By Tony Wong - Thu Oct 28 2010
Ontario baby boomers are looking to move to smaller homes in retirement. But first they have to pay off the mortgage.
A poll by TD Canada Trust released Thursday says 86 per cent of boomers want a smaller home when they retire. However, even though they say it is important to pay off the mortgage before they retire, it turns out less than half, or 43 per cent have actually done so.
One quarter of those boomers have paid off less than 40 per cent of their mortgage, meaning they have a ways to go before thinking about retirement.
About half says moving to a smaller home will help them save money, while more than a third says the new home, although smaller, will have more luxurious features.
“Moving to a smaller home can allow you to free up assets to put towards your retirement savings or enjoy in other ways,” said Farhaneh Haque, regional sales manager for TD Canada Trust.
Baby boomers are the post war generation born between 1946 to 1964, with the first wave approaching their retirement years. But an uncertain economy and falling stock markets over the last several years have meant that some boomers have had to hold back retirement or refinance their homes to stay afloat.
For their next property, boomers aren’t all rushing to the condo market either.
More than half, or 61 per cent say they plan to buy detached. Condos came in second at 24 per cent.
Top reasons for a detached house is that boomers still want a back yard and garden and really hate paying condo fees.
Condos are popular because they require less maintenance and offer better security, and have amenities such as a gym or pool.
Meanwhile, another third of boomers are planning to buy a retirement property south of the border.
A quarter say “opportunities created by the depressed real estate market have sparked their interest,” according to the poll.
About ten per cent already own a vacation property, but another 12 per cent plan to buy on retirement.
Friday, October 29, 2010
Thursday, October 28, 2010
HOME RENOVATION INTENTIONS HIGH IN ONTARIO: RBC POLL
However vast majority anxious about managing household finances
TORONTO, Oct. 27 /CNW/
A majority of Ontarians (61 per cent) intend to undertake home renovations within the next two years, a slight drop from 2009 (down six per cent) but consistent with the national average (62 per cent), according to the 2010 RBC Home Renovation Survey.
While renovation planning remains popular in the province, balancing the household budget is a significant concern for Ontario homeowners with 80 per cent noting they are experiencing anxiety over their financial situation.
"Our research consistently indicates that Canadians are focusing on managing their finances and paying down debt, but they are clearly still intent on investing in their homes," said Doug Crowe, vice-president, Mortgages, Greater Toronto Area, RBC. "Renovations don't have to break the household budget if you get the right advice before diving into home improvement projects. A financial advisor can help you successfully balance your finances while also investing in what is often your largest asset - your home."
Many Ontarians believe that staying within a set budget is easier said than done according to the RBC survey. While 68 per cent of homeowners had budgets in mind when completing renovations over the past two years, 51 per cent overspent and of those who exceeded their budgets, one-third (35 per cent) did so by between 11 and 20 per cent. The biggest renovation mistake identified by Ontario homeowners is "going over budget" (29 per cent), followed by "using the wrong contractor or tradespeople" (18 percent) and "doing the job myself" (13 per cent).
Nevertheless, the majority of Ontario homeowners are now "reno debt" free with 60 per cent saying that they have already paid off the costs associated with renovations completed in the past two years.
Ontarians also indicate they are settled in their homes with almost half (44 per cent) saying they have lived in the same home for more than 10 years and 40 per cent expect to remain in their current homes for more than the next 10 years. Of all the province's homeowners, a solid majority (60 per cent) responded that they would rather renovate rather than sell and move if their home required major renovations and they had a choice.
2010 RBC Home Renovation Survey - Regional comparisons at-a-glance
Regional Reno. Intentions next 2 yrs. Completed since 2008
BC 55% 59%
Alberta 58% 61%
Sask. / Man. 67% 75%
Ontario 61% 68%
Quebec 65% 66%
Atlantic Canada 63% 72%
National 62% 66%
Biggest mistake BC AB SK/MB ON QB AC National
Going over budget 31% 25% 25% 29% 28% 24% 28%
Using the wrong
Contractor etc. 17% 16% 17% 18% 11% 14% 15%
Doing job myself 14% 12% 15% 13% 10% 16% 10%
Overspend BC AB SK/MB ON QB AC National
1-10% 30% 23% 28% 22% 23% 28% 24%
11-20% 28% 37% 39% 35% 36% 38% 35%
21-30% 16% 16% 16% 21% 21% 20% 19%
Current home BC AB SK/MB ON QB AC National
Lived in more than 10 yrs 42% 41% 45% 44% 50% 50% 45%
Expecting to remain in
more than 10 years 36% 37% 51% 40% 58% 58% 46%
Home over 25 years old 49% 48% 70% 56% 63% 68% 58%
Reno if needed major
renovations, rather than sell
and move, if had a choice 57% 51% 64% 60% 73% 68% 63%
These are some of the findings of an RBC poll conducted by Ipsos Reid between September 17 -22, 2010. The online survey is based on a randomly selected representative sample of 3,565 adult Canadian homeowners including 1,365 Ontario residents. The results are based on a sample where quota sampling and weighting are employed to balance demographics and ensure that the sample's composition reflects that of the actual population according to Census data. Quota samples with weighting from the Ipsos online panel provide results that are intended to approximate a probability sample. An unweighted probability sample of 1,365 Ontario respondents, with 100 per cent response rate, would have an estimated margin of error of ±5 per cent, 19 times out of 20.
TORONTO, Oct. 27 /CNW/
A majority of Ontarians (61 per cent) intend to undertake home renovations within the next two years, a slight drop from 2009 (down six per cent) but consistent with the national average (62 per cent), according to the 2010 RBC Home Renovation Survey.
