DID YOU KNOW…

Preparing for a mortgage will increase your chances for approval. Don’t buy or lease big-ticket items or increase debt for 6-12 months prior. Purchasing things such a new car, furniture or major appliances worsens debt-to-income ratios, which can make you ineligible for the best available loan terms.

Contact the Angela Calla Mortgage Team for your mortgage pre approval 604-802-3983

OTTAWA— Globe and Mail Blog

Posted on Friday, September 30, 2011 6:29AM EDT With policy makers around the world scrambling to prevent another global recession, worrying about inflation is a bit like fighting the last war.

Many top central banks, particularly the U.S. Federal Reserve and the Bank of England, are putting inflation-fighting efforts on hold as they struggle to keep fragile recoveries alive. Nobody wants a repeat of what happened to the European Central Bank in the summer of 2008, when an ill-timed overreaction to wildly high energy prices made it impossible for the euro zone’s economy to avoid falling into recession.

Policy makers in economies that are arguably more secure are being cautious, too.

Bank of Canada Governor Mark Carney, for instance, last week indicated he’ll ignore hotter-than-expected price gains for the foreseeable future, what with bigger fish to fry like keeping the economy as insulated as humanly possible from a frightening range of external threats.

Nonetheless, the Bank of Canada’s inflation-targeting mandate is up for renewal this fall, something that only comes around every five years. And though most agree the bank’s current agreement with the Finance Department — under which policy makers aim to keep prices advancing at an annual rate of about 2 per cent — has served the country well, it never hurts to strive for improvement.

So, you can expect a lot of chatter in the coming weeks about whether, and how, the new five-year agreement should tweak the central bank’s goals, or how the central bank might re-jig its own interpretation of its mandate to suit changes in the global economy that affect price trends at home.

The latest contribution to this debate comes from one of the few places in the country that studies central banking in depth, the Toronto-based C.D. Howe Institute, and its argument is intriguing.

First, some background.

Achieving price gains of roughly 2 per cent typically means Canada’s central bank adjusts interest rates to ensure the annual rate of “headline’’ inflation is at that target level a year or two down the road. To avoid responding too aggressively to what often turn out to be short-term swings in things like energy and food prices, it uses a “core” measure of inflation — which excludes eight items including gasoline and produce — as an “operational”’ guide to broader, longer-lasting price trends.

During the spring and summer, this approach gave Mr. Carney the flexibility to ignore inflation hawks as they argued that domestic conditions screamed out for higher borrowing costs, regardless of the escalating signs of trouble from abroad. More specifically, although the headline rate of inflation, currently 3.1 per cent, has been above 2 per cent for several months, Mr. Carney has said for much of that time that it and the core rate will “converge’’ at the target sometime next year, when temporary factors that are keeping headline inflation higher fizzle out.

But in a new paper for the institute, economists Philippe Bergevin and Colin Busby question the reliability of core inflation in signalling actual price trends — especially in light of demographic trends and resource scarcity, both of which suggest energy and food prices, while lower than a few months ago, will be lofty for many years.

“Long-term economic trends suggest that some of the components excluded from core — notably, those related to food and energy — could be more subject to continuing positive price shocks,’’ the authors note. “Strong population growth, coupled with the continued industrialization of countries such as China and India, will ensure that scarce goods such as gasoline, fruits and vegetables are vulnerable to future price increases. Even if one does not place weight on these projections, the fact remains that core gives misleading signals if and when excluded components are subject to persistent shocks.’’

The core rate, then, may be giving “`misleading signals’’ that higher inflation now will moderate sooner than it really will. Therefore, the authors argue, the central bank should “consider de-emphasizing’’ core inflation as it assesses price trends and explains its actions to the public.

Much of the paper is very tough for non-economists to grasp, even journalists like me who spend half their time decoding econo-speak, so I leave it to you to read it for yourself.

And, again, this is hardly a front-burner issue these days, given the more urgent need to make sure economies around the world continue to grow. But once the global economy is back out of the woods, questions about whether there are better ways for the central bank to measure and communicate inflation trends may get louder.

Canadian real estate continues to deliver better returns than the stock market. Click here for a video from the Globe and Mail.

For mortgage staratagies that will add to your equity and minimize your living expenses contact the Angela Calla Mortgage Team at acalla@dominionlending.ca or call 604-802-3983

www.angelacalla.ca

Bank of Canada Governor Mark Carney expects the Canadian economy to grow through the rest of this year and signaled Tuesday he stands ready to use a variety of tools and policy options to ensure stability.

 In a speech to the Saint John Board of Trade, Carney also said the European debt crisis is “fixable”, but urged a comprehensive recapitalization of European banks and a funding backstop for sovereign debt.

 Speaking as the debt-stressed eurozone came under increasing strain, he said Canada is more threatened by the US where the economy is “close to stall speed”, but not likely to fall into recession.

 He emphasized that the central bank has flexibility to respond to any external shocks, but fell short of signaling an interest rate cut.

 Click here for the full Financial Post article.

Tune into The Mortgage Show with Angela Calla Saturdays @ 7pm on CKNW or call 604-802-3983 to see how this information can help you specifically

www.angelacalla.ca

Sometimes it’s hard to keep track of all the things we’re “supposed” to do with our money.

If you’re feeling overwhelmed, it can help to start by focusing on a smaller list of things that you shouldn’t do.

Click here for a list of money mistakes to avoid from MoneySmartLife.com.

An interest-saving meal plan.

