Bond Yields Approaching Key Lows

People shopping for a fixed-rate mortgage can do the happy dance.  Government bond yields keep plunging, and that’s pulling down fixed mortgage rates.

• The 5-year yield (a barometer of 5-year fixed mortgage pricing) has broken through key 4-month support levels. 
• The 2-year yield has given up almost all of its massive October run-up
• The 1-year yield is approaching its all-time low of 0.43%.

We’ve already seen several lenders cut rates, and the best rates for 1- to 10-year terms will likely further in the short term.

However oppsed to commiting to lowering there rates across the board lenders are offering many quick close specials.

Inquire at 604-802-3983 for details.

B.C. housing affordability deteriorates as Vancouver market surges forward: RBC Economics

TORONTO, Nov. 25 /CNW/ – B.C. posted the biggest increases in homeownership costs in the country in the third quarter and costs will likely remain well above long-term averages, according to the latest housing report released today by RBC Economics.

“While all provinces and major markets experienced diminished home affordability during the third quarter, British Columbia led the way with the largest rise in costs across all housing types,” said Robert Hogue, senior economist at RBC. “We believe this marks the end of the affordability improvement in the province, with the cost of homeownership remaining fairly high in the near future.”

The RBC Affordability measure for British Columbia, which captures the proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the third quarter of 2009 (the higher the measure, the more expensive it is to afford a home). Affordability of the benchmark detached bungalow moved up to 60.8 per cent, the standard townhouse to 47.4 per cent, the standard condo to 34.0 per cent and the standard two-storey home to 67.6 per cent.

According to the RBC report, the Vancouver housing market continues its spectacular rebound, with property prices now heating up and poised to boil over Sales of existing homes have surged since the spring and demand is outpacing supply, leading to a more competitive market and the reemergence of bidding wars.

“The near-frenzied tone of the Vancouver market is occurring despite still historically poor, and now declining, levels of affordability,” noted Hogue.

RBC’s Affordability measure for a detached bungalow for Canada’s largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.

The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Vancouver and Victoria. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.

The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.

Highlights from across Canada:

    –   Alberta: The province experienced the first increase in homeownership

        costs since late-2007, in the third quarter. Housing market activity

        has picked up and stabilized with the modest rise in costs

        attributable to higher mortgage costs rather than a rise in property

        values. Attractive affordability levels and a return to economic

        growth should fuel housing demand in Alberta next year.

    –   Saskatchewan: With mortgage rates rising slightly and properties

        gaining value, owning a home became slightly less affordable in the

        province, following steady improvement for more than a year. However,

        homeownership costs remain historically high in Saskatchewan as a

        result of the sharp price appreciation that took place during the

        recent housing boom.

    –   Manitoba: Despite slight increases in the cost of homeownership – the

        smallest amongst all provinces in the third quarter – Manitoba’s

        housing market remained relatively affordable. Market conditions in

        the province appear tightly balanced, which should sustain solid

        resale activity in the near-term. Job growth and a faster economic

        expansion next year should maintain solid housing demand.

    –   Ontario: After a period of declining property values, the Ontario

        housing market appears to be bouncing back with home resale prices

        returning to and, in some cases, surpassing earlier peaks. While this

        reversal has brought confidence back into the market, third quarter

        affordability levels have deteriorated for the first time in over a

        year.

    –   Quebec: Broad-based vigour in the housing market fueled by the

        earlier drop in mortgage rates to historically low levels, has sent

        property values to new highs in many parts of Quebec. Consequently,

        housing affordability deteriorated in the province for the first time

        in more than a year during the third quarter.

    –   Atlantic Canada: Housing on the east coast continued to be among the

        most affordable in the country, with Atlantic Canada experiencing

        moderate but steady gains in property values sustained by a gradual

        increase in the sale of existing homes. Increases in homeownership

        costs in the region, in the third quarter, were modest relative to

        other provinces, with levels mostly below national averages.

How many credit cards should you have?