While renovation planning remains popular in the province, balancing the household budget is a significant concern for Ontario homeowners with 80 per cent noting they are experiencing anxiety over their financial situation.
"Our research consistently indicates that Canadians are focusing on managing their finances and paying down debt, but they are clearly still intent on investing in their homes," said Doug Crowe, vice-president, Mortgages, Greater Toronto Area, RBC. "Renovations don't have to break the household budget if you get the right advice before diving into home improvement projects. A financial advisor can help you successfully balance your finances while also investing in what is often your largest asset - your home."
Many Ontarians believe that staying within a set budget is easier said than done according to the RBC survey. While 68 per cent of homeowners had budgets in mind when completing renovations over the past two years, 51 per cent overspent and of those who exceeded their budgets, one-third (35 per cent) did so by between 11 and 20 per cent. The biggest renovation mistake identified by Ontario homeowners is "going over budget" (29 per cent), followed by "using the wrong contractor or tradespeople" (18 percent) and "doing the job myself" (13 per cent).
Nevertheless, the majority of Ontario homeowners are now "reno debt" free with 60 per cent saying that they have already paid off the costs associated with renovations completed in the past two years.
Ontarians also indicate they are settled in their homes with almost half (44 per cent) saying they have lived in the same home for more than 10 years and 40 per cent expect to remain in their current homes for more than the next 10 years. Of all the province's homeowners, a solid majority (60 per cent) responded that they would rather renovate rather than sell and move if their home required major renovations and they had a choice.
2010 RBC Home Renovation Survey - Regional comparisons at-a-glance
Regional Reno. Intentions next 2 yrs. Completed since 2008
BC 55% 59%
Alberta 58% 61%
Sask. / Man. 67% 75%
Ontario 61% 68%
Quebec 65% 66%
Atlantic Canada 63% 72%
National 62% 66%
Biggest mistake BC AB SK/MB ON QB AC National
Going over budget 31% 25% 25% 29% 28% 24% 28%
Using the wrong
Contractor etc. 17% 16% 17% 18% 11% 14% 15%
Doing job myself 14% 12% 15% 13% 10% 16% 10%
Overspend BC AB SK/MB ON QB AC National
1-10% 30% 23% 28% 22% 23% 28% 24%
11-20% 28% 37% 39% 35% 36% 38% 35%
21-30% 16% 16% 16% 21% 21% 20% 19%
Current home BC AB SK/MB ON QB AC National
Lived in more than 10 yrs 42% 41% 45% 44% 50% 50% 45%
Expecting to remain in
more than 10 years 36% 37% 51% 40% 58% 58% 46%
Home over 25 years old 49% 48% 70% 56% 63% 68% 58%
Reno if needed major
renovations, rather than sell
and move, if had a choice 57% 51% 64% 60% 73% 68% 63%
These are some of the findings of an RBC poll conducted by Ipsos Reid between September 17 -22, 2010. The online survey is based on a randomly selected representative sample of 3,565 adult Canadian homeowners including 1,365 Ontario residents. The results are based on a sample where quota sampling and weighting are employed to balance demographics and ensure that the sample's composition reflects that of the actual population according to Census data. Quota samples with weighting from the Ipsos online panel provide results that are intended to approximate a probability sample. An unweighted probability sample of 1,365 Ontario respondents, with 100 per cent response rate, would have an estimated margin of error of ±5 per cent, 19 times out of 20.
Monday, October 25, 2010
Inflation rate rises to 1.9 per cent in September
CTV.ca News Staff - Date: Fri. Oct. 22 2010 7:52 AM ET
Canada's annual inflation rate rose two-tenths of a point to 1.9 per cent last month, driven largely by the cost of energy and new cars.
The rate increase follows an inflation drop in August and had been generally expected, because of the recent run-up in oil prices.
Statistics Canada said much of the gain came from energy prices, which were 5.6 per cent higher than a year earlier. Gasoline was 3.1 per cent more expensive, and electricity was up 7.7 per cent from a year earlier.
The agency said it also noticed a big pick-up in the price of passenger vehicles during the month -- 5.0 per cent -- as manufacturers shaved the level of incentives they were offering consumers.
The core inflation rate, which excludes eight volatile items, actually slowed to 1.5 per cent from 1.6 per cent. The core inflation is what the Bank of Canada closely monitors to spot underlying trends.
On an annual basis, prices rose in seven of the eight component groups that Statistics Canada measures.
Homeowner replacement costs rose 5.6 per cent; transportation was up 3.1 per cent; shelter costs advanced 2.5 per cent; and food costs rose 2.1 per cent.
Prices also rose on cigarettes 4.6 per cent, alcoholic beverage prices rose 2.4 per cent and tuition rose 3.8 per cent.
Canada's annual inflation rate rose two-tenths of a point to 1.9 per cent last month, driven largely by the cost of energy and new cars.
The rate increase follows an inflation drop in August and had been generally expected, because of the recent run-up in oil prices.
Statistics Canada said much of the gain came from energy prices, which were 5.6 per cent higher than a year earlier. Gasoline was 3.1 per cent more expensive, and electricity was up 7.7 per cent from a year earlier.
The agency said it also noticed a big pick-up in the price of passenger vehicles during the month -- 5.0 per cent -- as manufacturers shaved the level of incentives they were offering consumers.
The core inflation rate, which excludes eight volatile items, actually slowed to 1.5 per cent from 1.6 per cent. The core inflation is what the Bank of Canada closely monitors to spot underlying trends.
