Bank of Canada raises key interest rate a quarter point to one per cent

Bank of Canada raises key interest rate a quarter point to one per cent


Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada raised the trend-setting interest rate a quarter point to one per cent on Wednesday, even as it acknowledged that the country's economic growth will be more gradual than previously thought.


It was the third hike in three months, taking the overnight rate up in stages from the rock-bottom 0.25 per cent that was set by the central bank during the recession to help stimulate the economy.

The hike, which most economists had predicted and supported, will likely have the effect of increasing borrowing costs on short-term loans, such as variable mortgages and lines of credit.

The Canadian dollar got an immediate boost following the announcement, rising 1.11 cents to 96.53 cents US.








Analysts had been looking for acknowledgment from bank governor Mark Carney that the recovery has taken a few surprise body blows of late and that he will now pause for the next few months until the picture clears.

Instead, the bank's governing council appeared content to stick to its previously optimistic outlook and gave no hint about plans for future decisions, saying that will depend on the "unusual uncertainty" of the outlook.

The council remained upbeat on the economy, downplaying its overly optimistic April and July forecasts.

"Economic activity in Canada was slightly softer in the second quarter than the bank had expected, although consumption and investment have evolved largely as anticipated," the council wrote.

"Going forward, consumption growth is expected to remain solid and business investment to rise strongly."

The tone of the central bank's statement was "a bit more hawkish than we expected," said Bank of Montreal economist Douglas Porter.

"The Bank of Canada clearly retains its tightening bias and seems generally unfazed by the recent cooling in the Canadian economy," Porter wrote in a note to clients.

"While we had been expecting the bank to now move to the sidelines for a spell, it appears that it will take a deeper slowdown in domestic spending (as we suspect) than what we have seen so far to prompt them to stop raising rates."

In July, the bank downgraded its previous call for a 3.8 per cent advance in the second quarter - the April-June period - to three per cent.

But in fact, both were wildly off. Statistics Canada reported last week the period only produced a two per cent increase in output, about one-third the pace of growth seen in the first three months of the year.

The bank conceded that the growth profile for the economy going forward will be "slightly more gradual" than it had thought and that since proceeding to withdraw monetary stimulus in April "financial conditions in Canada have tightened modestly."

Even so, with a one per cent policy rate the cost of borrowing in Canada remains "exceptionally stimulative," the bank said.

It blamed weakness in the U.S. economy, which is being held back by the high levels of unemployment, for the slowdown in Canada. Canada's recovery has outpaced most, if not all, of the G7 leading economies, particularly the U.S., which continues to shed net jobs while Canada has recouped almost all of those lost during the 2008-2009 recession.

The bank said its policy rate is consistent with reaching a two per cent inflation target in the medium term.

But economists question how much further Carney can go with the U.S., Canada's largest trading partner, contemplating more stimulus.

Uncertainty Surrounds Rate Announcement

Uncertainty surrounds rate announcement; markets try to counter September effect

05/09/2010 6:00:00 AM

Malcolm Morrison, The Canadian Press
TORONTO - The Canadian dollar could be in for some volatility this coming week as the Bank of Canada comes out with its latest announcement on interest rates Wednesday.


The dollar ended last week at the 96-cent mark and currency markets aren't really sure which way the central bank will lean. That's because analysts were putting the odds of another quarter-point hike - to one per cent - at 50-50, reflecting a slowdown in the Canadian and particularly the U.S. economies over the last quarter.

"We are officially calling for the Bank of Canada to raise rates by a quarter point next week," said Doug Porter, deputy chief economist at BMO Capital Markets.








"But I would say an informal poll of the economics department here would probably put the odds of that at about 55 to 60 per cent. We do see it as a very close call and that's the way the market is pricing for a rate hike right now."

Meanwhile, stock markets could find momentum going into trading this week as readings last week on U.S. manufacturing and employment data could counter seasonal effects which have given September the reputation of the worst trading month of the year.

The Bank of Canada has raised rates from an historic low of 0.25 per cent twice this year, in June and July, as the Canadian economy mended from recession faster than just about any other country.

But even with another quarter-point rise, the central bank could well decide to take a pause after recent data showed North American economies slowing.

The U.S. economy grew at an annualized rate of only 1.6 per cent during the second quarter.

And Statistics Canada reported last week that the domestic economy grew at annualized reading of two per cent during the second quarter, down sharply from 5.8 per cent in the January-March period.

Back in April, when things looked rosier for the global economy, Porter thought "the bank would raise its rates to about two and a half to three per cent over the next year. Now we're thinking one to maybe 1.5 per cent."

And even before the central bank gets to that point, the question is how long it will keep rates at one per cent.

"We now see that possibly right through the middle of next year and that's really the big change in recent months for us - beyond just taking a little bit of a trip to the sidelines later this year, we think that could last longer," Porter said.

"Because frankly it doesn't look like the U.S. Federal Reserve is going to raise rates for at least the next year, and could drag well into 2012 even, unless we really get a very pleasant surprise from the U.S. economy."

However, the revised forecast is certainly good news for consumer borrowing costs and could breathe new life into a flagging housing market.

"We have seen the longer-term mortgage rates coming down in recent months as that expectation of a less aggressive Bank of Canada has been built into the market," Porter noted.

But no matter what the bank announces on Wednesday, Porter thinks there will be an effect on the loonie, particularly from the bank's commentary.

"Let's say they hike, and they come out and signal they might move to the sidelines, then the rally on the dollar won't last long," he said.

"If they hike and they still sound like they could hike further, then the currency will strengthen quite a bit. That's not even getting into what it would do if they don't hike."

Meanwhile, stock markets ended the week on a strong note as positive manufacturing data from China and the U.S. and the U.S. employment report for August, which showed private-sector job creation exceeding expectations, left the TSX at a three-and-a-half month high.

The biggest headwind might just be the fact that it is September - the worst trading month of the year.

There are a few theories why this is so. For example, mutual fund managers take profits on winning stocks and ditch the losers as they make the third quarter look as good as possible.

Last year was a happy exception, as markets were in the course of a long positive run from the depths of March 2009 as investors started to price in a strong economic rebound.

The S&P 500 has shed at least five per cent in September four times in the past decade alone.

However, this September could also prove to be a decent month.

"And that could be based on valuation that we're seeing in the marketplace, it could be based on the fact that investors will be focusing on the positives as opposed to the negatives," said Philip Petursson, director of institutional equities at MFC Global Investment Management.

"You have to focus on the fact that companies seem to be tripping over themselves to acquire each other. They are more confident and, from what we are seeing, there is much better investment opportunity in equities now than there has been over the past couple of years based on valuation, companies' balance sheets (and) pending activity through merger and acquisition activity."

