Housing boom is expected with stock market drop

General Angela Calla 10 Aug

The upside in a global stock market rout may ironically be a healthier housing market – at least in the short term, say economists.

“The housing market has nine lives. Every time interest rates are supposed to go down, something happens and it helps to keep the market going,” said Benjamin Tal, senior economist at CIBC World Markets.

Interest rates were supposed to be headed up before the crisis of terrorist attacks in New York on 9/11, and the last crash in 2008. But that didn’t happen. And it looks like rates will be staying down for a while, says Tal.

The market is already betting that Bank of Canada Governor Mark Carney’s plans to hike interest rates as soon as September will have to be put off until the end of next year.

South of the border, the Federal Reserve said Tuesday that it expects “exceptionally low levels of the federal funds rate at least through mid-2013.”

And ironically, while the U.S. has experienced a downgrade in its credit rating from Standard & Poors, investors have continued to pile into the Treasuries market.

The U.S. dollar remains the global reserve currency as investors head for shelter as they find few safe haven options out there.

The demand for treasuries means that yields have gone even lower. Which means there is downward pressure on longer-term interest rates. Long-fixed term rates are affected by a variety of factors such as competition for funds in financial markets and to prices in the bond market. Short-term rates are more affected by the key overnight central bank rate.

“The interest rate environment will continue to be very attractive for homebuyers for both short term and longer term borrowing costs. With the safety of U.S. bonds that’s keeping longer term rates low,” said Scotiabank economist Adrienne Warren.

Industry groups are warning, meanwhile, that during an already tough recovery, any sudden move upward in rates could have dire consequences on real estate sales.

“The very recent global economic news demonstrates the Bank of Canada needs to consider any future rate hikes with extreme caution, as the recovery may be more fragile than believed,” said Ontario Home Builders’ Association President Bob Finnigan.

Some investors may also be looking at real estate assets for a place to park their money because of the volatile stock market, said Tal.

Lance Dore, a member of the U.S.-based Royal Institution of Chartered Surveyors, says investment in real estate may be a beneficiary from those looking for safe haven.

“The sell-off of stocks is a clear signal that people are not confident in the future and want safety now.  What has also happened in the past declines in the stock market is a flight to quality,” said Dore. “Real estate tends to be the recipient as part of this flight. Real estate values are at all-time lows with returns at all-time highs.  The convergence of excess cash due to stock sell-off and corporations flush with cash for investment will push these excess funds into the inevitable diversification to real estate.”

While the future for the stock market looks shaky, the real estate sector is improving due to improving fundamentals based on increasing rents, absorption of distressed supply and increased interest for diversification, said Dore.

However, if the stock market continues on a downward path, housing will not escape unscathed. While lower interest rates are a huge mitigating factor, the losses on the market may eventually translate into job losses.

For one thing, it takes confidence to plunk down that down payment for a home. It usually means that you’ve got a job, some savings, and hope for the future.

But confidence is not in abundance in global stock markets this week as concerns over sovereign debt have panicked investors. Without confidence, the housing market – the biggest ticket item on the consumer checklist will suffer no matter how low rates go, say economists.

In the United States, where more than a quarter of borrowers have negative equity – meaning they owe more than their homes are worth – this could mean another setback for the already beleaguered market.

In Canada, where markets have been stable, and have been forecast to cool down next year, this could mean that sales and valuations may come down to earth quicker than expected.

“Assuming the volatility and uncertainty continues in the markets it will have negative implications for both potential home buyers and for builders,” said Scotiabank economist Warren. “There is still a big difference between Canada and the U.S. But it certainly reinforces our view that growth in Canada and internationally will be on the soft side.”

So far, economists have not changed their outlook on the Canadian housing market. Most expect the market to flatline or correct slightly by next year. But that could change if the rout continues.

“If this is the precipitation of a larger more protracted slowdown for the economy it will certainly affect housing,” said Peter Norman, chief economist real estate consultancy Altus Group.” If we get into a soft patch with slower employment growth then we will see slower home sales. For investors who are speculating on future events this adds another layer of uncertainty in the market. So this would cause them to sit on the sidelines.”