On an annual basis, prices rose in seven of the eight component groups that Statistics Canada measures.
Homeowner replacement costs rose 5.6 per cent; transportation was up 3.1 per cent; shelter costs advanced 2.5 per cent; and food costs rose 2.1 per cent.
Prices also rose on cigarettes 4.6 per cent, alcoholic beverage prices rose 2.4 per cent and tuition rose 3.8 per cent.
Thursday, October 21, 2010
Canada had a miserable quarter, Bank of Canada says
Julian Beltrame, The Canadian Press
OTTAWA—The Canadian economy likely suffered the worst quarter since the recession during the summer months, and still faces risks ranging from a global currency war to a collapse in the housing market, the Bank of Canada said Wednesday.
The bank’s latest quarterly outlook estimates the Canadian economy advanced a snails-pace 1.6 per cent during the third quarter, following gains of two per cent in the second quarter and 5.8 per cent in the first quarter.
That’s even slower than the troubled United States, which likely advanced by 2.3 per cent in the July-September months.
On Tuesday, the bank downgraded growth expectations for Canada and the U.S. for this year and next, while freezing short-term interest rates.
But the latest monetary policy review shows the diminishing of expectations are more dramatic for Canada, partly because the bank once held a more rosy view of how the country’s economy was performing.
Growth in Canada is now estimated at three per cent this year as a whole, thanks to the fast start in the first half, and a tepid 2.3 per cent next year.
The reasons, says the bank, are both external and internal. The global recovery has not gone as smoothly as expected, the U.S. housing sector has yet to recover, and Canada’s domestic demand has slowed faster than thought.
As well, the bank said it misjudged how quickly the country’s output gap — the slack in the economy — was closing. The gap is believed to be 1.75 per cent, not 1.5 per cent, as estimated in the previous review in July.
But that is all in the past. It’s the risks for the recovery going forward that is most alarming in the bank’s new outlook.
The latest outlook appears to take a dimmer view of the growing friction between advanced nations and key emerging economies, particularly China, over what some have dubbed a currency war.
“Sustaining the global recovery will require a greater rotation of demand, supported by increased flexibility in exchange rates,” it says. “At present, these adjustments are coming through divergent inflation pressures rather than currency movements, which could result in a more protracted and difficult recovery.”
Reading between the lines, the bank is warning that for the global recovery to become sustained, China and other fast-growing Asian economies need to allow their currencies to appreciate sharply. That will increase consumption inside those nations, and decrease the dumping of cheap goods into advanced economies like the United States.
Although China has made some moves in this direction, advanced economies believe those actions have not gone far enough, and some have taken measures to deflate their currencies so as to protect their export sector.
The issue is expected to come to a head at this week’s G20 meeting of finance ministers in Korea.
Analysts say the expectation that the U.S. is about to join the game of undercutting its currency has contributed to the loonie’s recent run at parity, which manufacturers say is damaging sales both at home and abroad.
The bank also sees dangerous distortions building in the Canadian economy, particularly as a result of the strong housing market that has contributed to the highest domestic debt burdens in history. Latest data shows debt-to-disposable income among households has reached 147 per cent.
Home prices have been stable or increased in most markets but sales activity has come off its peak, and a sudden deterioration in the price of homes could deliver a blow to household wealth and confidence.
“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” the bank states.
But the bank points that it does not believe these risks will occur with sufficient ferocity to derail the recovery.
It notes that interest rates remain at historically low levels, backstopping housing, and the business investment is picking up, which should lead to productivity improvements going forward.
Its best guess now, is that the economy in Canada will eventually right itself, but it will be a protracted process that will take another two years.
OTTAWA—The Canadian economy likely suffered the worst quarter since the recession during the summer months, and still faces risks ranging from a global currency war to a collapse in the housing market, the Bank of Canada said Wednesday.
The bank’s latest quarterly outlook estimates the Canadian economy advanced a snails-pace 1.6 per cent during the third quarter, following gains of two per cent in the second quarter and 5.8 per cent in the first quarter.
That’s even slower than the troubled United States, which likely advanced by 2.3 per cent in the July-September months.
On Tuesday, the bank downgraded growth expectations for Canada and the U.S. for this year and next, while freezing short-term interest rates.
But the latest monetary policy review shows the diminishing of expectations are more dramatic for Canada, partly because the bank once held a more rosy view of how the country’s economy was performing.
Growth in Canada is now estimated at three per cent this year as a whole, thanks to the fast start in the first half, and a tepid 2.3 per cent next year.
The reasons, says the bank, are both external and internal. The global recovery has not gone as smoothly as expected, the U.S. housing sector has yet to recover, and Canada’s domestic demand has slowed faster than thought.
As well, the bank said it misjudged how quickly the country’s output gap — the slack in the economy — was closing. The gap is believed to be 1.75 per cent, not 1.5 per cent, as estimated in the previous review in July.
But that is all in the past. It’s the risks for the recovery going forward that is most alarming in the bank’s new outlook.
The latest outlook appears to take a dimmer view of the growing friction between advanced nations and key emerging economies, particularly China, over what some have dubbed a currency war.
“Sustaining the global recovery will require a greater rotation of demand, supported by increased flexibility in exchange rates,” it says. “At present, these adjustments are coming through divergent inflation pressures rather than currency movements, which could result in a more protracted and difficult recovery.”
Reading between the lines, the bank is warning that for the global recovery to become sustained, China and other fast-growing Asian economies need to allow their currencies to appreciate sharply. That will increase consumption inside those nations, and decrease the dumping of cheap goods into advanced economies like the United States.