When banks introduced Canada’s first credit card, Chargex, in 1968, it was designed as a convenient tool for their most valued customers. Today’s creditors have a more egalitarian approach — it seems that if you have a pulse, you can have a credit card.

But why stop at one? According to Statistics Canada, there are 3.1 credit cards in circulation for every Canadian over the age of 18 — that’s 74 million cards.

According to Laurie Campbell, program manager for the Credit Counselling Service of Toronto, it’s not uncommon for people to carry eight or 10 cards and a debt load of $30,000 or more. “The biggest problem we see is overspending with credit cards,” she says. “There is a direct correlation between debt and the amount of credit cards you have.”

Canadians charged more than $170 billion to Visa and MasterCard in 2004, compared to $39 billion in 1990, according to Statistics Canada.

“People don’t see it as real money and that leads to impulse spending,” says Campbell. Indeed, studies show the average person spends 112 percent more on a credit card than he would if using cash.

As a result, people are living beyond their means. As many as 50 percent of credit card users don’t pay their balance each month, opting instead to carry debt and pay interest ranging from a 1.9 percent introductory rate to almost 30 percent on some retail cards.

Credit flux

“We don’t recommend consumers carry a balance,” says Scott Hannah, executive director of the Credit Counselling Society in Vancouver, B.C. Sometimes, however, it’s unavoidable when essential expenses arise, such as auto repairs. The key is recognizing the difference between a want and a need. “Easy and quick access to credit really obscures thinking,” he says.

Credit has never been more accessible. With more than 600 institutions issuing Visa and MasterCard cards, add to that the retail card market (24 million in circulation), and it’s easy to see why wallets are bulging with plastic. In 2003, Canadians received 191.7 million credit-card offers — about six for each person — according to market research firm Mail Monitor.

It’s a competitive market and credit card companies profit from interest and user fees. These days, juggling more than one card or carrying a balance is made easier because a standard minimum monthly payment is as low as two percent, whereas it used to be 5 percent. But remember, if you owe $5,000 at 18 percent interest and pay only the minimum each month, it will take about 30 years to pay off the card (that’s if you never use it again).

“People can carry a lot more debt,” Hannah says. “It’s easier to spend, but harder to pay back.”

The perks of credit

On the flip side, credit cards are hugely convenient and by today’s standards, a necessity — you can’t even rent a movie without one. With more transactions taking place on the Internet, a credit card is handy for finding deals on books or flights. Some cards also have benefits, such as travel insurance, member discounts or points programs.

Retail cards, while charging interest in the 24 to 28 percent range, offer lucrative reward programs and discounts. It’s OK to take advantage of such perks, but Campbell cautions there’s no real benefit if you carry a balance.

“It may make sense to have a credit card for a favourite retailer,” says Hannah, but not one for every store you shop at.

The magic number

Experts agree that in most cases one card is enough.

It used to be that some outlets only accepted one type of card, so it made sense to have a Visa, MasterCard and maybe an American Express, but those days are over. “If you have an all-purpose card, 99 percent of the time you’re going to be able to use that card,” says Campbell.

Hannah seconds the one-card rule, but he recommends keeping business expenditures separate with two cards.

Christine McDonald, a spokeswoman for the Financial Consumer Agency of Canada, says the key is “making sure you use the credit you have wisely.” She warns juggling too many cards makes it harder to keep track of spending and payments and hurts your credit score.

One’s credit rating is based largely on credit outstanding, but how much credit you have at your disposal is also considered. Even if there’s nothing owing, just having cards can influence lenders when it comes to granting a mortgage. Several credit cards indicate the potential to get in over your head fast.

Credit cards do help establish a credit history, but Campbell says “people don’t need more than one to build up their credit rating.”

Choosing a card

It’s important to choose the right card. As a general rule, those who carry a balance are better off paying a small annual fee for a low-interest-rate card, while those who pay in full each month may opt for a standard higher-rate card.

Cutting credit

When credit card spending is out of control, the best thing to do is cut up the cards and pay down debt. For some people it makes sense to consolidate debt with a lower-interest line of credit. Otherwise, Campbell recommends paying off the card with the highest rate of interest first. A credit counsellor can help explore the options. Once the debt is paid, contact the issuer and close the account.

