The current mortgage rate environment truly is like Christmas in July for any mortgage shopper!

While the past isn’t always a reflection of what’s to come, following are some certainties you can take to the bank!

5-year fixed mortgage rates over the past 6 years are as follows:

2011: 3.59

2010: 4.49

2009: 3.95

2008: 5.15

2007: 5.74

2006: 5.25

What you need to do with this info:

If you don’t own…

If you’re a first-time homebuyer, get out there and BUY YOUR FIRST HOME.

Even though rates have nowhere to go but up, upon renewal you will have paid off enough of your mortgage that you should not have payment shock, and you will qualify with options maximized at today’s lower rates. If you continue to rent, your landlord has every right to raise your rent in accordance with inflation, and you receive no equity.

Despite what you may have heard, real estate is affordable in BC. There are only small pockets in the premium market that are out of reach for most Canadians. The reality is, if you make $30,000 per year, you can own a condo in over a dozen hot municipalities for a payment that will likely be less than your current rent! The property ladder does not start at the top with a million dollar home – the sooner you start, the faster you can move up the ladder.

If you currently have a have a mortgage…

If you have a mortgage obtained prior to 2011, it’s a good idea to undergo a review to ensure you’re maximizing your mortgage payments. Even if your renewal date is not for another four years, time is money. People paying mortgage interest in the 5% range could potentially take an average of a DECADE OFF their mortgage just by refinancing. I don’t know anyone that could not benefit from taking a decade off their mortgage!

Even if there is a penalty, this would be included in the new mortgage with the net benefits calculated.

If you have debts (including credit cards, lines of credit, loans)…

It’s almost like it never happened! Restructure your mortgage with today’s low rates to include your debts. For the average Canadian who carries $600 a month, if that debt was restructured into a mortgage today, you would save

$500 a month. This example is based on an average $20,000 loan that, according to most credit card statements, would take a consumer longer to pay off than the average mortgage amortization.

If you want certainty with you financial future that you can literally and figuratively take to the bank, contact us!

Angela Calla, AMP
Mortgage Expert
Host of “The Mortgage Show” on CKNW AM980 Saturdays at 7pm

Garry Marr, Financial Post · Jun. 22, 2011 | Last Updated: Jun. 22, 2011 9:10 AM ET

Canadian homebuyers are showing “a high level of financial literacy,” according to a new Canada Mortgage and Housing Corp. survey that found both high levels of research and a determination to pay off mortgages quickly.

The survey, released Wednesday, said 75 per cent of respondents felt it “very important” to pay off their mortgages as soon as possible and that 39 per cent had set payments higher than the required minimum. As well, 20 per cent had made at least one lump sum payment since obtaining their mortgage and 39 per cent planned to reduce their amortization periods at their next renewal, CMHC said.

Meanwhile, the survey found 80 per cent of respondents had researched mortgage terms and conditions, 88 per cent had a good understanding of how big a mortgage they could afford and 81 per cent have some form of savings.

CMHC said areas in which mortgage and financial professionals can offer advice and guidance are long-term mortgage and financial strategies, budgeting and managing debt.

It said research showed that during their mortgage research, just 23 per cent of first-time buyers received advice on budgeting and 18 per cent on managing debt.

In addition, the survey found that one in four recent buyers were not sure of where to go to receive reliable advice in case of financial difficulty.

CMHC conducted the online survey of 3,512 recent mortgage consumers between Feb. 25 and March 25.

4 Ways To Value A Real Estate Rental Property

Stephan Abraham, On Tuesday June 21, 2011

During the first half of the 2000s, investing in real estate became more common for average Americans. With easily available financing and minimal down payment requirements many Americans made handsome profits by flipping homes. Well, as we are all aware of, this couldn’t go on forever, and the real estate bubble popped in 2007, leading to The Great Recession. Notwithstanding this fundamental change, real estate investment is certainly not unprofitable. Some economic factors such as high unemployment and very strict lending standards by financial institutions have contributed to low vacancies for rentals across the United States. Perhaps real estate investors should look at rental investments as an alternative to a buy and sell approach. So, how does one go about valuing real estate rentals? Here we will introduce at a high level some ways to value rental property.