Petursson added that another reason to be more optimistic on the equity markets is that, relative to bonds, stocks are cheaper than they have ever been.

Bank of Canada

Bank Prime Lending Rate
June 2, 2010 2.50 %
July 21, 2010 2.75 %
September 9, 2010 Next meeting date
Source: Bank of Canada



Bank of Canada Interest Rate
June 1, 2010 0.50 %
July 20, 2010 0.75 %
September 8, 2010 Next meeting date
Source: Bank of Canada


Conventional Mortgage - 5 Year Rate*
August 16, 2010 5.59 %
August 23, 2010 5.49 %
August 30, 2010 5.39 %
Source: Bank of Canada
*Determinant for high ratio mortgage variable qualifying rate

JCI Durham Challenge

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Sept 11/10 10-4

Many great mortgage rates and products available

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Housing Prices News Article

Housing prices in hottest Canadian markets a concern
Norma Greenaway, Postmedia News • Tuesday, Aug. 31, 2010
OTTAWA -- Steep housing price increases in six of Canada’s hottest real estate markets since 2002 have all the hallmarks of an “accident waiting to happen” if mortgage rates rise too sharply, warns a new report.
The report by the Centre for Policy Alternatives says smart mortgage rate setting is needed to prevent the bubbles hanging over the housing markets in Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal from bursting.
“The hottest six real-estate markets could be in for a correction at best or, at worst, a bubble burst,” writes David Macdonald, author of the report. “Rate setters at the big banks are in the driver’s seat now as mortgage rates inch up. They need to hit the breaks lightly.”
The chief concern is the price increases in those markets are outside the “historic comfort level,” which makes them much more susceptible to mortgage rate changes, the report said.
The average, inflation-adjusted house price in the cities has historically held stable at between $150,000 and $220,00 in today’s dollars. But the current average price in all six major markets now is over $300,000, it said.
Macdonald says a housing bubble burst has been a rare phenomenon in Canada. Since 1980, it has only happened three times — in Vancouver in 1981 and 1994 and in Toronto in 1989.
“But the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen,” Macdonald writes, adding the price increases have exceeded the growth in inflation, household incomes and economic growth.
“Canada is experiencing for the first time in the last 30 years, a synchronized housing bubble across the six largest residential real-estate markets in Canada.”
The report traces the trend in large part to low mortgage rates and access to easy credit, which can encourage buyers to purchase homes they might not otherwise be able to afford.
“While housing may be ‘affordable’ based on record low rates, the affordability situation in Canada could change rapidly if mortgage rates return even part way to their historic norms,” the report says.
Macdonald, a research associate with the centre, said in an interview he doesn’t expect mortgage rates to increase much in the near term. His concern is three to five years down the road.
Macdonald called on the big banks and other mortgage lenders to stick to slow, gentle increases to avert the bottom falling out of housing prices.
He also recommended returning to pre-2006 mortgage rules, which required a down payment of 10% and a 25-year mortgage. The current rules call for five per cent down and a 35-year mortgage.
Macdonald says the best scenario would be to have housing prices stagnate over the next five to 10 years while inflation slowly eats away at their value.
The goal should be to get prices back to the “comfort zone” where house prices are in line with inflation, he said, and where owners will neither gain nor lose a lot of money when they sell.
Read more: http://www.financialpost.com/news/Housing+prices+hottest+Canadian+markets+concern/3463776/story.html#ixzz0yBPfRm5D

Variable Rate Article

Variable rate may no longer win
Garry Marr, Financial Post • Tuesday, Jul. 27, 2010
Not that there are a lot of people buying houses these days, but the answer to the age-old question of whether to go long or short on your mortgage is unclear yet again.
The Bank of Canada’s second quarter-of-a-point rate increase in the past two months is likely not going to do much to boost a real estate market that saw sales drop almost 20% across the country in June from a year ago.
The popular variable-rate product tied to prime that helped people buy a lot more house with more debt is going up too. The prime rate at the major banks, which tracks the Bank of Canada’s rate, is now at 2.75%.
But a funny thing happened as the Bank of Canada was raising rates. With much of the credit crisis seemingly behind us, the discounts on short-term borrowing are increasing as the cost of funds for banks also fall. Instead of borrowing at 100 basis points above prime, it’s now 70 basis points off prime.
At 2.05%, a variable-rate product today may look as attractive as ever, but the five-year fixed-rate closed mortgage is falling fast. It can now be had for a shade under 4%, says Rob McLister, editor of Canadian Mortgage Trends.
“Bond yields have fallen out of bed and nobody expected that,” said Mr. McLister, adding the spread between the five-year Government of Canada bonds and five-year mortgages is still large enough that the banks may reduce long-term rates even more. However, at about 4%, the five-year closed fixed-rate mortgage isn’t far off its record low.
Bank of Montreal senior economist Sal Guatieri does agree that variable-rate products have worked out better than fixed-rate mortgages throughout history, but says the tide may be turning.
“Given that the central bank has already raised rates a couple of times now and will likely continue to raise rates, it probably is a correct assumption to make,” says Mr. Guatieri, noting variable usually works in a declining interest-rate environment. “The next five years might not quite follow the past. You could probably argue it’s wiser to lock in now. It’s a close call.”
Bank of Montreal is forecasting another 25 basis point move in September and says rates will climb another 1.5 percentage points by the end of 2011. If Mr. Guatieri and others are right, by 2012, the variable-rate products out today would clock in at just above 3.75%, if the discounting remains the same.
“If you are still in that variable-rate product then, you’d have to sweat out the next three years because there would still be possibly more increases,” says Mr. Guatieri, who adds his bank sees the overnight rate eventually going to 4% in the following three years. Based on the present gap between the Bank of Canada and prime, that would place the variable-rate product you get today at 6% by around 2015.
Fears of such a scenario are driving people into fixed-rate products again. That, plus new mortgage rules that make it easier to qualify for a mortgage if you go for a fixed-rate product with a term of five years or longer.
“The Bank of Canada is doing what it said — it’s going ahead with rate increases. If I was counselling someone, the prediction is rates are going up, so now is a good time to consider locking in for a term,” says Don Lawby, president of Century 21 Canada.
It makes sense, but with variable rate still at around 2%, it’s easy to see why people wouldn’t want to lock in. Even Mr. Guatieri says if you are secure in your financial situation and don’t need to fix your mortgage payments, “you might just want to let it ride.”
There just never seems to be a clear answer on whether to lock in or stay variable.
Read more: http://www.financialpost.com/personal-finance/Variable+rate+longer/3329442/story.html#ixzz0yBQrPwKB

Home sales plummeted 30 per cent in July

Home sales plummeted 30 per cent in July



Housing sales dropped by 30 per cent nationwide last month, largely due to a new tax in British Columbia and Ontario experts say deterred home buyers in two of the country's hottest housing markets.