Credit cards are two-faced — they’re convenient and come with plenty of perks, but can lead to trouble if you overspend or juggle multiple cards. One, perhaps, two, is all most people need — anything more is playing with fire.

Transmitted by CNW Group on : November 25, 2009 05:00

Mortgage Bytes

Homes sales hit record high; outlook upgraded

John Morrissy, Financial Post 

OTTAWA — Home sales hit a new record high in October, leading the Canadian Real Estate Association to boost its outlook for 2009 and 2010.

Resale home activity was up 41.5% in the month, reaching a total of 42,288 units. On a seasonally adjusted basis, homes sold on the Multiple Listing Service totalled 45,818 units in October.

“Low interest rates and upbeat consumer confidence continue to release the pent-up demand that built late last year and earlier this year,” said CREA president Dale Ripplinger. “The release of that pent-up demand has boosted national sales activity to new heights and is drawing down inventories.”

Further, said Millan Mulraine, economics strategist at TDSecurities, “we expect the recent strong gains in the housing market to remain largely intact, though we suspect that the back-to-back double-digit advance in sales seen earlier this year may not be repeated.”

As a result of the sector’s strong performance, CREA increased its forecast for sales in 2009 by 6.6% to 460,200 units. For 2010, the national industry group said sales would rise 7% to 492,300 units.

The average home price also reached new highs in October, climbing to $341,079, up 20.7% from a year ago.

A separate measure, which limits its focus to Canada’s major markets, showed the average price rising 22.1% to $373,095.

At the same time, the sharp rise in housing demand has eaten into inventories. With 194,994 homes listed for sale in Canada at the end of October, the number of listings is 20.8% below the peak reached in October of last year.

It is the sixth month in a row in which inventories have fallen from year-ago levels, bringing supply to 4.1 months on a seasonally adjusted basis, the lowest level in more than two years.

CREA chief economist Gregory Klump said new listings are expected to rise in coming months in response to headline average price increases.

New monthly sales records were set in about one fifth of local markets in October, including Toronto, Montreal and Ottawa. On a provincial basis, new records were set in British Columbia, Ontario and Quebec, largely as a result of increased activity in those provinces’ major markets.

Canwest News Service

Variable-Rate Mortgages: 3- or 5-Year?

November 16, 2009 

We’ve seen a noticeable increase in the number of people making variable-rate mortgage inquires. 

Perhaps it’s because the media keeps reiterating how the Bank of Canada won’t be upping rates until at least Q3 of next year.

Whatever the case, the popular options for closed variable-rate mortgages have been:

• 3-year variables near 2.15%
• 5-year variables near 2.10%

Which is the better?  The answer is not that obvious.

If variable-rate spreads remain the same, then whichever mortgage has the lower rate will entail the lowest cost (other things being equal).

However, if variable-rate spreads change in 3 years, it’s a different story.  (Note: we’re talking about the spread from prime changing, not prime itself).

For example, suppose variable rates improve from today’s prime – 0.10% to prime – 0.35% in three years.  In that case, the 3-year variable comes out ahead—even though its rate was initially higher.  On a $200,000 mortgage amortized over 25-years, the 3-year variable strategy would be roughly $409 cheaper than the 5-year variable. (We’re assuming prime remains constant for simplicity sake.)

Now the question becomes, is $409 worth the risk of not having your variable spread locked in for five years.  What risk you say?  Well, about a year ago, variable rates soared as high as prime + 1.50%. That was thanks to the market’s sudden aversion to mortgage lending.

While it’s no longer probable, it is indeed possible that variable rates could once again rise above prime rate.  If, for example, you assign a 1 in 4 chance of variable rates moving to prime + 0.25% or higher in 3 years, then the expected value of the 3-year variable makes it more expensive then the 5-year.

In sum, if you’re looking for a new variable-rate mortgage, you can boil it down to this.