Although China has made some moves in this direction, advanced economies believe those actions have not gone far enough, and some have taken measures to deflate their currencies so as to protect their export sector.
The issue is expected to come to a head at this week’s G20 meeting of finance ministers in Korea.
Analysts say the expectation that the U.S. is about to join the game of undercutting its currency has contributed to the loonie’s recent run at parity, which manufacturers say is damaging sales both at home and abroad.
The bank also sees dangerous distortions building in the Canadian economy, particularly as a result of the strong housing market that has contributed to the highest domestic debt burdens in history. Latest data shows debt-to-disposable income among households has reached 147 per cent.
Home prices have been stable or increased in most markets but sales activity has come off its peak, and a sudden deterioration in the price of homes could deliver a blow to household wealth and confidence.
“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” the bank states.
But the bank points that it does not believe these risks will occur with sufficient ferocity to derail the recovery.
It notes that interest rates remain at historically low levels, backstopping housing, and the business investment is picking up, which should lead to productivity improvements going forward.
Its best guess now, is that the economy in Canada will eventually right itself, but it will be a protracted process that will take another two years.
Wednesday, October 20, 2010
Economy too fragile for rate hike, bank says
By Madhavi Acharya-Tom Yew, Tue Oct 19 2010
The Bank of Canada sees slower growth on the horizon and has no plans to raise interest rates in the short term.
The central bank left its trend-setting policy rate at one per cent today, which means that consumers will not be paying more for car loans and credit.
Canada’s economy will likely grow by only 3 per cent this year, the bank said, mostly due to a strong start in the first three months of 2010. That’s down from the 3.5 per cent projection it made in July.
It forecast growth of 2.3 per cent for 2011, down from 2.9 per cent.
“This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending,” the bank said.
Bank of Canada governor Mark Carney has the difficult task of balancing a fragile economic recovery with mounting household consumer debt. Economists worry that prolonging lower interest rates could prompt even more borrowing.
The recovery in the U.S. will also be weaker than initially projected, while growth in emerging market economies will also slow to a more sustainable pace.
“Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery,” the bank said.
Inflation in Canada has been slightly below the Bank’s July projection.
The bank also revised its language about when to expect future rate hikes, a signal it may stay put for some time.
“The message is in line with our thinking that the Bank of Canada is now on pause until the middle of next year,” CIBC World Markets economist Krishen Rangasamy wrote in a research note.
The Bank of Canada sees slower growth on the horizon and has no plans to raise interest rates in the short term.
The central bank left its trend-setting policy rate at one per cent today, which means that consumers will not be paying more for car loans and credit.
Canada’s economy will likely grow by only 3 per cent this year, the bank said, mostly due to a strong start in the first three months of 2010. That’s down from the 3.5 per cent projection it made in July.
It forecast growth of 2.3 per cent for 2011, down from 2.9 per cent.
“This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending,” the bank said.
Bank of Canada governor Mark Carney has the difficult task of balancing a fragile economic recovery with mounting household consumer debt. Economists worry that prolonging lower interest rates could prompt even more borrowing.
The recovery in the U.S. will also be weaker than initially projected, while growth in emerging market economies will also slow to a more sustainable pace.
“Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery,” the bank said.
Inflation in Canada has been slightly below the Bank’s July projection.
The bank also revised its language about when to expect future rate hikes, a signal it may stay put for some time.
“The message is in line with our thinking that the Bank of Canada is now on pause until the middle of next year,” CIBC World Markets economist Krishen Rangasamy wrote in a research note.
Tuesday, October 19, 2010
Bank of Canada holds interest rate at 1 per cent
As expected, the Bank of Canada has held its key interest rate at one per cent, after three straight hikes.
The central bank, led by governor Mark Carney, said the economy has weakened since the bank's last forecast in July.
"The economic outlook for Canada has changed," the bank's senior officials wrote in a statement.
"At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered."
The economic recovery has not been as strong as thought, with next year's growth estimated to be at 2.3 per cent, down from its earlier estimate of 2.9 per cent.
"This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending," the bank said.
Canada's economy will likely grow by three per cent this year, mostly due to a hot start.
The policy rate, which influences short-term interest rates offered by banks and other lending institutions, has been raised three times since June to the current level.
With the Canadian dollar surging, the domestic economy slowing and global uncertainty still lingering, most economists expect Carney to keep the interest rate as is for the rest of the year.
BNN's Michael Kane said economists are concerned that lost in all the dour news is the fact that the economy is growing.
"We have been out of a recession for well over a year but a lot of bad news . . . frightens people," Kane told CTV News Channel. "And when people see (the bad news) they think the economy might go into recession again.
"A three per cent growth rate, after what we've been through, is not bad for 2010."
The central bank said it will be a year longer than it previously estimated for the Canadian economy to return to full capacity. That won't until the end of 2012, the bank says.
The central bank, led by governor Mark Carney, said the economy has weakened since the bank's last forecast in July.
"The economic outlook for Canada has changed," the bank's senior officials wrote in a statement.
"At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered."
The economic recovery has not been as strong as thought, with next year's growth estimated to be at 2.3 per cent, down from its earlier estimate of 2.9 per cent.
"This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending," the bank said.
Canada's economy will likely grow by three per cent this year, mostly due to a hot start.
The policy rate, which influences short-term interest rates offered by banks and other lending institutions, has been raised three times since June to the current level.
With the Canadian dollar surging, the domestic economy slowing and global uncertainty still lingering, most economists expect Carney to keep the interest rate as is for the rest of the year.