 Some 47% of Canadians say eating out less would help them save more. Sounds logical, since frequent diners can drop $100+ a pop at a decent restaurant.

But what if that same $100 was redeployed, once a month, as a mortgage prepayment?

The result is appetizing in its own right. A standard $200,000 mortgage is paid down 13% quicker – in just 21.75 years instead of 25 years.

For more tips on how to save on your mortgage or for a review call 604-802-3983

Angela Calla Mortgage Team

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

 Good Morning,

As antisipated the lending rate has held steady, meaning no change to your variable rate mortgage or line of credit payment. The full report can be read on this link http://www.bankofcanada.ca/2011/09/press-releases/fad-press-release-2011-09-07/

Tara and Allan of Port Moody this week contacted us for a mortgage review after being introduced to us from their parents and we saved them $998.00 a month and structured the new mortgage for tax efficency taking an additional 13 years off of the mortgage over and above the monthly savings. This has helped them plan for retirement a decade early and a trip to celebrate. If you or anyone you care about has a mortgage over 4%, carrying outside debt or simply would like a review please introduce us over an email and we are happy to see how we can help.

Enjoy the week,

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

By Mary Gazze, The Canadian Press

Canada’s national housing agency says it expects home sales and construction activity will cool but remain healthy in the second half of the year, due to favourable economic conditions that push up demand for homes.

Canada Mortgage and Housing Corp. said Monday that lower unemployment, a steady level of immigration, and low interest rates are working together to prop up Canada’s real estate industry.

“I think the Canadian housing market is healthy at the moment despite the uncertainty we observed in the financial market,” Mathieu Laberge, deputy Chief Economist at CMHC said in an interview.

He was referring to the stock market ups and downs earlier this month as investors worried about the European debt crisis and feared the U.S. could slip back into recession.

“Employment is expected to grow at a moderate pace in the next few years,” he said.

“We expect interest rates to remain flat for the remainder of the year and increase in 2012, and new immigration is an addition to demand in the housing market.”

Laberge said the CMHC predicts the market sales volumes will hold at a stable level next year.

Canada Mortgage and Housing Corp. said low unemployment, immigration and low interest rates led to fewer claims in the first half of the year under its mortgage insurance programs, which protect lenders from defaults by borrowers.

The agency said it expects fixed mortgage rates to stay relatively flat for most of the year, with the five-year posted rate at between 4.1 per cent and 5.6 per cent, then increase slightly in 2012.

CMHC said variable rate mortgages would remain near historically low levels, although some banks recently increased their variable rates to reflect the higher cost of raising money.

Prices of homes shown on the Multiple Listing Service are expected to grow only slightly going forward because the supply and demand for resale homes will likely stay in balanced territory, CMHC said.

A least one analyst agreed that the real estate market should stay fairly healthy for the rest of 2011, but said it’s already cooling slowly and home prices may decline in the longer term.

“What you’re probably looking at is a period where prices are relatively flat, maybe a little bit lower in the next few years,” said Adrienne Warren, an economist at Scotiabank who specializes in the real estate industry.

“Affordability from a price perspective has deteriorated and that’s going to have to, over time, come back to more normal levels but it doesn’t imply that that has to happen quickly as a type of correction that occurs quickly.”

She said interest rates are low and attractive right now and encourage first time home buyers to enter the market, which drives up prices. Once those rates begin to rise — likely in the second half of 2012 — the current price of homes will become unaffordable for many, putting downward pressure on future prices.

In its report Monday, CMHC said changes to mortgage rules introduced by the federal government earlier this year played a part in reducing mortgage interest payments and allowed Canadians to build equity in their homes faster.

Canadians are finding it easier to pay off their mortgages, with arrears levels improving and the volume of mortgage insurance claims lower than expected.

In March, the federal government put through new rules that reduced the maximum amortization period to 30 years and cut the maximum amount Canadians can borrow to 85 per cent of the home’s value.

After the changes, refinancing activity fell by nearly 40 per cent, which means fewer Canadians took on more debt. Federal Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have repeatedly warned of the dangers of the ballooning debt level of Canadian consumers.

Ten per cent fewer Canadians bought mortgage insurance immediately after the new rules began, and the level was five per cent lower than sales before the changes came into effect.

CMHC also reported its net income for the quarter was $383 million, up $61 million from $322 million in the same quarter last year. Revenues were down slightly at $3.3 billion, versus $3.4 billion.

The agency’s predictions for the rest of the year echo a revised forecast by the Canadian Real Estate Association released earlier this month. CREA said it expected higher national home resales this year, reversing upward its previous forecast of a one per cent dip.

National average prices will be in the range of $347,700 to $374,300, growing to between $349,500 to $385,000 in 2012, CREA predicted.

CMHC said sales of existing homes should range between 429,500 and 480,000 units in 2011 and between 410,000 and 511,900 units in 2012.

Earlier this month, the CMHC said that national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and 4.3 per cent more than the 196,600 recorded in June.

The uptick, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year rather than expectations of coming growth, it said.

Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.

Predictions for the Canadian market were in stark contrast with the most recent figures from the United States, which showed that country’s depressed housing market is still trying to get back on track.

The U.S. National Association of Realtors said Monday that its index of sales agreements fell 1.3 per cent in July to a reading of 89.7. A reading of 100 is considered healthy by economists

The association also said a growing number of buyers had cancelled contracts after appraisals showed the homes they wanted to buy were worth less than they bid.

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

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

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

Email: acalla@dominionlending.ca  

www.angelacalla.ca

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