The Canadian Real Estate Association on Monday reported a 6.8 per cent drop in home sales through its MLS service, compared with June numbers. The decline is part of a gradual dampening of Canada's once-booming real estate market.








B.C. and Ontario account for roughly 85 per cent of the slump, as the implementation of the harmonized sales tax this summer pushed many home buyers to purchase earlier this year, the association said in a statement.

The two provinces typically represent more than half of the country's sales.

"We're not seeing a huge slide," BNN's Andrew Bell told CTV News Channel on Monday.

"Things were pretty frenetic last year… We're actually still up year-on-year on sales, prices are holding -- so we're not seeing a dive in the housing market by any means."

So far, this year's sales are up 5.6 per cent from the first seven months of 2009. But experts predict that lead to fade in the next few months, since sales grew dramatically in the second half of last year.

Activity peaked last December as home buyers who had held off during the recession let loose on the market and took advantage of low interest rates.

That momentum lasted through the first half of this year, fuelled by fear of the HST, interest rate hikes and changes to mortgage rules.

Still, sales fell in six of the last seven months, dropping 25 per cent in the past three months alone, said Douglas Porter, deputy chief economist at the Bank of Montreal. That signals a shift towards a buyer's market, he added.

British Columbia showed the largest decline at 14.1 per cent, with Ontario in second place with an eight-per-cent decrease. Activity in the Prairies and Quebec was level with June numbers.

"We (and many others) were consistently warning of a significant second-half slowdown in housing activity but, if anything, the cooling looks even a bit chillier than expected," Porter wrote in a report Monday.

With files from The Canadian Press

Interest rates expected to edge up

Interest rates expected to edge up

19/07/2010 2:23:11 PM

CBC News
The Bank of Canada, weighing strong domestic growth against weakness internationally, will likely raise its key lending rate by another quarter of a percentage point Tuesday morning, economists say.


That would bring the central bank's overnight lending rate to 0.75 per cent.

Increases in the overnight lending rate generally lead directly to increases in lines of credit rates, variable-rate mortgages and other demand loans.

All 12 primary securities dealers expect the central bank to announce a quarter percentage point hike. A survey of 20 economists by Bloomberg found similar unanimity.

If that rate hike does materialize, it would be the second straight hike by the bank, which had left its benchmark lending rate at a rock-bottom 0.25 per cent for more than a year to provide a shot in the arm to a struggling economy.








Canada's central bank was the first in the G7 group of industrialized economies to raise interest rates since the global financial crisis began unfolding.

Canada's economy faring better than most

Recent data has shown the Canadian economy continuing to shake off the effects of the recent slowdown.

The most recent employment report issued showed that Canada created 93,200 jobs in June, far above economists' forecasts. The Canadian economy has now recouped almost all of the jobs lost in the recession.

The unemployment rate fell to 7.9 per cent - its lowest level in more than a year.

Bank of Canada surveys released last week suggest that Canadian businesses remain optimistic as far as sales and hiring are concerned.

"With solid employment growth powering consumers, and business investment now surging, Canada's domestic economy still looks solid," noted Bank of Montreal economist Benjamin Reitzes.

The international economic recovery has been more uncertain. Recent U.S. and European economic data, for instance, has been tentative at best.

Analysts say that weakness should be enough to keep the Bank of Canada from aggressively raising rates.

TD Bank economist Grant Bishop agrees that the central bank will hike by a quarter point Tuesday, but thinks the bank will underscore "the economic uncertainties in its communiqué, leaving an open door to a pause on rate hikes if conditions warrant."

A survey of 20 economists by Reuters finds that most expect the central bank's key lending rate will be at 1.25 per cent the end of the year, meaning that a couple of additional small rate hikes may be in the offing after Tuesday's, along with a pause or two.

Dinner with a CEO June 10,2010

Location
Bella Notte Ristorante

3570 Brock Street North
Whitby, ON L1R 0G2
(905) 430-5744
Change Place

Who’s coming?
4 Young professionals

16 spots left — RSVP deadline: June 9, 2010 1:00 PM


CAD30.00 per person
refund policy

The Dinner with a CEO series aims to provide the opportunity for a small group of people to learn leadership insights from, and share fellowship with, leading current and former CEO's and Board Chairpersons in a small group setting.

For our first event of the year we have invited Todd Skinner

Todd Skinner is Founder and Partner of The Business Accelerator Group, a global consortium of business executives that specializes in helping businesses with their growth and transition strategies. In Durham Region Todd is better known as “The Growth Coach”.

Todd has a passion for helping businesses to succeed. Coming from an entrepreneurial background, he draws from almost two decades of personal experience in both entrepreneurial ventures and corporate executive positions. Todd has an extensive Global perspective living and working in the United States and England. He has also conducted business in over 45 countries; including turning around a failing business in England, starting a business in Russia, China and a joint-venture in India all before his 30th birthday.

He was member of the Board of Directors of the Whitby Chamber in 2008 and currently Host "Business Today" a Rogers TV show.

Price:
JCI Whitby members: FREE
Non-members: $30

Price includes dinner.

Credit Score Secrets

Credit Score Secrets
by Gail Vaz-Oxlade, for Yahoo! Canada Finance
Thursday, May 27, 2010
Ever wonder how that magical number – The Credit Score – is computed?

Whether you’re obsessing over your FICO score or your Beacon score, you’re likely shopping for credit. The FICO score was developed by Fair Isaac & Co., which began credit scoring in the late 1950s. The point of the score is consolidate your credit profile into a single number. The Beacon score is a brand name used by Equifax, the largest credit-reporting agency in Canada. While Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed, whether you get a loan or not is a numbers game: The more points you score on your credit app, the better you do.

There’s a reason you have to fill out so much information when you’re applying for credit. Everything counts. Your age, your address, and even your telephone number all have a role to play in whether or not you’ll get credit.
Young ‘uns and old folk are at a disadvantage since under 21 and over 65 likely means you aren’t working; no points for you. If you're married, you’ll get a point for being “stable.” And while you might think that being divorced would work against you (all that spousal and child support), most creditors don’t give a whit.
No dependents? Zero points. You’re probably still gallivanting like a teenager since you haven’t yet “settled down.” One to three dependents? Score one point. You’re a solid citizen. More than three dependents? Score zero. Have you no self control! And don’t you know you that with all those mouths to feed you could get in debt over your head?

Your home address counts too. Live in a trailer park or with your parents? Bad risk, score zero points. You could skip town with nary a look over your shoulder. Rent an apartment? Give yourself one point. Own a home with a big fat mortgage and you’ll score major points since someone has already done some checking and you qualified for a mortgage. Own your home free and clear? Even better. You’ve proven you can pay off a sizable debt and now you have a pile of equity that the card company would love to help you spend.