Sales Comparison Approach
The sales comparison approach (SCA) is one of the most recognizable forms of valuing residential real estate. This approach is simply a comparison of similar homes that have sold or rented over a given time period. Most investors will want to see an SCA over a significant time frame to glean any potentially emerging trends.

The SCA relies on attributes to assign a relative price value. Price per square foot is a common and easy to understand metric that all investors can use to determine where there property should be valued. If a 2,000 square foot townhome is renting for $1/square foot, investors can reasonably expect a similar rental income based upon similar rentals in the area. Keep in mind that SCA is somewhat generic; that is, every home has a uniqueness that isn’t always quantifiable. Buyers and sellers have unique tastes and differences. The SCA is meant to be a baseline or reasonable opinion and not a perfect predictor or valuation tool for real estate. It is also important for investors to use a certified appraiser or real estate agent when requesting a comparative market analysis. This mitigates risk of fraudulent appraisals, which became widespread during the 2007 real estate crisis.

Capital Asset Pricing Model
The capital asset pricing model (CAPM) is a more comprehensive valuation tool for real estate. The CAPM introduces the concepts of risk and opportunity cost as it applies to real estate investing. This model really looks at potential return on investment (ROI) derived from rental income and compares it to other investments that have no risk, such as United States Treasury bonds or alternative forms of real estate investments such as real estate investment trusts (REITs).

In a nutshell, if the expected return on a risk-free or guaranteed investment exceeds potential ROI from rental income, it simply doesn’t make financial sense to take the risk of rental property. With respect to risk, the CAPM considers the inherent risks to rent real property. For example, all rental properties are not the same. Location and age of property are key considerations. Renting older property will mean landlords will likely incur higher maintenance expenses. A property for rent in a high crime area will likely require more safety precautions than say a rental in a gated community. This model suggests building in these “risks” before considering your investment or when establishing a rental pricing structure.

Income Approach
The income approach focuses on what the potential income for rental property yields relative to initial investment. The income approach is used frequently for commercial real estate investing. The income approach relies on determining the annual capitalization rate for an investment. This rate is simply the projected annual income from the gross rent multiplier divided by the original cost or current value of the property. So if an office building costs $120,000 to purchase and the expected monthly income from rentals is $1,200, the expected annual capitalization rate is 10%.

This is a very simplified model with few assumptions. More than likely there are interest expenses on the mortgage. Also, future rental income may be less or more valuable five years from now than they are today. Many investors are familiar with the net present value of money. This concept applied to real estate is also known as a discounted cash flow. Dollars received in the future will be subject to inflationary as well as deflationary risk and are presented in discounted terms to account for this.

Cost Approach
The cost approach to valuing real estate states that property is really only worth what it can reasonably be used for. It is estimated by summing the land value and the depreciated value of any improvements. Appraisers from this school often espouse the “highest and best” use to summarize the cost approach to real property. It is frequently used as a basis to value vacant land. For example, if you are an apartment developer looking to purchase three acres of land in a barren area to convert into condominiums, the value of that land will be based upon the best use of that land. If the land is surrounded by oil fields and the nearest person lives 20 miles away, the best use and therefore the highest value of that property is not converting to apartments but possibly expanding drilling rights to find more oil.

Another best use argument has to do with property zoning. If the prospective property is not zoned “residential,” its value is reduced since the developer will incur significant costs to get rezoned. It is considered most reliable when used on newer structures, and less reliable for older properties. It is often the only reliable approach when looking at special use properties.

The Bottom Line
Real estate investing isn’t out of vogue by any stretch of the imagination. Since the last crash, however, the housing market has changed dramatically. Flipping homes financed with no money down is an artifact of the past and possibly gone forever. But real estate rentals can be a profitable endeavor if investors know how to value real property. Most serious investors will look at components from all of these valuation methods before making a rental decision. Learning these introductory valuation concepts should be a step in the right direction to getting back into the real estate investment game.

http://ca.finance.yahoo.com/news/4-Ways-To-Value-A-Real-Estate-investopedia-3634752025.html?&mod=pf-sp14c

When sizing up Canadian markets alongside their U.S. counterparts we often hear that what’s happening south of the border is sure to make its way north. Given that approach, there has been a lot of talk lately about the Canadian real estate market heading for an implosion.