In separate reports on Tuesday, Canadian housing starts surprised by rising unexpectedly in July, climbing to a 15 month high, up 4.3 per cent to 205,100 units according to the Canada Mortgage and Housing Corporation. And U.S. home values actually had the smallest drop in four years in the second quarter according to figures released by Zillow Inc.

But this was before the impact of the stock market drop which will affect confidence as consumers suffer from a declining wealth effect. During a recession, the high end of the market, of purely discretionary purchases such as cottages and luxury condos might be the first to feel the impact. But a lack of confidence will affect all sectors of the market.

“We continue to hold that new home construction will start to cool in the second half of the year, but this may come more slowly than anticipated as rates remain low for longer,” said Arlene Kish, principal economist for IHS Global Insight. “On the other hand, if the recent slide in financial markets remains persistent, consumers will become less optimistic and will likely stay away from home purchases.”




Understanding falling rates August 2011-Angela Calla

General Angela Calla 9 Aug

What do falling rates mean for borrowers?

This clearly falls into the 88% of the time where borrowers get significantly ahead by having a variable-rate mortgage. With the mess in the US expected to take several years to get sorted out, we’re in an unprecedented time where we can safely assume rates will remain low.

Where did this come from?

This specifically came from the US and its debt ceiling. When it was announced the US could be a risk to investors and it was downgraded, investors from the stock market moved to safe investments – Canadian Government Bonds. When everyone moves to a safe investment, their return goes down (less risk = less return). This means that fixed interest rates go down. This is déjà vu from 2008.

Although Prime is based on the Bank of Canada and unemployment in both Canada and the US has gone down over a half of a percent, the probability of a rate decrease has gone up significantly for September and again at year’s end. This comes just weeks after the Bank of Canada almost guaranteed we would see a hike before year’s end. On a variable-rate mortgage or line of credit, with every 0.25 decrease, you will see a $14 decrease for every $100,000 mortgage.

Fundamentals never go out of style. Don’t wait! If you have a mortgage above 3.5%, redo it. And if you don’t own, it’s your time to buy.

Will real estate follow?

Real estate does not follow the stock market and it’s not as volatile. You have a basic need to live somewhere so if the payment is affordable and fits into your budget, it’s in your best interest. When people stop migrating to BC and people are leaving BC that’s what you have to watch.

Helping you understand the market

Angela Calla, AMP Mortgage Expert

Dominion Lending Centres-Angela Calla Mortgage Team

Host of “The Mortgage Show” CKNW AM980 Saturdays @7pm

Phone: 604-802-3983 Fax: 604-939-8795

Email: acalla@dominionlending.ca  



U.S. will take a long time to dig out of this hole

General Angela Calla 8 Aug

By David Olive Business Columnist

How to put this politely? While not a deadbeat, the U.S. is no longer among the world’s most creditworthy nations. America now has a lower credit rating than Liechtenstein. And the Toronto-Dominion Bank.

Mind you, that’s a matter of opinion.

On Friday, U.S. credit rating agency Standard & Poor’s for the first time in 70 years stripped the world’s largest economy of its top, triple-A rating on America’s $14.3 trillion in government debt. S&P dropped its rating a notch, to AA-plus.

But the two other members of the U.S. ratings oligopoly, Moody’s Investors Service and Fitch Ratings, earlier in the week reconfirmed their top rating on U.S. debt.

Just 16 of the 126 nations whose debt is rated by S&P earn its coveted triple-A rating, Canada among them.

For S&P, last week’s panicky, acrimonious budget-cutting deal that narrowly averted a first-ever default by Washington was a factor in its U.S. debt downgrade.

“(S&P’s) conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling,” John Chambers, chairman of S&P’s sovereign ratings committee, told The Wall Street Journal Friday.

“It involved a level of brinkmanship greater than what we had expected.”

A furious Obama administration pleaded with S&P to hold off on its announcement for a few weeks of further assessment, arguing that such a historic decision should be free of political considerations. But S&P was having none of that.