Previous Residence? Zero to five years (some applications only go to three years), score zero points since you move around too much. No land-line: zero points. How the Dickens are they gonna find you when you fall behind in payments. Since they can’t use your cell phone to actually locate you physically, it doesn’t count.
Less then one year at your present employer earns you no points. Again, it’s a stability and earning continuity thing. The longer you’re on the job, the more likely you are to be bored out of your mind but you’ll score more points. And, not to overstate the obvious, the more you make the better.

The more willing you are to make your lender rich, the higher your score will be. Since the FICO score was originally designed to measure customer profitability, if you pay off your balance in full every month, you’re going to score lower than the guy who only makes the minimum payment and pays huge amounts of interest.

Scores range from 300 to 900 and if you manage to hit 750 or above you’ll qualify for the best rates and terms. Score 620 or lower and you’ll pay premium interest if you even qualify; 620 is the absolute minimum credit score for insured mortgages.
Your credit score can change quickly. Payment history accounts for about 35% of your credit score and just one negative report can drop your pristine score into the doldrums. Since scores are updated monthly, your bad behaviour won’t go unpunished for long.

The type of credit you have counts for about 10% of your score. And your current level of indebtedness accounts for about 30% so going too close to your credit limit is another way to deflate your score. One rule of thumb is to keep your balances below the 65% mark. So if you have a limit of $1,000, you won’t ever carry a balance that’s more than $650.

Having too much credit available can also hurt your ability to borrow since the more credit you have, the more trouble you can get yourself into. If you’ve got a walletful of cards, canceling credit you’re not using can be a good thing – for both you and your credit score – over the long haul. Careful though. If the card you’re eliminating is one with a long, positive history, you’ll eliminate what could be a very good record of your repayment when you cancel the card. You’d be better off cutting up the card so you aren’t tempted to use it, while you establish a track record (six months or more) before you actually cancel the account.
Credit shopping can also cost you points. Since about 10% of your credit score relates to the number and frequency of new credit enquiries, applying willy nilly for new credit will end up costing you. However, it’s only when a lender checks your score that this registers on your score. Checking your own credit report/score is considered a “soft” inquiry and does not go against your score.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1623/credit-score-secrets

Bank of Canada raises interest rate to 0.5 per cent

Bank of Canada raises interest rate to 0.5 per cent

01/06/2010 2:51:23 PM

CTV.ca News Staff
The days of record low interest rates in Canada appear to be coming to an end, as the Bank of Canada announced Tuesday its first interest rate increase in three years.


The central bank hiked its overnight lending rate from 0.25 per cent to 0.5 per cent, an increase that was quickly matched by major banks.

BNN's Michael Kane told CTV's Canada AM that GDP numbers released Monday were likely "the final nail in the coffin for record low interest rates."








Those figures showed the country's gross domestic product expanded by a whopping annual rate of 6.1 per cent in the first three months of this year -- the largest quarterly increase in more than a decade.

Indeed, the statement from the Bank of Canada suggested those results figured prominently in its decision.

"Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed," the statement read.

"...In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market."

The bank's optimism was tempered by worries about "spillover" from the European debt crisis -- which, it noted, has so far been limited -- and said there remains "considerable uncertainty" about an "increasingly uneven" global recovery.

The Bank of Canada's rate hike is the first among the Group of Seven wealthy nations since the global recession began two years ago.

Prime lending rates, which banks extend to their best customers, quickly followed the Bank of Canada increase.

The TD Bank was the first to announce a quarter-point hike in its prime lending rate to 2.5 per cent, effective Wednesday. The Royal has followed suit and all the other major banks are expected to announce the same increase to their primes, which influence variable rate mortgages and lines of credit.

Short-term, variable mortgage rates will also likely rise, but longer-term fixed mortgage rates -- which are more influenced by the bond market -- are expected to remain unchanged for now.

The rate hikes may not stop here. Many expect further tightening, with some predicting the overnight lending rate could rise as high as 1.5 per cent by the end of the year. The central bank tried to keep such expectations in check in its statement.

"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," it said.

Ontario's housing market continues to sizzle:RBC

Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. 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:


- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.

- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.

- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.

- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.

- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.

- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.

The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.

The Latest Read on Interest Rates

Globe and Mail Wednesday, May 12, 2010
The latest read on interest rates
Andrew Willis
Bond traders are still expecting the Bank of Canada to raise short term interest rates on June 1, but the move is no longer the sure bet it was a few short weeks ago.
Credit markets are currently putting a 84 per cent probability on a 25 basis point hike in overnight rates after the central bank meeting in June, according to a report that TD Waterhouse published late Tuesday on BAX sentiment, a reflection of what the futures market is predicting. BAX sentiment put a 100 per cent probability on a hike prior to the most recent Greek credit crisis, and European financial bailout.
BAX sentiment puts a 94 per cent probability on another 25 basis point rise in rates at the July 20 Bank of Canada meeting

Mortgage Hunters Get Temporay Reprieve

Mortgage hunters get temporary reprieve
11/05/2010 5:11:14 PM

The Greek debt crisis has led to an unexpected - but likely brief - dip in fixed mortgage rates at most Canadian banks.
The rate for the popular five-year fixed closed mortgage is down 0.15 percentage points to 6.10 per cent at all of the big five banks Tuesday.
That's the posted rate. Most banks also dropped the benchmark rate for their discounted five-year mortgage by a similar amount to 4.70 per cent. Some online and smaller lenders charge less.
That's a welcome change for mortgage shoppers who've seen fixed rates rise by more than a full percentage point in the last month.
The latest drop started last Friday, when TD Canada Trust and Bank of Montreal both announced similar trims. The other banks followed Monday, with their cuts effective Tuesday.Longer-term fixed mortgage rates typically follow longer-term bond yields. The Greek debt crisis put a stop to rising bond yields as traders moved money out of risky assets.
"Both treasuries and Government of Canada bonds have recently benefited from a flight to quality on the back of renewed sovereign debt concerns in Greece and other parts of Europe," CIBC World Markets noted in a recent commentary.
Many mortgage experts say the pause is just temporary and note that bond yields are already edging higher as the EU's bailout package eases Greek default concerns.
Variable mortgage rates are tied to the Bank of Canada's overnight lending rate. After recent healthy signals coming from various sectors of the Canadian economy, including last Friday's unexpectedly strong jobs report, the markets now expect the central bank to bump up its key rate on June 1. That rate has been at a rock-bottom 0.25 per cent for more than a year.