 Statistics Canada has reported a steady price climb with its new housing price index rising 1.9 per cent since last April. And Scotia Capital reported that Canadian real estate prices had increased five per cent in the first quarter of this year compared to the same period in 2010.

Taking what may look like healthy growth a step further,  CIBC warned last month that 17 per cent of Canadian homes are overvalued. A five to 10 per cent price correction is likely to take place in the next two years, the report added. The report went on to say that homes in B.C. are overvalued by 20 per cent, 17 per cent in Alberta, 13 per cent in Manitoba, Saskatchewan and Quebec, 11 per cent in Ontario and 8.6 per cent in Atlantic Canada. 

And this week, Bank of Canada chief Mark Carney issued concerns that fear and greed in the Canadian housing industry is driving real estate prices through the roof.

If these predictions suggest the Canadian real estate bubble is about to burst, Toronto broker Peter Powers thinks otherwise.

“People are reading about the U.S. market and thinking this correlates to the Canadian market and nothing could be further from the truth,” says Powers of Royal LePage’s Johnston and Daniel division in Toronto. “The more likely scenario is that home prices will stabilize giving incomes a chance to catch up. The Canadian real estate market is on solid footing.”

Preceded by a boom in the housing market for the past decade, Powers believes the Canadian housing market is at or near the top of a cycle and that it will normalize, not by means of a major correction in house prices, but instead by a softening of the market and more stable prices.

“Generally, Toronto’s housing prices have been increasing at five per cent,” Powers said. “If the market starts increasing at 15 to 20 per cent, I’d be nervous.”

The concept of a Canadian real estate market or an American real estate market is simply too broad to paint with one brush, says Canadian real estate author Don Campbell.

“That is the equivalent to taking the temperature of everyone in the hospital,” says Campbell, “taking the average of those temperatures and using that  ‘average’ to determine the health of one specific patient.”

Investors need to look at specific local markets, he says. For example, hot U.S. markets right now are in the sun-belt states yet they have low economic forces so inevitably those markets cannot be sustained. On the other hand, Houston and Dallas have great job and population growth and as a result will continue to do well as they are supported by healthy economics and job growth. In Canada, the same can be said. In Windsor, for example, the economy struggles and so does its housing market. However, in other cities such as Edmonton, Surrey and Kitchener, where job creation is prompting population growth, increases in real estate prices are being supported.

Interest rates, banking, mortgage styles don’t really matter, says Campbell, if there isn’t some sort of underlying strength to the job market and the population growth. Without these, you only have hope and speculation, he adds. 

Campbell also questions why so many are concerned about foreign investment propping up the Canadian housing market while they aren’t at all worried about plunking their cash south of the border in markets that are fully supported by foreign investment.

“There is a lot of hullabaloo and media coverage around the danger of foreign investor funds propping up Vancouver and Toronto – yet zero coverage on the dangers of this occurring in these hot U.S. cities,” says Campbell. “I wonder what the coverage will be when the U.S. dip takes another ride downward, taking Canadian profits with it.”

People need to be reminded that cheap doesn’t mean good when buying real estate. Growth in what you buy only comes from GDP and job growth. With those two factors come population growth, increased rental demand, higher rents, property purchase demand, which eventually leads to a hike in property prices.

“As boring as that may sound, it is the underpinning of all real estate markets,” Campbell says. “By the way, the reverse of the formula is also true – no job growth leads to lack of long term demand on property, so what looks like a deal today will look like an even better deal two years from today - and that is the sad fact we are witnessing come true.”

Before considering investing in foreign markets, do your homework, advises Campbell. Know the economics of the region you are investing in and if you don’t know, learn all you can about it.

Tom Burk helps Canadians buy in the U.S. As a realtor who does business on both sides of the border, Burk, who is president of CanAm Properties in Calgary, says the U.S. market is far from tanking.

