumers are better off, on average, financing a mortgage with a short term floating (prime) interest rate, compared to a long term fixed rate mortgage. A consumer with a $100,000 mortgage and an amortization period of 15 years would have paid $22,000 more in interest payments by borrowing and then renewing at the 5 year rate as opposed to borrowing at prime and renewing annually.

The bottom line: Long term stability has a price, but if you can’t sleep, what goods the money?...

2006-05-06T15:02:00.000-06:00

A Brief Assessment Of The Economy And
Implications For Interest Rates And The Mortgage Market

• In May 2000, during the FOMC meeting of the US Federal Reserves, the Fed’s Chairman Mr. Greenspan said: ”The risk of moving 50 basis points today are not very large because I think the underlying momentum in the economy remains very strong”. And indeed, the Fed went ahead and raised rates by 50 basis points. Eight months later, the US economy was in a recession. Clearly, the Fed made a policy monetary error by overshooting and raising rates much too aggressively — in a way that triggered an economic recession.

• In fact, recent economic research show that all economic recessions over the past 40 years were helped by monetary policy errors or overshooting.

• Are the Bank of Canada and the Fed in a process of overshooting now? From reading newspaper headlines about recent economic numbers, one might get very confused about the right course of action for both Central Banks. For example, over the past two weeks, we got an array of good news such as strong employment numbers and housing activity. But we also got many bad news such as slowing exports, further decline in manufacturing activity, and disappointing retail sales. Which numbers should we believe?

• My experience is that reacting to media reports is a sure recipe for over reacting and potentiality making the wrong move.

• It is very clear that the economy is strong — with the labour market even stronger. The Bank of Canada has been raising rates and indicated that more "may" be needed. From the language of the Bank we learn that the Bank, at this point, does not see a need to “aggressively" raise rates, but will do it on a very gradual basis.

• Also, note that the Bank knows that the impact of today's rate hikes will be felt only 8-10 months from now. The lag effect is something that is missed by the popular media.

• A reasonable guess is that the Bank will move by another 50 basis points and that the 5-year rate will further rise by 20-25 basis points — all within the coming 3-4 months or so. (There is a risk of about 25% probability that the Bank will move by 75 basis points. This risk reflects the potential inflationary impact of rising wages in Western Canada and their impact on wage pressures in the rest of the country. The likelihood is that productivity growth will rise fast enough to offset any wage-related inflationary pressures. Nevertheless, this is probably the most significant risk to the forecast.)

• The Bank will also take a close look at the Fed. And it is widely expected that the Fed will not go beyond an additional 25 basis points from now. The story here is the fact that the US economy is widely expected to soften in late-2006 and into 2007, reflecting the lag impact of higher interest rates, a leveling off in the housing market, and the impact of higher energy prices.

• We then might enter a period of not much movement in both short and long-term rates as the Bank assesses the situation and examines to what extent previous rate hikes are starting to impact the economy.

• Beyond that, it is very possible that by mid-late 2007 the market will start factoring in a possible rate cut by the Bank. (This might be more so if the Bank ends up raising rates by 75 basis points.) We do not view it as a major downward trend in rates, but probably some fine-tuning of rates — of say, 25-50 basis points (not unlike what the Bank did in the past).

• This means that in 18 months from now, both short and long-terms rates might not be very different than their current levels. (After rising and falling roughly by the same magnitude.)

• Implications: Shifting now from Variable to Fixed mortgage rates will probably be proven a mistake 5 years from now, albeit not a big one. While variable rate mortgages will not be as attractive as it used to be in the past five years and the savings will not be as significant (at least in the next 2-3 years), they will continue to outperform. The likelihood is that we are getting closer and closer to the end of the tightening cycle.

Economics & Strategy
www.cibcwm.com/research

2006-04-11T18:39:00.000-06:00

Average Canadian house price shot up 3.8% to $268,215 in February: CREA

TORONTO (CP) - The average price of homes listed for sale in Canada shot up 3.8 per cent to a new record of $268,215 in February, from $258,274 in January, the Canadian Real Estate Association said Thursday.

Measured on a year-over-year basis, the average price of houses listed on the Multiple Listing Service jumped 12.3 per cent, from what was a record high level in February 2005. But Gregory Klump, the real estate association's chief economist, echoed recent warnings from his colleagues, saying the housing market is expected to cool this year.

"Although the national resale housing market has so far shown few signs of slowing, rising interest rates and home prices are expected to gradually slow resale housing market activity this year."

Seasonally adjusted dollar volume of sales totalled $11.2 billion in February, an increase of 1.5 per cent from January and a new high. British Columbia, Alberta, and Ontario led the pack, CREA said.

"The resale housing market remains tightest in Western Canada," Klump said.

"A shortage of homes available for sale and the continuation of strong resale housing demand in Western Canada are resulting in substantial price increases there," he said.

Across the country, a small decline in the number of homes for sale and a small increase in the number of houses sold caused the resale housing market to tighten slightly. But that does not explain the large price hikes, the association said.

On a seasonally-adjusted basis, 41,555 homes were sold in February, up two-tenths of a percentage point from January. Increasing sales activity in Ontario and Quebec more than offset a decline in British Columbia.

The number of Canadian homes sold during the first two months of the year across the country is 10.7 per cent ahead of the same period in 2005.