Possible Rise In Mortgage Rates Pitting Couples Against One Another

Possible rise in mortgage rates pitting couples against one another
Steve Ladurantaye and Carly Weeks From Saturday's Globe and Mail
When Rae Whitton started house shopping with Dan Madge last year, she agreed to a variable mortgage rate after their broker explained rates were likely to remain low until spring, at which point they could lock into a fixed rate.
But when February came and signs indicated the economy was getting stronger, anxiety kicked in. Ms. Whitton e-mailed Mr. Madge newspaper articles warning of possible mortgage rate hikes, and worried about worst-case scenarios, remembering how her parents paid up to 18 per cent on their mortgage.
“I was just freaking out. Not that I think it will ever be like that again, but what if this happens? What would we do?” she said. “You always think of the worst thing.”
With mortgage rates set to climb in coming months from historic lows, the emotionally charged decision to lock into a predictable fixed-rate mortgage or gamble on a variable rate that could change at any time is pitting couples against each other as they try to plan their future.
Call it the Battle of the Sexes: the Housing Boom Edition.
Ms. Whitton was terrified that rocketing rates would price them out of their new Toronto home and pushed for the certainty of a fixed-rate. Mr. Madge wanted to take a chance that rates would be lower.
“I didn’t like the uncertainty of it,” Ms. Whitton said. “I like knowing how much our payments are going to be every month.”
The conflict is based on fear of the unknown, and the fear of losing a home if circumstances spiral out of control.
A study commissioned by the Bank of Montreal indicated that women were more likely to be overwhelmed when buying a home than men, at 44 per cent versus 28 per cent. Men were also more likely – 39 per cent vs. 26 per cent – to take interest rates into account when deciding whether to buy.
“When it comes to a risky situation which usually involves some kind of uncertainty, women tend to perceive negative consequences to be more likely and perceive negative consequences to be more severe,” says Li-Jun Ji, a psychology professor at Queen’s University in Kingston, Ont., who studies how decisions are made.
After debating for several months, Ms. Whitton and Mr. Madge went to the bank a few weeks ago and locked into a three-year fixed-rate mortgage. And while Ms. Whitton said she knows more of their payment is now going to interest, she’s not going to let it get to her.
“I just try not to look at the statements,” she said.
Variable rate mortgages can be had for about 1.75 per cent right now, while a 5-year fixed-rated can be had for about 4.5 per cent. A homeowner can save thousands by choosing variable, but their monthly payments will get higher every time interest rates increase.
With the Bank of Canada expected to move its key lending rate higher in June, the variable rate will increase as well. And if history is any indication, rates go up a lot faster than they go down. From 1980 to mid-1981, rates gained 67 per cent, making many mortgages unaffordable.
There’s no sense that will happen this time, but even small increases can mess up a tight budget.
For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750.
It’s that kind of uncertainty women may be hardwired to avoid, said Lise Vesterlund, a professor at the University of Pittsburgh who has studied the role gender plays in financial decisions.
“My own work has shown that women are less confident about their decisions,” she said. “There are evolutionary reasons for that, and you can also argue there are circumstantial reasons as well.”
She said men are natural risk-takers - after all, there was a time when they could reproduce indiscriminately and not worry about consequences, while the women had to be prudent and think about the future.
That sense of risk is still fostered by parents today, she said, with the majority of boys playing games that have measurable results while girls are offered activities that have no discernible conclusion.
“From an evolutionary standpoint, men have always had more to gain by taking gambles,” she said. “Women tend not to get the same kick out of taking risks – part of the reason they like to lock in to something is they want to have more information about what their prospects will be like in the future.”
http://www.theglobeandmail.com/report-on-business/possible-rise-in-mortgage-rates-pitting-couples-against-one-another/article1545411/

Highlights of Benjamin Tal Weekly Market Insight

The Bank of Canada is very clear about its intention to raise rates as early as June. The key question is not
about timing but rather of magnitude. At this point, it appears that the market is in a process of pricing in a
significant rate increase by the Bank, with many observers suggesting that the Bank rate will reach 4% or 5%
by the end of 2011. It appears that the Bank of Canada itself is uncomfortable with this recent move by the
market to discount an aggressive tightening program. The Bank knows very well that this recovery is going to
be extremely non-linear with an array of factors limiting growth and inflation in the second half of the year and
into 2011. These factors include a strong dollar, the end of fiscal stimulus, a significant softening in real estate
activity following this spring, a slower pace of economic activity in the US in the second half, and the impact of
higher interest rates on over-extended consumers. In fact, our consumer capability index is at a 15-year low
and we estimate that consumers are now 40% more sensitive to higher rates compared to the last times the
Bank of Canada raised interest rates. This environment is consistent with a gradual approach towards removing
liquidity from the market with the Bank rate likely to rise to only 2.5%-3.0% by the end of 2011.

What does the coming rate hikes mean for the stock market? The common thinking is that higher rates are
negative for stocks, but history does not support this claim. Looking at data going back to the 1950s we found
that in the six months before the Bank started to lean into the wind, Canadian stocks historically provided, on
average, a 22% annualized return (dividends plus capital gains) measured by the total return index for the TSX
Composite. In the six months after a rate trough, Canadian stocks in comparison returned 8.3% in annualized
terms. That’s less, on average, than in the pre-hike period, but within a per cent of the TSX’s longer term
performance. Total returns were significantly negative in only one of the thirteen half-year periods after a rate
trough. Stocks outshone bonds, the main competing asset class, about 70% of the time in the half year before
the trough in rates and over 85% of the time in the half year after.

Along with the expected limited monetary tightening, this historical observation suggests that the coming rate
hikes may well be an annoyance but are unlikely to deliver a knockout blow to equity markets.
Benjamin Tal
CIBC Senior Economist