“It’s dangerous to say prices are crashing in the U.S.,” Burk says. “Prices are not falling everywhere. In Seattle and better parts of Phoenix and Scottsdale Canadians are paying more. The real premium properties are in high demand and there is much less supply than a few months ago. We’re seeing prices rise.”

Burk also stresses that it’s important to look at the local or regional market you’re interested in. There are still a lot of good U.S. markets and many uncertain ones – ones that have the potential of dipping down further. Canadians should not look at the national U.S. figures, he says, because that simply makes everything look bad, which is unfair and wrong.

Because Burk has been buying U.S. real estate for 25 years for Canadians, he recommends Canadians be vigilant about a number of potentially scary and damaging details when purchasing south of the border.

When it comes to titles, for instance, a good realtor will explain that a title search will not always reflect what’s on a title in the U.S., which is very different from our system in Canada. To protect the buyer from potential liability, title insurance, which is essentially unheard of here, should be purchased.

The other point that throws Canadians off buying in the U.S. is how they handle conditional sales. Often U.S. banks don’t approve or reject funding based on conditions on offers until mere hours before closing which can invariably lead to a postponed closing and much frustration especially for buyers not prepared for that uncertainty.

Another constant problem Burk encounters centres around the way contracts are written. If you have a condition that is contingent on, for instance, a spouse’s approval you have to send a waiver to the listing agent to act on the condition. In the U.S., if the listing agent doesn’t hear from the client, it’s assumed the deal is on.

“People are getting confused and they thought they were killing the contract because they did nothing and, in fact, they were moving it forward,” Burk says. “Americans don’t realize that closing a real estate deal in Canada is a different process. There’s nothing wrong with buying in the U.S. But you need a realtor who understands what you understand about the process.

Often and understandably so, they think you understand the whole process.”

Bank of Canada’s Carney warns of mounting risk, predicts bad quarter for economy

Julian Beltrame, The Canadian Press

OTTAWA – Strain from a world awash in debt is increasing the risk to what is already a fragile and weak economic recovery, the Bank of Canada warns.

And Canada faces a second, more immediate challenge from temporary factors such as disruptions from the Japanese earthquake and tsunami that will limit growth to about one per cent this quarter, governor Mark Carney added Wednesday.

“This is a disruptive time, there are a major series of changes going on … so there will be some volatility,” Carney told a Senate committee after his bank released its latest biennial Financial Systems Review.

The U.S. economy — which most Canadian exporters depend on — is a shadow of itself, he said, adding that U.S. households may need a decade to get out from debt.

Meanwhile, although emerging economies are booming, Canada’s exporters, with the exception of commodities, are under-represented in that world.

And lastly, there’s the mountain of debt weighing on the balance sheets of advanced countries, from Japan to parts of Europe to the U.S., that will dampen growth for years.

The summary put into stark language the findings of the central bank’s financial systems review, released earlier in the morning, which took a more pessimistic view of the recovery.

The big problem facing the world is debt. Debt even threatens Canada’s economy, given that household indebtedness is at record levels and could grow further before tailing off.

“The key risks to the stability of the Canadian financial system remain elevated and have edged higher since December,” the bank concludes in the systems review.

For the first time, Carney revealed to a Senate committee that the current second quarter in Canada could see growth drop all the way to one per cent, from 3.9 per cent in the first three months.

Acknowledging that he had previously predicted growth of two per cent this quarter, which ends June 30, Carney told the senators: “The growth could be even lighter than that, it could be in the one per cent range.”

He added, however, that he still expects the economy to do better in the second half of this year.

The bank report and Carney’s testimony comes as Greece is again under the gun to hold off a credit default that would likely cripple some European banks and possibly touch off a new round of global financial jitters.

But the Bank of Canada says the debt woes extend further than Greece to other peripheral European nations — Spain, Portugal and Ireland — and over the longer term, to the U.S. and Japan .

Canada too faces a troubling household debt issue, the bank warns, which could be exacerbated by shocks, including an economic downturn and interest rate hikes.

In a separate report card, U.S. Federal Reserve officials also took a darker view of the situation, downgrading growth expectations both for the economy and job creation.

All these risks “are interconnected and mutually reinforcing,” the Bank of Canada said.