Other things being equal:

•  
  • If you’re planning to lock your variable into a fixed rate within 3 years, go with the lowest possible variable rate mortgage–as long as it has a 4.25% (or less) fixed conversion rate, as of today.  [Mind you, if this is your plan, it’s worth talking to a mortgage professional about fixed-rate and hybrid mortgage alternatives.]
  • If you plan to let your variable rate ride, consider a 3-year as long as its rate is no worse than 0.10% above the 5-year.  The popular wisdom is that variable rate spreads will be better in 12-36 months.
  • Have your mortgage planner compare 1-year terms against the variable as well.

Canadian home builders scramble to meet demand

Garry Marr, Financial Post 

The Canadian housing market’s surprising turnaround is spreading to new home construction as developers scramble to respond to a supply shortage that has sent pricing soaring for existing homes.

But any increase in construction on the new home side will likely not surface fast enough to feed the demand for housing that continues to be spurred on by record low interest rates.

Canada Mortgage and Housing Corp. said Monday there were 157,300 units constructed last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts at dropped as low as 118,500 in April.

“There is not a lot of inventory around,” said Gary Friend, president of the Canadian Home Builders’ Association, adding his industry has been careful not to speculate. “We have to watch our Ps and Qs, as we try to meet this demand.”

Any increase in supply would be welcomed as a shortage of new listings has lead to a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as a supply problem was evident in almost every city.

The shortage has yet to ease despite the suggestion higher prices would coax homeowners to sell. This month the Toronto Real Estate Board reported sale prices in October were up 20% from a year ago.

“The existing homes market is in short supply so we’ve gone from a buyer’s market to seller’s market. The way it gets linked is you get some spillover into the new homes market and that’s starting to happen,” said Bob Dugan, chief economist with CMHC.

The agency has already upped its forecast for new home construction for 2010 from 150,300 to 164,900. Even at that level though, construction is still well off the 211,000 new starts recorded in 2008.

Paul Ferley, assistant chief economist with the Royal Bank of Canada, said “at the margins” new home construction could help ease the housing crunch. “Builders are aware and will contribute where they can to advance construction activity but no they can’t turn on a dime.”

gmarr@nationalpost.com

Optimism returns to Canadian businesses, confidence highest since 2007   By Julian Beltrame        OTTAWA — Canada’s business leaders are turning bullish about the economy after a year of doom and gloom, a new survey suggests.

The Conference Board of Canada’s fall business confidence survey finds corporate leaders believe the recession is finally over and that the economy will rebound in the next six months.

The mood of confidence is particularly strong considering that recent indicators, particularly gross domestic product data for July and August, were disappointing.

Yet 63 per cent of business leaders surveyed said they expect the economy to improve over the next half-year, as opposed to only seven per cent who thought it will deteriorate.

Significantly, about a year ago the responses were almost exactly reversed.

The 16-point surge in the fall survey brought the confidence index to 97.8, the highest level since 2007.

The survey of about 2,000 representative firms from across the country was conducted between Sept. 14 and Oct. 22.

“After a year of despondency, Canadian business leaders are sensing an end to the deepest recession in a generation,” the Conference Board said about the results.

“Respondents appear very encouraged by signs of nascent recovery. More than half the respondents believe the present is a good time to expand their stock of machinery and equipment.”

Despite the apparent optimism, business still said they were concerned about under-utilization in their production levels, with 29 per cent describing their operations as substantially below capacity.

As well, leaders said they were concerned about the impact a strong dollar will have on their sales, the still weak demand, and about the ease of obtaining financing.

But it is in the forward indicators that business leaders were decidedly optimistic.

Almost 61 per cent said they expected their financial position to improve in the next six months, and more than half expect better profitability.

As well, more than half said it was a good time to expand, with 16 per cent saying they expected to increase their level of capital spending by more than 20 per cent in the next six months.

The Conference Board’s survey is roughly in line with results obtained by the Bank of Canada in September. The central bank’s survey of businesses showed 69 per cent of large firms optimistic their sales would increase in the coming year, and 42 per cent saying they expected to shift to hiring.