Mortgage Rates On the Rise Again

Mortgage rates on the rise again
Garry Marr, Financial Post
A new survey says more than four out of five home buyers feel comfortable with their debt, but another hike in interest rates might get Canadians squirming next time they're polled.
Canada and Mortgage and Housing Corp. surveyed 2,503 mortgage consumers between Feb. 11 and Feb. 28 and found 81% were comfortable with their current debt levels. However, the survey was done before three successive hikes in interest rates that have pushed the five-year, fixed-rate, closed mortgage from 5.25% to 6.25% in less than a month.
"Rates were low throughout most of the time [of the survey]," said Pierre Serré, CMHC vice-president of insurance products and business development, adding it was unclear whether the 81% figure might fall because of the hike.
Based on an average Canadian home-sale price of $340,920 in March and a 5% down payment, the minimum allowed, mortgage payments for a five-year, fixed-rate product have climbed almost 10%.
As it has throughout this rate-hike cycle, Royal Bank of Canada got the ball rolling Monday by adding another 15 basis points to its fixed-rate product. Toronto-Dominion Bank was next, with most of banks expected to follow shortly.
The hike means that a typical Canadian homeowner with a 25-year amortization with that $340,920 home and 5% down is now paying $2,120.54 per month in mortgage costs, up sharply from the $1,930.03 it was costing them before the latest hike in rates. The dramatic shift is likely once again to push people back toward a variable product linked to prime.
The same mortgage based on the current prime rate of 2.25% would cost only $1,410.84 to carry. Still, many economists predict the Bank of Canada will begin raising its rates as early as June, lifting the prime rate.
The survey also found homebuyers are relatively cautious when taking out their mortgages. Only 20% of them took out mortgages based on amortizations of longer than 25 years. CMHC also said 68% of consumers plan to pay off their mortgage sooner than current amortizations.
"In talking to some lenders I've heard of lots of people who get extended amortizations but accelerate their payments," Mr. Serré said.
The survey came out the same day as new statistics from Re/Max which show the high-end of the housing market continues to soar. Re/Max surveyed 13 markets in the first quarter and found records for high-end homes sales in nine of them.
Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada didn't think the latest hike in rates would do anything to slow the market. "It's still minor. Interest rates overall, as far as I'm concerned, are still at historic lows," he said. "Are they climbing up? Yes. It's time to consider locking in. Are they going to skyrocket? I don't think so."
Bernice Dunsby, Royal Bank's director of home equity, said the one percentage point rise in rates was not that large a leap on a historical basis.
"It has been widely anticipated that rates would be on the rise. The cost of funds just continues to raise," said Ms. Dunsby. "The thing our clients are looking for is options that provide additional rate protection."
She said customers have been opting for mortgage products that divide their debt in half, some of it going long and some of it going short. But the percentage of customers just going short continues to slide with variable rate products becoming less popular at Royal Bank.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2952380#ixzz0mIZFfOdu

RBC raises mortgage rates Again

RBC hikes mortgage rates again
Tavia Grant and Steve Ladurantaye
Globe and Mail Update Published on Monday, Apr. 26, 2010 12:14PM EDT Last updated on Monday, Apr. 26, 2010 12:34PM EDT
Royal Bank of Canada , the country’s largest bank, is leading the way on another round of mortgage-rate hikes, boosting borrowing costs Monday for the third time in recent weeks.
The rate on a five-year closed mortgage is now 6.25 per cent, an increase from the previous rate of 6.10 per cent. A one-year closed rate will, as of tomorrow, be priced at 3.80 per cent. All rates were increased by 15 basis points.
It’s the third move in a month as Canadian banks prepare for an era of rising interest rates . The Bank of Canada last week signalled that its key lending rate will rise, as early as June, as the economy recovers.
Banks can adjust the rate they charge, so customers could still pay a lower rate than what’s posted. Other banks tend to follow with rate hikes once one does, and the actual rate a customer pays depends on a variety of factors, including their financial situation, whether they use a mortgage broker, and how good they are at negotiating.
The hike comes the same day as Canada Mortgage and Housing Corp. released a study showing that 81 per cent of recent home buyers feel comfortable with their current level of debt.
Two thirds of the 2,500 people surveyed said there is a chance they will pay off their mortgage sooner than required, while 27 per cent said they have increased regular payments to eliminate their mortgage sooner.

If you were thinking of getting pre approved beter do it now!

if you were thinking of getting pre approved for a mortgage now is a could time to do it. With RBC raising rates today most lender will follow suit over the next couple of days.

RBC raises mortgage rate

Tara Perkins
Globe and Mail Update Published on Tuesday, Apr. 13, 2010 12:59PM EDT Last updated on Tuesday, Apr. 13, 2010 1:19PM EDT
Royal Bank of Canada (RY-T59.39-0.18-0.30%) , the country's largest bank, has raised mortgage rates again.
The move, which will result in a 0.25 percentage point increase in the cost of a number of fixed-rate mortgage products that the bank offers, is likely to spark another round of rate hikes among the country's mortgage lenders.
RBC kicked off one series of hikes a little more than two weeks ago, and most experts said that was the start of a steady rise in mortgage rates.
At that time the cost of a five-year closed rate mortgage from RBC and many of its competitors rose by 0.60 percentage points to 5.85 per cent.
More Discussions in our Globe Investor forums

Is this a good time to lock in or refinance your mortgage?
Started by: Roma Luciw
41 replies
Last post by chris_bullard
4/4/2010 5:22:08 PM
Tuesday's increase will raise the rate for a five-year mortgage from RBC further, to 6.10 per cent, effective Wednesday.
Royal Bank's Canadian mortgage portfolio amounted to about $148.5-billion in the latest quarter.
The banks say they are raising rates because their cost of funds is increasing.

VAriable Rate Mortgages

Variable mortgages (almost) always win
Whether They're Taking On New Mortgages Or Renewing Ones They've Held For Years, Homeowners End Up Asking Themselves The Same Question: Should They Lock In Their Mortgage Or Should They Let It Float With A Variable Rate. Here, Toronto-Based Wealth Manager Scott Tomenson Makes The Case For Variable.
http://www.financialpost.com/magazine/story.html?id=2766742
ARE VARIABLE MORTGAGES AS GOOD AS THEY LOOK?
Q: My fiancé and I have just bought our first home and we are going in circles about what is the best mortgage for us before we close. We currently have a locked-in fixed rate with a bank of 3.98%, which we prefer to the uncertainty of taking a variable mortgage. But would we be better off with a variable-rate mortgage, especially if we saved money during periods when rate are low and use that to make payments on principal? Will that offset costs when our payments are higher than our current fixed rate? Getting Dizzy, Ontario
A: Historically, as far as interest rates are concerned, it is better to float your mortgage interest rate (i. e., choose a variable rate mortgage). This is a result of the "yield curve." The "normal" yield curve is positively sloped, with interest rates lower for short-term maturities (one to two years) and higher for longer-term maturities (five to 30 years). When the economy strengthens, the Bank of Canada will raise short-term interest rates (they only have control over short-term rates) and the base for variable-rate mortgages (usually the prime rate) is moved higher. This action signals a period of "tightening" of monetary policy to cool the economy and reduces inflationary pressures.
The vehicles that determine longer-term interest rates -- bonds -- tend to move according to inflationary expectations: If bond investors anticipate inflation (because of economic growth), they demand higher returns (interest rates) as protection from inflation. When the Bank of Canada is perceived as "fighting" inflation by raising short term interest rates, long-term rates have a tendency, in most cases, to remain stable or improve, because long-term bond investors are content that inflation will not grow.
In essence, while short-term interest rates may go up, they do so only until the Bank of Canada has slowed the economy enough to curb anticipated inflation. Then, as economic growth slows, the bank starts to lower them. The yield curve will flatten (with higher short-term interest rates) for a time, but when the economy slows, short-term rates will go back down and the yield curve returns to its "normal" positive slope.
Over this time, variable-rate mortgages will move up to being approximately equal to locked-in five-or 10-year rates, but that's followed by a period when they return to lower levels. More often than not, over this time, it is less costly to have held the variable rate debt. Exceptions to this situation would be times of hyper-inflation (like in the 1980s) when short-term interest rates went to extreme levels.
If you had a variable mortgage at prime minus over the past few years, as I did, it's been a great ride. I kept my payments level and the low interest rates allowed to me to pay off massive amounts of principal. True, the economy is strengthening and short term rates will go up a bit over the next couple of years, but I don't think it will be dramatic. The case for variable-rate mortgages remains strong.