Carney urged Canadians to keep things in perspective, however, growth is “reclining, not declining,” and Canada still benefits from sound fundamentals.

Canada’s financial system got a “healthy” grade both in terms of the soundness of the banking system and business balance sheets, but it is vulnerable somewhat to outside forces.

Carney said Canada’s exposure to Europe’s sovereign debt is small, but not insignificant, given the interconnectiveness of the international banking system.

“The Canadian financial system is not immune to the tensions that are currently affecting European markets,” the bank’s policy council says in the report.

Finance Minister Jim Flaherty has also expressed concern about the Greek crisis, urging European policy-makers to “create a firewall that would ensure that this type of issue would not spread beyond Greece.”

Despite the weak recovery and the pain it will cause, governments have no choice but to start the process of getting their fiscal houses in order, said Carney.

He cautioned that indebted countries, even the U.S., shouldn’t assume bond markets will be always be prepared to fill their credit needs at reasonable rates. Canada learned that lesson the hard way in the 1990s, he pointed out.

“Our experience in the mid-1990s is that the bond market is there and then it’s not,” he said.

Domestically, the bank is still very worried about Canadian household debt, which is at an all-time high of 147 per cent of disposable income.

The risk, it says, is that as household finances get squeezed, Canadians will have less money to spend on consumer goods, which would slow down economic growth.

“Further moderation in the pace of debt accumulation by households is needed to contain the buildup of this vulnerability,” it says.

The bank also cites global imbalances, the two-speed recovery where advanced nations grow far slower than emerging economies, as additional risks that appear no closer to resolution.

“If the significant fragilities that still burden the financial system are not addressed in a timely manner, the progress achieved to date could be derailed,” the bank said.

TD Bank economist Diana Petramala said the report suggests the Bank of Canada is very much in worry mode, and is unlikely to raise interest rates — which could weaken the economy — until 2012.

“All of these risks (cited by the central bank) could have significant economic consequences on Canada’s economy and financial system,” if they are borne out, Petramala said.

“In addition, they are medium-term (rather than short-term) in nature, suggesting they are unlikely to disappear any time soon. Under our current forecast, we don’t anticipate Canada’s overnight rate to reach a more normal level of three per cent until 2013.”

The bank last hiked interest rates last September , lifting its policy setting to one per cent, still exceptionally low by historical standards. http://ca.finance.yahoo.com/news/Bank-Canada-Carney-warns-capress-4229338819.html?x=0

Canadian economy still near the top of G7

OTTAWA – Canada will continue to outperform most economically advanced countries over the next two years, even as the pace slows and risks mount, the IMF says.

The International Monetary Fund’s latest forecast presents Canada as a relative sea of tranquility amid rising global turbulence from European and U.S. debt issues, the aftermath of Japan’s natural disasters, and growing inflationary pressures.

This will result in growth in advanced countries of about 2.5 per cent this year, it says, about half a point lower than last year. And emerging economies as a group will suffer a one-point drop in growth to 6.5 per cent.

As well, the downside risks to the outlook have risen sharply since the IMF’s previous report in April.

“The balance of risks point down more,” it says. “Downside risks due to heightened potential spillovers from other further deterioration in market confidence in the euro area periphery have risen. Market concerns about possible setbacks to the U.S. recovery have also surfaced.

The report doesn’t mention Greece by name but the potential for its government to default on its massive debts — amid public opposition to austerity measures required by its lenders — have been unsettling financial markets.

“If these risks materialize, they will reverberate across the rest of the world — possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies,” it adds.

Despite this, the international financial organization sees Canada trundling along with 2.9 per cent growth this year, and 2.6 per cent next, virtually unchanged since its previous forecast. Those numbers are also identical to the Bank of Canada’s call, made in April.

The projections are in line with a new forecast from the TD Bank, which also sees the global economy slowing but Canada hanging on with 2.8 per cent and 2.5 per cent growth rates this year and next.

Among G7 nations, the IMF sees only Germany doing better with an expected 3.2 per cent expansion this year, but slowing to two per cent next year.