BNN's Michael Kane said economists are concerned that lost in all the dour news is the fact that the economy is growing.
"We have been out of a recession for well over a year but a lot of bad news . . . frightens people," Kane told CTV News Channel. "And when people see (the bad news) they think the economy might go into recession again.
"A three per cent growth rate, after what we've been through, is not bad for 2010."
The central bank said it will be a year longer than it previously estimated for the Canadian economy to return to full capacity. That won't until the end of 2012, the bank says.
Monday, October 18, 2010
Mark Carney's rate-hike quandary: To pause or not to pause
Jeremy Torobin, Ottawa — From Monday's Globe and Mail, Last updated Monday, Oct. 18, 2010 8:10AM EDT
Mark Carney must feel like a parent trying to instill wise spending habits in a carefree kid heading off to university: all he can do is give his best advice and hope it sinks in.
That’s a rough approximation of the tricky position the Bank of Canada governor finds himself in as he prepares to release his latest interest-rate decision on Tuesday.
The central banker is widely expected to suspend his tightening campaign after three straight increases, holding the benchmark overnight rate at a still-very low 1 per cent. On Wednesday, he’ll follow that up by producing a revised outlook for the Canadian economy, spelling out his analysis of why he (in all likelihood) believes there are too many unknowns right now to make a move.
The new figures, some of which will be in his Tuesday statement on rates, will include Mr. Carney’s latest thinking on when the recession-era slack in the economy will finally be gone. If the governor says that excess capacity is going to linger into 2012, that would confirm what financial markets are already predicting: that the cost of borrowing could stay put for several months.
But a prolonged period without rate hikes also creates a problem: it could lure households that shouldn’t borrow more into going deeper into debt.
Mr. Carney last month sharpened his warnings against using supercheap credit to pile up debt that won’t be affordable as rates return to more normal levels, using a speech and press conference in Windsor, Ont., to highlight that debt in Canada is at a record 146 per cent of disposable income and households, on average, have spent more than they’re worth for the past nine years.
He also lamented that an already slower economy could stay weak as some borrowers pull back. That would make it that much harder to raise rates, even as policy makers fret that as long as rates are low, the most overstretched Canadians may not get that they should scale back too.
"He’s making a valiant effort at conveying a very complex message,’’ said Chris Ragan, a McGill University professor who is leading the C.D. Howe Institute's research on monetary policy. ``He’s right to be giving both sides of the story: There are people out there for whom interest-rate increases will be a problem because they’ve got too much debt; at the same time there are others who are being excessively prudent, shall we say, and what they’d like is for them to go out and borrow more to keep the economy going.’’
Mr. Ragan, in fact, was in the hike camp late last week when C.D. Howe’s Monetary Policy Council voted 5-4 in favour of recommending a fourth straight increase, arguing there is still too much stimulus in the economy, regardless of the sharp slowdown of the past few months and the sputtering recovery in Canada’s main export market.
But most analysts say a pause, and possibly a long one, is in the cards.
After all, the economy shrank in July for the first time in almost a year and had a net job loss in September, and the most recent inflation readings came in well back of the central bank’s 2-per-cent target.
Perhaps the biggest driver of a pause is the mounting evidence that the U.S. Federal Reserve will act to boost the flagging U.S. economy, taking steps that would keep the American dollar down and send investors who want higher yields to currencies like the loonie.
A stronger Canadian currency brings advantages, like helping companies buy state-of-the-art foreign machinery that will boost their productivity. Still, should the loonie gain too much against the greenback too quickly, it could pour more cold water on the economy, especially the manufacturing sector. Already, Mr. Carney has said his new growth outlook for the second half of 2010 will be lower than his July forecast.
Overseas investors are attracted to the loonie in part because Canadian rates are higher than in the U.S., where the Fed’s main rate is still close to zero. As Mr. Carney said last month, there are limits to how much the two rates can diverge. So until the Fed’s ``quantitative easing’’ plans and their effects become clearer, the prospect of them constitutes another big question mark in what Mr. Carney has repeatedly called an unusually uncertain environment.
``When you don’t know, you don’t take chances,’’ said Benjamin Tal, deputy chief economist at CIBC World Markets. ``Given the uncertainty, they could give us a very good hint that they’re not going to move for a while.’’
However, should the central bank give such a signal, `Mark Carney: Financial Adviser’ will likely make another appearance this week too, reinforcing that as soon as conditions warrant, he will start hiking interest rates again.
Mark Carney must feel like a parent trying to instill wise spending habits in a carefree kid heading off to university: all he can do is give his best advice and hope it sinks in.
That’s a rough approximation of the tricky position the Bank of Canada governor finds himself in as he prepares to release his latest interest-rate decision on Tuesday.
The central banker is widely expected to suspend his tightening campaign after three straight increases, holding the benchmark overnight rate at a still-very low 1 per cent. On Wednesday, he’ll follow that up by producing a revised outlook for the Canadian economy, spelling out his analysis of why he (in all likelihood) believes there are too many unknowns right now to make a move.
The new figures, some of which will be in his Tuesday statement on rates, will include Mr. Carney’s latest thinking on when the recession-era slack in the economy will finally be gone. If the governor says that excess capacity is going to linger into 2012, that would confirm what financial markets are already predicting: that the cost of borrowing could stay put for several months.
But a prolonged period without rate hikes also creates a problem: it could lure households that shouldn’t borrow more into going deeper into debt.