Mortgage Changes in April

There are new mortgage lending rules that are taking effect April 9th and 19th. Here is an overview of the new policies:
Purchasing a Home
Any mortgage with less than 20% down payment and subject to mortgage insurance will be required to qualify at the 5 yr fixed rate. This is regardless if you select a variable or fixed rate for a shorter term or lower interest rate. The purpose of this change is to make sure that homebuyers will be able to afford their mortgage payments if interest rates rise in the future.
Home Refinancing
The amount that a home owner can withdraw from the value of their home is changing from 95% to 90%. For example, a home with a value of $300,000 the maximum amount will decrease from $285,000 at 95% to $270,000 at 90%
Investment Property(non owner Occupied)
The required down payment will increase from 5% to 20% of the purchase price.
Self Employed and 100% Commissioned Individuals
Under CMHC’s Self Employed No-income Qualifier program, a 10% down payment will be required for purchasing a home which is increasing from 5%. Home refinancing will be capped at 85% loan-to-value down from 90%.
If you have been self employed for less than 3 years or are a 100% commissioned, you can no longer qualify for financing under CMHC’s Self Employed NIQ. You will now be required to verify you income.

Royal, Td Raise Mortage Rates

Royal, TD raise mortgage rates in sign era of historically low rates ending

29/03/2010 1:27:00 PM

THE CANADIAN PRESS
TORONTO - Two of Canada's biggest banks are increasing some of their residential mortgage rates effective Tuesday in the latest sign that the era of historically low rates could soon come to an end.


The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX:RY) and TD Canada Trust (TSX:TD). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets.

The biggest increase announced Monday affects five-year mortgages. Both banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

A homeowner taking on a mortgage of $250,000 at the new rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.

The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.

CIBC (TSX:CM) chief economist Avery Shenfeld said the central bank begins to step on the brake when it sees overheating in the economy, and economic growth in the first quarter has outperformed the central bank's forecast.

CIBC has lifted its own growth outlook for the first quarter of the year to over five per cent, due to strong indicators of recovery.

"The only reason the market is building in expectations for rate hikes is because it's seeing the economy as better able to withstand them," he said.

"Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."

Mortgage rates hikes are a trend consumers should expect to continue, Shenfeld added.

He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of the third quarter.

That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.

"Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.

"Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."

When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.

The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.

Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.

And he added that the outperformance of the economy in the first half of the year will be countered by a slowdown in the second half.

"Not only do we expect weaker growth in the key US export market by then, but Canadian consumers may also be more temperate in the wake of a debt financed binge."

Interest Rates maybe on the rise

RBC, TD hike mortgage rates
http://www.cbc.ca/money/story/2010/03/29/mortgage-rates-up.html
Other banks expected to follow suit
Last Updated: Monday, March 29, 2010 | 10:24 AM ET Comments44Recommend43
CBC News
Royal Bank and TD Canada Trust announced Monday they are increasing several mortgage rates by up to 6/10ths of a percentage point.
The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at both banks. That's the posted rate, which is routinely discounted by the big banks.
RBC's new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD's rises the same amount to 4.55 per cent.
Both banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.
The posted four-year rate at both banks jumps 4/10ths of a percentage point to 5.34 per cent.
Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October.
Variable mortgage rates, which rise in tandem with the Bank of Canada's key overnight lending rate, are unchanged. But they are likely to be heading up soon too.
Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June.
The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.
Fixed-rate mortgage rates tend to move higher when long-term bond yields rise.
A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this week.


Read more: http://www.cbc.ca/money/story/2010/03/29/mortgage-rates-up.html#ixzz0jZs0hdne