All the forecasters point to a soft spot in the economy occurring at this very moment, in part due to supply-chain disruptions from the Japan disaster.

For Canada, the lull will result in the economy slowing to just over one per cent during this current quarter, from a strong 3.9 per cent in the first three months of 2011.

Friday’s Statistics Canada report that wholesale fell 0.3 per cent in April, in volume terms, adds to the narrative of a struggling economy.

However, the vast majority of analysts view the lull as temporary.

“The fundamental drivers of growth remain in place: overall still-accommodative macroeconomic conditions, pent-up demand for consumer durables and investment, and strong potential growth in emerging and developing economies,” concludes the IMF analysts.

The big change in the report is the IMF’s alarm about future risks. It makes clear the world has come out of the recession, but is not all the way out of the woods yet.

It warns of a heightened potential for negative consequences from the European debt crisis, and fiscal hangovers in the U.S. and Japan.

The IMF says the two economic powerhouses must get their fiscal houses in order.

“For the United States, it is critical to immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform,” the group says, offering the same advice to Japan.

Earlier this week, Finance Minister Jim Flaherty offered a similar assessment in a speech in New York, warning that not only America’s economy would be impacted by failure to address the problem, but Canada’s and the world’s.

The Canadian Press http://www.therecord.com/news/business/article/549522–canadian-economy-still-near-the-top-of-g7

10 reasons not to panic

The European sovereign debt crisis, a potential hard landing in China, weak U.S. economic data, and the U.S. debt ceiling debate have provided investors with plenty to worry about. Since none of these problems look like they will be resolved in the immediate future, don’t be surprised if global financial markets continue to be in a rough patch for at least a few more weeks.

Despite the unpleasant stew that is brewing, it is not noxious enough to either derail the economic recovery or upend the market rally of 2011, says Joseph P. Quinlan, chief market strategist at U.S. Trust, Bank of America Private Wealth Management.

In a recent research note, Mr. Quinlan points out that June is often a lousy month for equities, as the Dow Jones Industrial Average has fallen for the past six years.

“Early indications are that this June will be no better,” he says. “However, beyond the daily gloom and doom, investors should not overlook the fact that the financial markets and global accounting, while facing some stiff headwinds, also have a number of significant tailwinds working in their favor.”

The strategist provided ten reasons why investors should not panic.

1. Corporations are flush with cash

After a two-year profit boom, corporations are putting this money to work in the form of both climbing capital expenditures and hiring. At the same time, share buybacks and higher dividends are on their radars. So despite the deleveraging of U.S. households and the government’s credit limit challenge, the strong capital position of many corporations will be an important driver of the economic expansion in the medium term.

2. Unemployment numbers are misleading

The U.S. unemployment rate remains elevated at 9.1% in May 2011. However,95% of the skilled labour force is currently employed as workers with four-year college degrees or more have an unemployment rate of 4.5%. This cohort accounts for a disproportionate share of personal consumption.

3. U.S. exports are going strong

Total exports hit an all-time high of US$172-billion in March 2011. With the weak U.S. dollar and continued growth overseas, exports should remain strong over the medium term and cement America’s position as the top exporter of goods and services globally.

4. State finances are improving

The weak housing market continues to put pressure on state finances, but the worst is over for many as better-than-expected retail sales and other receipts are helping to establish a floor for their financial position.

5. The Fed isn’t changing its stance

The Fed’s second round of quantitative easing is due to conclude at the end of June, but the central bank’s benign monetary stance will be maintained well into the second half of 2011. The Fed is expected to err on the side of too-easy money rather than premature tightening, unlike the European Central Bank.

6. China will engineer a soft landing

With some US$3-trillion in reserves, the Chinese government has the wherewithal to keep growth in the 7% to 8% range in the near term. Despite challenges such as rising wages and higher food and energy costs, China’s economy may slow, but it will still grow faster than most countries again this year. It managed to post more than 9% GDP growth in 2009 as the global economy slumped.

7. Economic weakness provides relief for food and energy prices

The soft patch for global economies will help contain inflation risks and improve consumer sentiment around the world.