In S&P’s view, the intransigence of hard-right U.S. deficit hawks, notably the so-called Tea Partiers, is highly relevant in determining a nation’s ability or willingness to honour its debt obligations.

“The kind of debate we’ve seen over the debt ceiling has made us think the United States is no longer in the top echelon on its political settings.” That’s Chambers’ gentle way of saying that America’s political class can no longer be relied upon to expertly manage the nation’s finances.

China’s central banker, Zhou Xiaochuan, was a little blunter, depicting the Americans as a threat to the world economy. “Big fluctuations and uncertainty in the U.S. Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery,” the chief of the People’s Bank of China said last week.

China, the world’s largest creditor nation, holds about $2 trillion worth of U.S.-denominated securities.

For years, the U.S. has been hectoring Beijing on everything from its allegedly overvalued currency to human rights abuses to intellectual property theft.

You can sense Zhou relishing this moment to return fire: “We hope that the U.S. government and the Congress will take concrete and responsible policy measures . . . to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety.”

Stop playing with matches, is Beijing’s humiliating admonition to the U.S. And really, there’s no snappy comeback to that, although the state Xinhua News Agency was piling it on in labelling the recent Washington budget debate a “madcap farce” (we know, we know) and U.S. debt a “ticking bomb.”

Typically, a lower debt rating means steeper borrowing costs, for consumers, business and government. Debt issuers must offer a higher rate of interest to attract buyers of higher-risk securities.

But hold on.

As noted, S&P is an “outlier” in banishing the U.S. from the triple-A club. Also, the U.S. owes most of its debt to itself. Less than one-third of U.S. government debt is held by foreigners, while most of crisis-stricken Greece’s debt is owed to offshore lenders. And U.S. Treasurys are still unmatched as a safe store of value for investors worldwide.

Yet for many economic observers, S&P’s move is overdue.

Across a range of factors — including anemic GDP growth, still-declining house values, a 9.1 per cent jobless rate, stagnant middle-class incomes and recent inflation in food, gasoline and apparel prices — the U.S. economy has been underperforming for years. Layering unmanageable debt atop that plethora of sickly leading indicators made a U.S. debt downgrade inevitable.

Felix Salmon, the top economics analyst who blogs at Reuters, expects the U.S. has lost its triple-A rating forever. “If we came that close to defaulting,” Salmon writes, “there’s no way that our securities can be risk-free.” The downgrade, he says, is “merely a late-to-the-party recognition of that fact.”

I don’t know about forever. But it will take a lot of convincing for S&P to restore America’s membership in the triple-A fraternity. We should know. S&P downgraded Canada in 1992, when we seemed blasé about a record $43 billion deficit.

Not until Canada was well into its 11-year run of consecutive budget surpluses — unmatched by any G8 nation — did S&P deign to restore our triple-A status, in 2002.

Elapsed time: nine years and nine months. http://www.thestar.com/news/world/article/1035722–olive-u-s-will-take-a-long-time-to-dig-out-of-this-hole

A short term solution for the US?

General Angela Calla 3 Aug

The US stepped back from the brink of default on Tuesday, but congressional approval of a last-ditch deficit-cutting plan failed to dispel fears of a credit downgrade and future tax and spending feuds.

 President Barack Obama and lawmakers from across the political divide expressed relief over the hard-won compromise to raise the country’s borrowing authority after weeks of rancorous partisan battles.

Nevertheless, US stocks tumbled, turning negative for the year, as investors shifted their attention to the increasingly grim state of the US economy and the potential for a downgrade of America’s gold-plated debt rating.

That risk grew when one of the three major ratings agencies said it was affirming the US government’s AAA-rated sovereign debt but slapping it with a negative outlook.


Click here to read more from Reuters.

5 Smart Steps every new homeowner should take

General Angela Calla 3 Aug

Turning the key in a lock that no landlord has access to, reading in a hammock in your own backyard and painting your dining room bright red – what could be more exciting than making the leap from renter to first-time homeowner?