New listings, meanwhile, fell by one half of a percentage point from January to 64,382 in February.

The association's statistics come one day after a Royal Bank of Canada (TSX:RY) report found that Canadians spent a higher portion of their income on housing in the final three months of 2005.

The RBC report, which looked at the proportion of income needed to service the cost of owning a home, said that high home prices and utility costs have pushed affordability to its worst level in a decade.

Economists expect that rising wages and steady interest rates will improve the situation within the next year.

2006-04-02T12:01:00.000-06:00

Home, sweet home. is retiree mantra

About 17% of Canadian homeowners say their homes will be their primary source of retirement income, according to a survey released last week.

The survey by RBC Royal Bank also found that 32% of respondents 55 and over hold a mortgage, and suggested that Canadians are increasingly comfortable with housing debt following the rise in house prices over the last few years.

"There's definately a trend amoung aging baby boomers that they are very comfortable in holding debt later in their lives, and so I think a reverse-mortgage, or at least everaging the equity in their homes, is something they're comfortable with," Catherine Adams, RBC's vice=president of home equity financing, said in an interview.

Another recent study by the bank found that 48% of Canadians do not believe it's necessary to retire debt free, she noted.

Surveys are a popular promotional tool for Canada's banks and mutual fund companies. Many use public opinion polls to guage demand for financial products and services, promote specific brand names and learn more about the public's financial management habits.

Royal Bank is Canada's biggest residental mortgage lender, with more than $91 billion in loans outstanding at the end of its 2005 fiscal year.

The survey also found that 60% of Canadian homeowners currently hold a mortgage, up from 56% in 2000.

The average amount owing is $95,840.

Nearly 40% of mortgage holders have borrowed against the equity in their homes.

The increased borrowing comes as the average homeowner estimates that their home has gone up 18% in value over the last two years, according to the survey.

The Canadian Press.

2006-04-02T11:42:00.000-06:00

Alberta NO. 1 for wealth

Our family incomes finally pass those of Ontario

EDMONTON - A high-end fashion retailer offering a new line of jeans with prices topping $450 quickly sold out more than 60 pairs and now has customers on a waiting list.

A Porsche dealership coming off a record-breaking 100-vehicle year expects sales to keep climbing in 2006 as more Edmontonians buy their dream sports car -- $64,100 and up -- to celebrate their success.

And at an upscale electronics shop, big plasma TVs starting at $6,000 are flying off the shelves.

All this points to a much bigger trend highlighted by Statistics Canada in its 2004 Income of Canadians survey released Thursday: Albertans are richer than people in any other province.

For the first time, Alberta families of two or more recorded the highest median after-tax income of any province, passing Ontario. Half of Alberta families earned $61,800 or more in 2004 after taxes.

Nationally, the median family income after taxes was $54,100.

"It's not surprising, given you've seen some really strong growth in the Alberta economy as a result of the energy boom," Carl Gomez, an economist with TD Bank Financial Group, said.

"There's some very strong wage growth, very strong income growth and where that's being reflected is if you look at the retail sales numbers in Alberta, they lead the country as well."

The median after-tax income of Alberta families has climbed fairly steadily over the past decade. It was $48,300 in 1995 and $54,600 by 2000. In 2004, a climb over the $61,000-threshold marked a four per cent increase over 2003. In contrast, Statistics Canada noted, New Brunswick families also experienced a four- per-cent increase in their after-tax income compared to 2003. But that increase brought their median only to $46,400.

Single Canadians have not fared as well as families. Their median after-tax income was $21,300. But again, singles in Alberta did better than any other province with a median after-tax income of $23,200.

While the income survey is more than a year old, high-end retailers say that the buying trends that started a couple of years ago are even more obvious today. Albertans, even Edmontonians who had a reputation for being more frugal than Calgarians, are spending more money on luxuries. It's visible in the increasing number of Rolexes on wrists, expensive cars on the road and homes wired for sound. At Holt Renfrew, which specializes in designer fashion, the store continues to up its luxury offerings. It added a Tiffany & Co. boutique in February and designer-label children's wear. Its Louis Vuitton boutique will expand this summer and Armani cosmetics will be launched in the fall. "Price used to be much more of an issue here," said Holt Renfrew general manager Brahm Kornbluth.

At Norden Autohaus, the city's only Porsche dealership, sales manager Randy Miyagishima expects to sell 120 Porsche products this year ranging from SUVs to sports cars. For most customers, the purchase is something to reward themselves with when they've achieved their definition of financial success. However, Miyagishima said, Edmonton buyers remain modest about the status symbol.

"It's an interesting thing when you compare Edmonton to Calgary because the money in Edmonton is a lot quieter money and people are still concerned about what their employees or their customers think," he said.

For those who can't afford a Porsche, there are alternatives. David Groleau, sales manager at Argyll Motor Sports Ltd. (Edmonton), said most customers still can't afford to plunk down the ticket price for motorcycles or all-terrain vehicles. But they are opting to take on monthly payments, typically in the $200-a month range.

MEDIAN FAMILY INCOME- Median is the half-way point in a series of numbers. In 2004, Alberta families with two or more people had a median after-tax income of $61,800. That means half the families had income higher than that, while half earned less.