Mr. Carney last month sharpened his warnings against using supercheap credit to pile up debt that won’t be affordable as rates return to more normal levels, using a speech and press conference in Windsor, Ont., to highlight that debt in Canada is at a record 146 per cent of disposable income and households, on average, have spent more than they’re worth for the past nine years.
He also lamented that an already slower economy could stay weak as some borrowers pull back. That would make it that much harder to raise rates, even as policy makers fret that as long as rates are low, the most overstretched Canadians may not get that they should scale back too.
"He’s making a valiant effort at conveying a very complex message,’’ said Chris Ragan, a McGill University professor who is leading the C.D. Howe Institute's research on monetary policy. ``He’s right to be giving both sides of the story: There are people out there for whom interest-rate increases will be a problem because they’ve got too much debt; at the same time there are others who are being excessively prudent, shall we say, and what they’d like is for them to go out and borrow more to keep the economy going.’’
Mr. Ragan, in fact, was in the hike camp late last week when C.D. Howe’s Monetary Policy Council voted 5-4 in favour of recommending a fourth straight increase, arguing there is still too much stimulus in the economy, regardless of the sharp slowdown of the past few months and the sputtering recovery in Canada’s main export market.
But most analysts say a pause, and possibly a long one, is in the cards.
After all, the economy shrank in July for the first time in almost a year and had a net job loss in September, and the most recent inflation readings came in well back of the central bank’s 2-per-cent target.
Perhaps the biggest driver of a pause is the mounting evidence that the U.S. Federal Reserve will act to boost the flagging U.S. economy, taking steps that would keep the American dollar down and send investors who want higher yields to currencies like the loonie.
A stronger Canadian currency brings advantages, like helping companies buy state-of-the-art foreign machinery that will boost their productivity. Still, should the loonie gain too much against the greenback too quickly, it could pour more cold water on the economy, especially the manufacturing sector. Already, Mr. Carney has said his new growth outlook for the second half of 2010 will be lower than his July forecast.
Overseas investors are attracted to the loonie in part because Canadian rates are higher than in the U.S., where the Fed’s main rate is still close to zero. As Mr. Carney said last month, there are limits to how much the two rates can diverge. So until the Fed’s ``quantitative easing’’ plans and their effects become clearer, the prospect of them constitutes another big question mark in what Mr. Carney has repeatedly called an unusually uncertain environment.
``When you don’t know, you don’t take chances,’’ said Benjamin Tal, deputy chief economist at CIBC World Markets. ``Given the uncertainty, they could give us a very good hint that they’re not going to move for a while.’’
However, should the central bank give such a signal, `Mark Carney: Financial Adviser’ will likely make another appearance this week too, reinforcing that as soon as conditions warrant, he will start hiking interest rates again.
Tuesday, October 12, 2010
Preparing for mortgage rates to change
By James Daw, Personal Finance Columnist, Toronto Star
Mortgage interest rates are still low, but they could edge higher over the next year. Here are key things you should know to save money and avoid disappointment.
1. Variable rates beat fixed rates. The cheapest choice for a mortgage will usually have a variable interest rate. You can sleep easily when rates are stable or falling. We found a 2.15 per cent variable rate with a five-year contract at ResMor Trust last week. Meanwhile, Meridian Credit Union was charging 3.58 per cent for a five-year term. Mortgage broker Invis advertised 5.19 per cent for a 10-year term. The monthly payments for a $200,000 loan spread over 25 years would range from $861 a month to $1,007 at those rates. If you were charged the lowest rate but paid the higher monthly amount, you could be debt-free in 17 years, assuming rates would never change. You could be debt-free sooner if you increased payments when you got a raise.
2. Be ready for rates to rise. Things do not look promising for the world economy just yet. So wages and prices are expected to rise gradually for months, maybe even years. That could keep rates relatively low in Canada, but maybe not as so low as today. If economists at the Toronto Dominion Bank are right about the general direction of rates, variable mortgage rates could be 3.15 per cent or higher by late 2011. Five-year rates could be 4.38 per cent or higher, with more increases to follow. Soon, today’s five-year rates could be cheaper than variable rates.
3. Variable may not feel cheaper. To qualify for a variable rate mortgage, you will have to demonstrate that you can afford a five-year rate. That protects the lender and you. By paying a low rate and higher monthly amount, you will reduce your debt quicker and increase your flexibility if rates do rise.
4. Choose your mortgage carefully. Let’s say you want to ride the variable rate for awhile, and lock in later. Make sure you know the terms of your mortgage. Not all of them have the same privileges to make extra payments, switch from a variable rate to a fixed rate, from a fixed rate to variable rate or to a cheaper fixed rate. Any mortgage that’s completely flexible or open will likely to have a higher interest rate from the start. Otherwise the extra cost will be charged when you make a change, either through a one-time fee or over time through a higher interest rate. Contracts are not all the same. Mortgage broker Byron Dailey of MortgageTech Corp. in Orillia notes that National Bank of Canada now has a variable-rate mortgage that’s convertible to a five-year term at a lower rate than the bank now charges for a five-year term. “You should understand completely what priviledges and penalties you will have,” he says. “Get it in writing how each will be calculated. If the lender won’t tell your, go somewhere else.”
5. The cost of switching lenders. There will be legal costs to register a new mortgage and possibly the costs of an appraisal for a new home. But many lenders may absorb those costs to get your business, so ask. Tell your lender you are thinking of moving to get a lower interest rate. You may be offered a matching deal.