Getting swept up in all the excitement is a wonderful feeling, but some first-time homeowners lose their heads and make mistakes that can jeopardize everything they’ve worked so hard to earn.

Don’t be one of those people – take a few moments to ponder the Globe and Mail’s Five smart steps every new homeowner should take that will help ensure that your first home becomes the place of luxury and financial freedom you’ve anticipated.


Lower Fixed Mortgage Rates Coming

General Angela Calla 3 Aug

Yields crash = lower fixed mortgage rates coming. The five-year bond yield nose-dived 16 bps yesterday, crashing through “support” at 2%. It’s the biggest plunge in yields since March 2009.


Yields are hurtling lower in response to a slew of negatives, including:

  • “Austerity measures” (spending cuts) built into Congress’ debt agreement. Those will drag on Canada’s economy
  • Weaker economic data out of the US (like Monday’s brutal ISM number)
  • Ongoing angst about the euro-debt dilemma


On a positive note, global investors are now finding Canadian treasuries far more appetizing – due, in part, to Canada’s AAA debt rating, budgetary prudence and stable currency. That has sparked a money rotation into Canada, adding to yesterday’s bond buying. (When investors bid up Canadian government bonds, our yields drop.)


Appraisal VS Home Inspection

General Angela Calla 1 Aug

Both an appraisal and a home inspection are important steps of the home-buying process, so it’s well worth your effort to distinguish the differences between them and how they can uncover detailed information about the home’s value and condition.  

Essentially, home appraisal is a survey activity performed by a professional in order to develop an expert opinion on the market value of a real estate property. Home appraisal is usually done for a lending company or a bank as a prerequisite for the approval of a mortgage application by a homebuyer.

The essential elements of a home appraisal report include information and data related to the overall condition of the property, the neighbourhood, variables that contribute to the sale of similar homes and the time spent in selling similar properties. The appraisal report


may be presented as a comparable sales analysis or a cost assessment of value.

Home Inspection
A home inspection is not used to determine property value, but will provide an assessment of the physical condition of a property. A well-trained home inspector will perform a comprehensive visual inspection to determine the condition of the building and all of its major systems (roof, structural, heating, plumbing and electrical systems, etc).

While an appraisal is intended to provide the lender with sufficient information to decide on mortgage financing, a home inspection will hopefully reveal to a potential homebuyer whether the building and its systems are in sound working order.

If there are outstanding issues, a good inspector will provide the potential purchaser with a schedule outlining the estimated costs and a timeline detailing when these repairs will need to be completed.

Angela Calla, AMP
Dominion Lending Centres-Angela Calla
Host of The Mortgage Show Saturdays @ 7pm on CKNW AM980

Selecting the right mortgage term

General Angela Calla 1 Aug

Selecting the mortgage term that’s right for you can be a challenging proposition for even the savviest of homebuyers, as terms typically range from six months up to 10 years.

By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.

The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate. And, a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this isn’t always the case. Sometimes there are other factors – either in the financial markets or in your own life – that you will also have to take into consideration when selecting the length of your mortgage term.

If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you will be able to afford your mortgage payments should interest rates increase.


By the end of a five- or 10-year mortgage term, most buyers are in a better financial situation, have a lower outstanding principal balance and, should interest rates have risen throughout the course of your term, will be able to afford higher mortgage payments.

If you’re shopping for a mortgage for an investment property, you will likely want to consider choosing a longer mortgage term – depending, of course, on your overall plan. This will allow you to know that the mortgage payments on the property will be steady for a long time and enable you to more accurately project your future income from the property.

As well, if you know you will not be staying in the same home for the next five or 10 years, opting for a shorter term can save you significant fees when it comes to early payout penalties.

Choosing the right mortgage term is a unique decision for each individual. By understanding your personal financial situation and your tolerance for risk, I can assist you in choosing the mortgage term that will work best for your situation.

As Always if you have any questions or would like to review your mortgage we are here to help.

Angela Calla, AMP

Dominion Lending Centres-Angela Calla



Host of The Mortgage Show Saturdays @ 7pm on CKNW AM980