8. The euro crisis will be contained

The euro zone’s wealthiest member, Germany, will provide both the political will and capital to prevent Greece, Portugal or Ireland from imploding.

9. The U.S. debt ceiling will be raised

The debt ceiling has been increased more than 100 times in the past. Once this happens again, the focus will shift to tackling the U.S. federal budget deficit.

10. Everyone is not broke

Nor are they in the midst of austerity campaigns. In fact, the IMF estimates that developing nations have somewhere around US$7.5-trillion in international reserves. The deployment of these excess savings will come faster as a result of slow growth in the United States and Europe, helping the global economy maintain a growth rate of 3.5% to 4% in the near term.

http://business.financialpost.com/2011/06/16/10-reasons-not-to-panic/

Carney warns of trouble in overheated housing market once interest rates rise  Keven Drews, The Canadian Press

VANCOUVER – Canada’s housing market is entering overheated territory and many Canadians could be financially hurt once interest rates begin to rise, Bank of Canada governor Mark Carney is warning.

The central banker on took his case for moderation on Wednesday to Vancouver, the epicentre of Canada’s hot housing market where he says home prices are now on par with Hong Kong and Sydney, Australia, as they relate to average incomes.

And some sectors of the market, like condos in big cities, could overshoot because of speculation from foreign investors.

The housing market is still expected to moderate, he said, but recent signals have been mixed.

Carney has been cautioning Canadians for about two year against getting overextended on mortgage borrowing, but Wednesday’s speech to the Vancouver Board of Trade suggested some frustration that his words have mostly fallen on deaf ears.

The governor said he has been expecting the housing market to slow, but besides some stuttering signals, it has picked up again of late along with borrowing and mortgage credit.

Once again, Carney repeated his warning to Canadians about becoming overextended.

“It is important that it’s emphasized, because it can be forgotten, that we are living in extraordinary times with interest rates that are unusually low, that the outlook for the Canadian economy, the strength of the Canadian economy, the expectations both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels,” he said told a later news conference.

“And so Canadians in taking on debt, or Vancouverites, more specifically, in taking on debt, need to…ensure that they can continue to service those debts comfortably in a higher-rate environment.”

Carney’ speech came on the day the Canadian Real Estate Association released new data showing that average resale home prices rose 8.6 per cent in May from a year ago, and that in Vancouver prices were up 25.7 per cent to $831,555.

At those levels, Carney said Vancouverites are paying 11 times family household income for a home, a multiple similar to global housing hot spots Hong Kong and Sydney, Australia.

When asked if he had any advice to young people who hope to buy a house in Vancouver, Carney responded, “Well, get a good job. That would probably be a good one. Study hard, stay in school and get a good job. How’s that?”

The situation is not as dramatic in the rest of the country, but it’s bad enough, he said.

He noted that it took nearly 12 years for real estate investment to regain its peak after the 1990s recession. It has taken a year and a half this time and, in fact, average home prices are now 13 per cent higher than where they stood before the 2008-2009 slump.

Carney takes some of the blame for the unprecedented run-up in prices, since the key difference between the two eras is that he drove interest rates down to historic lows in order to salvage the economy. The policy succeeded, but at a cost of driving investment from more productive outlets of the economy to housing.

But he also lays some blame on home buyers, who he implies should know better. He said some Canadians are taking on mortgages as if they believe current ultra-low rates will last forever. They won’t, he warns.

“Rates will not remain at their current levels forever,” he said. “(And) the impact of eventual increases is likely to be greater than in previous cycles.”

A four per cent real mortgage interest rate would see home affordability in Canada fall to the worst level in 16 years, he said. The current real mortgage interest rate, which excludes inflation, is about 2.4 per cent.

Other than issuing a general alert, Carney gave few hints what he can do about it and implied that the ball is in the federal government’s court to tighten borrowing requirements again if necessary.

Carney refused to comment when asked whether the government should restrict home ownership to those with Canadian citizenship.

“Obviously, if one restricts demand and takes an important element of marginal demand out of the equation there’s going to be an adjustment to price,” he said.

“But those type of decisions are decisions for communities to make, and they’re complex decisions, and nothing should be read into our commentary about the current environment and housing, whether it’s in Vancouver or across the country.”