6. The cost of being unconventional. If you cannot pay at least a fifth of the cost of a home from your own (or family) resources, you’re normal. But you’re mortgage will be high-ratio, not conventional, and you will need loan default insurance. Premiums will vary by the size of downpayment, proof of income and your credit score. Gary Siegle of mortgage broker Invis in Calgary says additional premiums will not be charged if you merely switch lenders to get a better interest rate. But check on the potential extra cost if you buy a different home, or negotiate a new mortgage with a longer payment period (or amortization) to reduce your payments.
7. Will your other insurance come with you? Insurance to pay your mortgage on death can also have different rules. A creditor policy from a bank is owned by the bank, and not portable to another lender. But Siegle says many brokers have group policies that are portable. An individual policy from a life insurer will be portable. You can name your spouse or estate as the beneficiary and the death benefit will not decline and disappear as you repay the mortgage, Dailey notes.
8. A mortgage broker can help. Moneyville.ca and other websites have rate comparisons and mortgage calculators. But a knowledgeable broker can help you find the combination of rate and flexibility you want. The new lender will pay him or her. Most provinces require mortgage brokers or agents to be licensed. To check someone in Ontario, call or visit the website of the Financial Services Commission of Ontario.
Mortgage interest rates are still low, but they could edge higher over the next year. Here are key things you should know to save money and avoid disappointment.
1. Variable rates beat fixed rates. The cheapest choice for a mortgage will usually have a variable interest rate. You can sleep easily when rates are stable or falling. We found a 2.15 per cent variable rate with a five-year contract at ResMor Trust last week. Meanwhile, Meridian Credit Union was charging 3.58 per cent for a five-year term. Mortgage broker Invis advertised 5.19 per cent for a 10-year term. The monthly payments for a $200,000 loan spread over 25 years would range from $861 a month to $1,007 at those rates. If you were charged the lowest rate but paid the higher monthly amount, you could be debt-free in 17 years, assuming rates would never change. You could be debt-free sooner if you increased payments when you got a raise.
2. Be ready for rates to rise. Things do not look promising for the world economy just yet. So wages and prices are expected to rise gradually for months, maybe even years. That could keep rates relatively low in Canada, but maybe not as so low as today. If economists at the Toronto Dominion Bank are right about the general direction of rates, variable mortgage rates could be 3.15 per cent or higher by late 2011. Five-year rates could be 4.38 per cent or higher, with more increases to follow. Soon, today’s five-year rates could be cheaper than variable rates.
3. Variable may not feel cheaper. To qualify for a variable rate mortgage, you will have to demonstrate that you can afford a five-year rate. That protects the lender and you. By paying a low rate and higher monthly amount, you will reduce your debt quicker and increase your flexibility if rates do rise.
4. Choose your mortgage carefully. Let’s say you want to ride the variable rate for awhile, and lock in later. Make sure you know the terms of your mortgage. Not all of them have the same privileges to make extra payments, switch from a variable rate to a fixed rate, from a fixed rate to variable rate or to a cheaper fixed rate. Any mortgage that’s completely flexible or open will likely to have a higher interest rate from the start. Otherwise the extra cost will be charged when you make a change, either through a one-time fee or over time through a higher interest rate. Contracts are not all the same. Mortgage broker Byron Dailey of MortgageTech Corp. in Orillia notes that National Bank of Canada now has a variable-rate mortgage that’s convertible to a five-year term at a lower rate than the bank now charges for a five-year term. “You should understand completely what priviledges and penalties you will have,” he says. “Get it in writing how each will be calculated. If the lender won’t tell your, go somewhere else.”
5. The cost of switching lenders. There will be legal costs to register a new mortgage and possibly the costs of an appraisal for a new home. But many lenders may absorb those costs to get your business, so ask. Tell your lender you are thinking of moving to get a lower interest rate. You may be offered a matching deal.
6. The cost of being unconventional. If you cannot pay at least a fifth of the cost of a home from your own (or family) resources, you’re normal. But you’re mortgage will be high-ratio, not conventional, and you will need loan default insurance. Premiums will vary by the size of downpayment, proof of income and your credit score. Gary Siegle of mortgage broker Invis in Calgary says additional premiums will not be charged if you merely switch lenders to get a better interest rate. But check on the potential extra cost if you buy a different home, or negotiate a new mortgage with a longer payment period (or amortization) to reduce your payments.
7. Will your other insurance come with you? Insurance to pay your mortgage on death can also have different rules. A creditor policy from a bank is owned by the bank, and not portable to another lender. But Siegle says many brokers have group policies that are portable. An individual policy from a life insurer will be portable. You can name your spouse or estate as the beneficiary and the death benefit will not decline and disappear as you repay the mortgage, Dailey notes.
8. A mortgage broker can help. Moneyville.ca and other websites have rate comparisons and mortgage calculators. But a knowledgeable broker can help you find the combination of rate and flexibility you want. The new lender will pay him or her. Most provinces require mortgage brokers or agents to be licensed. To check someone in Ontario, call or visit the website of the Financial Services Commission of Ontario.
Friday, October 1, 2010
Mortgages: You can take them or leave them
Garry Marr, Financial Post
It’s hard to imagine, but there was a time when the mortgage on your home was something a buyer wanted to take off your hands.
But who can remember the 1980s and double-digit inflation, when a single-digit mortgage rate was gold? I was just a teenager then and the mortgage was my father’s problem.
But could a rising rate environment, if that actually happens, make the mortgages we are locking into today valuable in the future?
A survey released by Toronto-Dominion Bank this past week found 60% of repeat home buyers don’t know they have options when it comes to their current mortgage.
“Rates today could become attractive two years from now,” says Farhaneh Haque, regional sales manager of mobile mortgage specialist with TD Canada Trust.
