Tom Fennell Yahoo Finance  If there’s one question being kicked around the barbecue more than any other this summer, it’s probably this: should I lock in my variable rate mortgage?

But with interest rates bouncing around, to the point where they make a mortgage-rate chart look more like the diagram of a rollercoaster, homeowners can be forgiven if they are hesitant.

After all, every time mortgage rates rise, they seem to come back down again. Recently, Royal Bank tried to raise mortgage rates, increasing the cost of its five-year fixed mortgage by 0.15 per cent, only to quietly lower them a few weeks later.

What gives?

On the variable side, rates have been stable, holding at 2.1 per cent for so long it seems like the new normal. They are priced based on the Bank of Canada rate. And with the U.S. economy slowing (Alberta created more jobs than the U.S. did in the last quarter), it’s little wonder that Bank of Canada governor Mark Carney decided not to raise interest rates this week – and it’s doubtful he will anytime soon.

While the variable rate has held steady for months, fixed-rate mortgages are far more difficult to predict. Fixed mortgages are primarily priced off of the five-year bond, and as a result are subject to volatility in the bond market, which is being whipsawed by the European sovereign debt crisis.

As more European countries edge toward default, interest rates have risen on their bonds, in some cases to more than 10 per cent. Many investors, however, fearing widespread defaults, have fled to the safe haven of the U.S. bond market. In the process, that has kept U.S. rates in the 2.3 per cent range, and helped keep mortgages rates low in this country, with a five-year fixed term mortgage going as low as 3.29 per cent.

But these bedrock-low rates could rise quickly if the U.S. does not solve its own debt crisis. President Obama has asked Congress to lift the country’s debt ceiling — the amount the country can borrow to meet its obligations. The Republican-controlled House of Representatives is refusing to grant the increase until Obama makes deep cuts to government expenditures.

They have until Aug. 2 to solve the impasse and if nothing is done, the U.S. will default on the latest round of payments it has to make on its debts. Bond rating agencies have already said they will downgrade U.S. bonds if a default occurs. If that happens, it will drive up interest rates in the U.S. and push rates up on Canadian mortgages in the process.

“If Europe gets into trouble and the U.S. gets into trouble, money will be looking elsewhere,” says Kelvin Mangaroo, founder and president of RateSupermarket.ca. “Interest rates have been bouncing around and we might continue to see that until the U.S. credit situation gets sorted out.”

Could the uncertainty in Europe actually drive interest rates lower in Canada?

If Obama and Congressional Republicans come to an agreement, there could be a sudden flight to quality as investors buy U.S. bonds. That could drive down interest rates on the U.S. five-year bond, and reduce rates on Canadian fixed mortgages.

“There is always the possibility that they could drop a bit still,” said Mangaroo. “They’ve been lower before, so there is no reason that they can’t go back.”

With so much volatility in the market, should you lock in your mortgage? It’s hard to say, but studies have concluded you are better off holding a variable mortgage. Then again, those studies also include periods of extremely high interest rates, but with rates now at historic lows they would only go marginally lower.

In fact, you can purchase a 10-year mortgage for just 4.84 per cent and a 25-year at 8.35 per cent. In effect, you could lock your mortgage costs in at today’s historic lows and that would pay dividends long after the crisis in Europe and the U.S. has passed and rates are rising again.

Whether to lock in or not is the most common question Mangaroo gets at RateSupermarket.ca. About one-third of Canadian mortgages are variable, but Mangaroo says, “It all comes down to risk profile. And interest rates will be going up, so if you’re uncomfortable with that, you should look at a fixed five-year term which is at 3.5 per cent.”

But one thing is certain. If you hold a variable mortgage, you can breathe a little easier knowing Carney won’t be raising rates anytime soon. Ian Lee, director of the MBA Program at Carleton University, says this is because of the ongoing failure by the European leadership to address, let alone resolve, the growing Eurozone debt crisis and the ongoing inability of the U.S. political leadership to seriously address their annual $1.5 trillion deficit and $14 trillion debt.

“This clearly suggests,” says Lee, “that Governor Carney will think many times before raising interest rates now or in the fall.” http://ca.finance.yahoo.com/news/Why-Canadian-mortgage-rates-yahoofinanceca-3692205047.html

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic expansion is proceeding broadly as projected in the Bank’s April Monetary Policy Report (MPR), with modest growth in major advanced economies and robust expansions in emerging economies.  The U.S. economy has grown at a slower pace than expected and continues to be restrained by the consolidation of household balance sheets and slow growth in employment. While growth in core Europe has been stronger than expected, necessary fiscal austerity measures in a number of countries will restrain growth over the projection horizon. The Japanese economy has begun to recover from the disasters that struck in March, although the level of economic activity in that country will remain below previous expectations.  In contrast, growth in emerging-market economies, particularly China, remains very strong. As a consequence, commodity prices are expected to remain at elevated levels, following recent declines. These high prices, combined with persistent excess demand in major emerging-market economies, are contributing to broader global inflationary pressures.  Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.

In Canada, the economic expansion is proceeding largely as projected, although the expected rotation of demand is somewhat slower than had been anticipated. Household spending remains solid and business investment robust. Net exports remain weak, reflecting modest U.S. demand and ongoing competitiveness challenges, particularly the persistent strength of the Canadian dollar. Despite increased global risk aversion, financial conditions in Canada remain very stimulative and private credit growth is strong.

Following an anticipated slowdown in growth during the second quarter due to temporary supply chain disruptions and the impact of higher energy prices on consumption, the Bank expects growth in Canada to re-accelerate in the second half of 2011. Over the projection horizon, business investment is expected to remain strong, household spending to grow more in line with disposable income, and net exports to become more supportive of growth. Relative to the April projection, growth in household spending is now projected to be slightly firmer, reflecting higher household income, and net exports to be slightly weaker, reflecting more subdued U.S. activity. Overall, the Bank projects the economy will expand by 2.8 per cent in 2011, 2.6 per cent in 2012, and 2.1 per cent in 2013, returning to capacity in the middle of 2012.

Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon.  Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 July 2011. The next scheduled date for announcing the overnight rate target is 7 September 2011.

Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 July 2011. The next scheduled date for announcing the overnight rate target is 7 September 2011.

Angela Calla Mortgage Team 604-802-3983 acalla@dominionlending.ca

Angela Calla Mortgage Team 604-802-3983 acalla@dominionlending.ca

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