Days of Rock Bottom Interest Rates are Numbered

Days of rock-bottom interest rates are numbered
http://www.theglobeandmail.com/report-on-business/days-of-rock-bottom-interest-rates-are-numbered/article1506701/
Jeremy Torobin
Ottawa — From Saturday's Globe and Mail Published on Friday, Mar. 19, 2010 10:21PM EDT Last updated on Monday, Mar. 22, 2010 6:16AM EDT
The clock is ticking on Canada's record-low borrowing costs, as inflation continues to move at a faster rate than the central bank had expected.
The hot reading on inflation issued by Statistics Canada Friday is raising expectations that the Bank of Canada could lift interest rates as early as June.
Economists, meanwhile, rushed to boost their growth forecasts as the country's economic rebound gathers steam.
The inflation figures, along with a report that showed retailers are benefiting from higher prices, pushed the Canadian dollar well past 99 U.S. cents Friday morning, before it fell back to close at 98.39 U.S. cents.
Consumer prices climbed 1.6 per cent in February, a slower pace than the 1.9 per cent in the previous month, according to Statscan. But the core rate – which strips out volatile items such as fuel – rose to 2.1 per cent from 2 per cent.
The Bank of Canada is guided by the core rate. Policy makers hadn't expected the core rate to reach the central bank's 2-per-cent target until the third quarter of 2011.
That, coupled with an improving economy, means Bank of Canada Governor Mark Carney is likely to boost rock-bottom interest rates sooner rather than later, some economists say.
“We're progressively leaving the recovery phase,” said Yanick Desnoyers, assistant chief economist at National Bank Financial in Montreal. Policy makers “are going to change their tone on the economy in April, and they're going to move in June. The longer they wait, the more aggressive they'll have to be.”
Mounting speculation that the central bank will begin boosting interest rates before the U.S. Federal Reserve moves has helped push the loonie close to parity with the U.S. currency.
Canada is on course to become the first in the Group of Seven – which also includes the United States, Great Britain, France, Germany, Japan and Italy – to raise borrowing costs since the global crisis. The U.S., in contrast, shows no signs of hiking rates any time soon. U.S. consumer prices last month failed to increase for the first time in almost a year, and producer prices dropped.
In Asia, however, inflation is roaring back as growth accelerates. India's central bank surprised markets yesterday with a rate hike, calling a fight against inflation “imperative.” China, which the World Bank suggested this week should do more to keep a lid on a potential bubble in its property market, posted a 16-month high in its consumer price index last month.
Still, many economists said Canada's core inflation numbers were skewed because of hotels in Vancouver that charged exorbitant rates during the Winter Olympics. In one case, a hotel that normally marketed itself as a discount option was charging $1,200 a night for a suite that sleeps six people, a steep markup from the usual maximum of about $280.
But Mr. Desnoyers noted that, assuming the “Olympic effect” temporarily added 0.2 percentage point to core inflation, a reversal of that boost would still leave the rate above the Bank of Canada's 1.6 per cent projection for the first quarter.
“It's going to be very hard to meet the Bank of Canada's projected inflation path with the kind of numbers we've seen recently,” he said.
Retail sales, meanwhile, rose 0.7 per cent in January, Statscan said, largely because of a rush for home-improvement products before the federal government's Home Renovation Tax Credit expired. In volume terms, overall sales were up just 0.1 per cent, which means the gains were driven by higher prices.
Mr. Carney pledged last April to keep the benchmark rate at 0.25 per cent through the middle of this year, or longer depending on the inflation outlook. He will update his inflation and growth forecasts during the week of April 20.
Increasingly, economists say if he doesn't start tightening in June, then he'll likely hike rates the following month.
Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, said Mr. Carney may be getting an “itchy trigger finger” but will likely wait until July, having said in a March 11 speech that borrowing costs staying where they are until the end of June would be “appropriate.”
Nonetheless, Mr. Shenfeld said CIBC is now raising its first-quarter growth forecast to “roughly 5 per cent” from 4.1 per cent. Bank of Montreal deputy chief economist Douglas Porter said Friday that his firm has lifted its forecast to 4.7 per cent from 3.7 per cent, “and that may not be the final word.” If they're right, it would be the second straight three-month period with growth at or close to 5 per cent. That compares with the central bank's estimate of 3.3 per cent for the final three months of 2009, and its prediction of 3.5 per cent for January through March.
There is an outside chance Mr. Carney could use a speech in Ottawa on March 24 to lay the groundwork for a rate hike on April 20, but virtually all analysts say the earliest he could possibly tighten would be at a June 1 decision, and most maintain that he'll wait until his next opportunity on July 20.
Most economists say Canada's central bank will lift rates in increments of no more than 0.25 of a percentage point and may stop after a few moves to re-evaluate. That's how the Reserve Bank of Australia has proceeded since last fall, when it became the first major central bank to tighten as the dust started to settle on the crisis.
Scotia Capital's Derek Holt, who has said for weeks that Mr. Carney could start raising rates as early as next month, predicts “non-emergency, but low” rates for years.
With a report from Bloomberg News

Changes irk Real Estate Agents

Changes irk real estate agents

By JENNY YUEN, Toronto Sun

Last Updated: March 23, 2010 12:19am

TORONTO ­-- New changes to the Multiple Listing Service, a Canadian Real Estate Association system that allows home sellers to widely advertise their properties online, will cause great headaches to both buyers and sellers, said a Toronto real estate client co-ordinator.

The changes, which were adopted Monday by representatives of 300 real estate boards across Canada, make it possible for homeowners to pay a one-time fee to list a property on the MLS and have prospective buyers contact them directly by phone ‹ potentially saving money by cutting out the middleman.

"You can advertise on MLS but you still have to show the house and write the offer and do all that stuff," Neil Harris, previously a real estate agent with 10 years' experience in Mexico and Toronto, said Monday night.

"The lawyers will like it because they'll have a lot of lawsuits. People will learn very quickly that private sales is not the road to go." Harris used an example of a private seller unknowingly telling a buyer that they could build a second storey to the home when city bylaws wouldn't allow such construction.

"They don't know the legalities," Harris said.

Thomas Cook, a Re/MAX agent with 30 years of experience, said that the amendments are insulting to to agents.

"Imagine, you want to sell your car so you go to the local car dealer and say you want to sell your car on your lot and put a for sale sign on it and not pay anything for it. What do you think they'll say? No," he said.

"That's exactly what the Competition Bureau is saying here." North America has one of the smoothest real estate systems in the world because of MLS, Cook said.

"You go to Europe and there aren't any countries that have an MLS system and it's extremely chaotic," he said.

Housing Boom to Continue

Housing sales boom to continue: Scotiabank

23/03/2010 1:59:20 PM

CBC News
The prospect of rising interest rates will keep Canada's housing boom going this spring, a Scotiabank report predicted Tuesday.

The report predicted most regions of the country will remain sellers' markets for the first half of the year.

"I think you're going to have a very active spring market, probably some cooling off in the second half of the year," Adrienne Warren, the Scotiabank economist who wrote the report, said in a presentation Tuesday.

"We're looking at once in a lifetime interest rates that people are taking advantage of - but certainly confidence is coming back, the job markets are stabilizing," she said.

Scotiabank predicted 510,000 home sales this year, up 10 per cent from 2009, but just shy of the 2007 record. It expected the average price will increase by about eight per cent to a record $345,000.

Housing starts, Scotiabank expected, will reach 190,000, up from 149,000 last year.

Warren said the spring rush will also be helped by an influx of buyers hoping to avoid tighter lending rules for mortgages and the introduction of the harmonized sales tax in Ontario and B.C.

Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning in late spring or early summer to fight inflationary pressures in the economy.

With files from The Canadian Press

Home Sales Slow in Feb

Home sales slow in February

15/03/2010 11:05:52 AM Sympatico

The number of listings sold through the Multiple Listing Service Systems (MLS) dropped slightly in February, signaling a more balanced national resale housing market, says the CREA.

The Canadian Real Estate Association's (CREA) new statistics show a surge in home listings but a drop in sales of 1.5 per cent between January and February. Most of the buying activity centered in Toronto, while Vancouver's sales dropped the most sharply.

The seasonally-adjusted number of new listings in February rose 2.4 per cent over the previous month to 73,849 units - the highest number since October 2008.

"Activity is expected to remain elevated in Ontario and British Columbia over the first half of the year, with buyers looking to beat the introduction of the HST and expected interest rate hikes," said CREA president Dale Ripplinger, in a release.

The Harmonized Sales Tax, a 13 per cent sales tax, comes into effect in July in Ontario.

According to the CREA report, the average price of a home was $335,655 in February - up 18.2 per cent year-over-year.

According to new data released by the Royal Bank of Canada Monday, home affordability detoriorated considerably at the end of 2009, as home prices rose.

"The effect of higher prices was largely mitigated by a small decline in mortgage rates and continued gains in household income," Robert Hogue, a senior economist with RBC, said in a release.

The report predicts that the cost of home ownership will continue to increase due to a high demand for homes and a limited number of homes on the market.

"The anticipated and gradual rise in interest rates indicates that affordability is likely to gradually get worse as rates return to normal levels," said Hogue.