The same survey found only 33% of repeat buyers bring their current mortgage with them to their new home and just 8% use it as selling feature of the home they are leaving, allowing the new owner to assume their mortgage.
“A mortgage assumption means we have to qualify the new buyers. The cost is minimal, but it is a full qualification of the new buyers,” says Ms. Haque, acknowledging in the current market there are very few assumptions.
“With rates having declined, no buyer is going to pay 6% when they could get 4% in the market.”
Don Lawby, chief executive of Century 21 Canada, has been in the business long enough to remember a time when if you had a low mortgage rate on your home, it became a major selling feature and worth more money. A car worth $35,000, for example, is much more attractive with 0% financing.
“It would have a lot of value on it. It depended on what you were going to do. You might try and take the loan with you. Generally speaking, when you are selling, you are going to buy another house,” Mr. Lawby says.
Another product from another real estate age that could rear its head in this market is something called the vendor take mortgage. Canada Mortgage and Housing Corp. describes this as the vendor, rather than financial institution, financing the mortgage.
You essentially loan someone money so they can buy your house. They take title to the property and make mortgage payments to you.
“I think we are going to see more and more of them now with the market slowing down and tighter regulations [for mortgages at government-regulated financial institutions],” says Mr. Lawby, who remains somewhat wary of the vendor take back mortgage. “If I’m selling a house, I don’t want to think about it. I’m gone.”
Vendor take backs are generally used because the purchaser can’t qualify for the mortage or to induce somebody to buy by offering them a very low rate.
But Ron Cirotto, who runs the website amortization.com, says buyers should be very careful about being blinded by a low rate. In some cases, sellers will lower your rate for cash upfront. “Somebody says, ‘I know rates are 9% rate now, but if you give me $6,000, I’ll give you 7%. You have to connect the dots,” Mr. Cirotto says. The savings from the lower rate could be less than the cash you are paying up front.
In a market where returns from investment certificates and government bonds are small, providing a mortgage on your old home sounds like a pretty attractive investment.
But mortgage broker Vince Gaetano points out there is risk for the seller, too. You may know the home you’re selling and providing a mortgage on, but how well do you know the buyer?
“Your investment is not liquid. There is more risk,” says Mr. Gaetano, who does see more and more private individuals funding second mortgages because a lack of other investment opportunities.
But as for vendors taking on mortgages to sell their homes, there is one major problem. Most people selling a home need the cash to buy another one.
“Anybody selling needs the money,” Mr. Gaetano says.
It’s hard to imagine, but there was a time when the mortgage on your home was something a buyer wanted to take off your hands.
But who can remember the 1980s and double-digit inflation, when a single-digit mortgage rate was gold? I was just a teenager then and the mortgage was my father’s problem.
But could a rising rate environment, if that actually happens, make the mortgages we are locking into today valuable in the future?
A survey released by Toronto-Dominion Bank this past week found 60% of repeat home buyers don’t know they have options when it comes to their current mortgage.
“Rates today could become attractive two years from now,” says Farhaneh Haque, regional sales manager of mobile mortgage specialist with TD Canada Trust.
The same survey found only 33% of repeat buyers bring their current mortgage with them to their new home and just 8% use it as selling feature of the home they are leaving, allowing the new owner to assume their mortgage.
“A mortgage assumption means we have to qualify the new buyers. The cost is minimal, but it is a full qualification of the new buyers,” says Ms. Haque, acknowledging in the current market there are very few assumptions.
“With rates having declined, no buyer is going to pay 6% when they could get 4% in the market.”
Don Lawby, chief executive of Century 21 Canada, has been in the business long enough to remember a time when if you had a low mortgage rate on your home, it became a major selling feature and worth more money. A car worth $35,000, for example, is much more attractive with 0% financing.
“It would have a lot of value on it. It depended on what you were going to do. You might try and take the loan with you. Generally speaking, when you are selling, you are going to buy another house,” Mr. Lawby says.
Another product from another real estate age that could rear its head in this market is something called the vendor take mortgage. Canada Mortgage and Housing Corp. describes this as the vendor, rather than financial institution, financing the mortgage.
You essentially loan someone money so they can buy your house. They take title to the property and make mortgage payments to you.
“I think we are going to see more and more of them now with the market slowing down and tighter regulations [for mortgages at government-regulated financial institutions],” says Mr. Lawby, who remains somewhat wary of the vendor take back mortgage. “If I’m selling a house, I don’t want to think about it. I’m gone.”
Vendor take backs are generally used because the purchaser can’t qualify for the mortage or to induce somebody to buy by offering them a very low rate.
But Ron Cirotto, who runs the website amortization.com, says buyers should be very careful about being blinded by a low rate. In some cases, sellers will lower your rate for cash upfront. “Somebody says, ‘I know rates are 9% rate now, but if you give me $6,000, I’ll give you 7%. You have to connect the dots,” Mr. Cirotto says. The savings from the lower rate could be less than the cash you are paying up front.
In a market where returns from investment certificates and government bonds are small, providing a mortgage on your old home sounds like a pretty attractive investment.
But mortgage broker Vince Gaetano points out there is risk for the seller, too. You may know the home you’re selling and providing a mortgage on, but how well do you know the buyer?
“Your investment is not liquid. There is more risk,” says Mr. Gaetano, who does see more and more private individuals funding second mortgages because a lack of other investment opportunities.
But as for vendors taking on mortgages to sell their homes, there is one major problem. Most people selling a home need the cash to buy another one.
“Anybody selling needs the money,” Mr. Gaetano says.
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