“We’re not weighing into that issue at all.”

Finance Minister Jim Flaherty this week also expressed concern with household debt — now amounting to a record $1.5 trillion in the aggregate — and noted he has tightened mortgage requirements three times in the past three years.

Carney suggested in his speech that he will use monetary policy, or interest rate setting, to impact the inflation rate and not exclusively the housing market. http://ca.finance.yahoo.com/news/Carney-warns-trouble-capress-560228003.html?x=0

Canadian debt load: $26,000 – excluding mortgages- save yourself on average $800 a month by redoing your mortgage today to include that debt and say goodbye to it

More Canadians are living closer to the edge as consumer debt loads continued to climb in the first three months of the year, a study shows.

Already at record levels, Canadians now owe just under $26,000 on average on their lines of credit, credit cards and auto loans, according to credit rating agency, TransUnion.

That’s an increase of 4.5 per cent, or another $1,000, over the same period last year.

The report comes a day after Bank of Canada Governor Mark Carney warned consumers to curb their spending, saying record low interest rates aren’t going to last forever.

The fear is that higher rates could push more consumers beyond their ability to repay their loans.

“There are going to be a lot of people in the market who are near the edge,” TransUnion vice-president Thomas Higgins said in an interview. “If there’s a drastic change in interest rates or unforeseen unemployment or some other shock from the U.S. or the European Union that throws off a province, or a region, or an industry, the people on the edge have no buffer.”

The news is not all bad.

Debt growth in Canada is slowing from the double-digit pace seen before the recession, Higgins said.

And total borrowing, including mortgages, typically the biggest household loan, is slowing, major Canadian banks said recently in their quarterly reports.

TransUnions’ figures don’t include mortgages, which typically make up two-thirds of a household’s debt.

Finance Minister Jim Flaherty said Tuesday he’s not concerned about a slowdown in consumer spending, as it suggests Canadians are heeding official warnings about spending beyond one’s means.

However, TransUnion said the fact that consumers’ debt load is still rising is a worry.

The Bank of Canada’s trend-setting overnight lending rate is just 1 per cent. But with inflation running at 3.3 per cent, above the central bank’s ideal range, Carney is under pressure to start raising lending rates to dampen demand.

Analysts predict a rate hike could come later this year barring unforeseen circumstances.

Total debt per consumer increased to $25,597 in the first three months of this year, Trans Union said.

Among types of loans, TransUnion said credit card debt, usually the most expensive to carry, barely budged from a year ago, falling $25 to an average of $3,539.

In a sign some borrowers may already be struggling, the national credit card delinquency rate rose 11 per cent. The rate measures the ratio of consumers who take 90 days or more to pay their bill.

The average line of credit, the most popular loans for their low cost and high flexibility, rose 5.9 per cent to $33,762 compared to last year. However, total line of credit debt declined for the first time in five quarters.

One noticeable shift was the decreased use of lines of credit, Higgins said. The category is the largest among consumer loans, making up 41 per cent of the total, and even more in Ontario, at 57 per cent.

But consumers are moving away from these highly flexible, low-cost products in favour of more rigid installment type loans, perhaps in a bid to force themselves to make regular payments, he said.

The average auto loan rose 12.4 per cent to $16,181 compared to a year ago. Total auto debt declined slightly to $45.8 billion.

The study found debt loads rose in all provinces, led by Quebec and Newfoundland and Labrador. British Columbians had the highest load at $36,649.

The average borrower debt on auto loans was also up in the quarter — by 12.4 per cent to $16,189 from $14,402 in the first quarter of 2010. The delinquency rate on auto loans fell slightly to 0.1 per cent from 0.13 per cent a year ago.

Lines of credit are the most popular form of consumer debt, excluding mortgages, accounting for more than 41 per cent of outstanding debt at the end of the first quarter. Debt on lines of credit stood at an average $33,981, up 5.9 per cent from $31,867 in the first quarter of 2010.

The report is based on anonymous credit files of all credit-active Canadians. http://www.moneyville.ca/article/1000720–canadian-debt-load-26-000-excluding-mortgages